I’m not a big fan of gold. It pays no dividend, is not easily used for normal purchases, and typically limits economic expansion more than it enables it. But gold does have an intrinsic value, even if that value is difficult to nail down, and has been used as money for millennia.
Rising Uncertainty
The price of gold is the ultimate uncertainty index and, for investors, owning it is the ultimate safe haven. And right now, there’s no shortage of uncertainty. The world is up to its neck in it.At the top of the uncertainty list, of course, is the growing epidemic—or is it a pandemic yet?—of the COVID-19 coronavirus. As the deadly virus continues to spread through a growing number of nations, the uncertainty grows, too. This is especially true as we see new cases of the disease showing up in the United States from unknown origins.
Adding to this uncertainty is that we still don’t have definitive information about what it is or where it came from.
Is it an engineered pathogen from the Wuhan biological laboratory located about 900 feet from the wild animal market? Or is it from the wild animal market itself?
Other questions trigger more anxiety and uncertainty.
Why does the virus have similarities to both the Ebola and HIV viruses? What is its mutation rate? Is it still getting stronger?
China Biggest Source of Uncertainty
But of course, the big story is the huge impact the outbreak is having on China and its vast manufacturing-based economy. That slowdown will likely continue at least through this year and drag every economy in the world down with it. That means falling production in China and, as the virus spreads to the rest of the world, more quarantines in other Asian nations, in Europe, the United States, and the rest of the world.Record Selloffs 2.0
In response, the markets are seeing some record selloffs and several negative days in a row. Well-known favorites such as Tesla have lost 30 percent of their market value in a matter of days, and the market is looking at its worst week since the Global Financial Crisis.Once confidence is shaken in the minds of investors, it can take a while to restore. In late 2008 and through much of 2009, stock portfolios and real estate both lost half of their value. The banks that got bailouts from the federal government recovered much quicker, but for most typical stock investors, it took much longer to get back into the market.
While all that was going on back then, gold saw its price more than double.
Will the gold rush reach the highs that it did during the peak of the Global Financial Crisis of 2008–2009?
More Uncertainty on the Horizon
In the meantime, the COVID-19 crisis isn’t the only crisis that threatens the global order—such as it is—and prosperity. Geopolitical trends point to escalating conflicts that could easily drive uncertainty—and gold prices higher, too.The same goes for the United States and Iran. Each continues to strike blows against the other in Iraq, a high-risk activity that could easily get out of hand. This is particularly likely if the ruling regime in Iran sees greater civil unrest than it’s already struggling to contain.
Did I leave anybody out? Undoubtedly, I have. But the point is made, I think, that there’s no shortage of crises on the horizon that could greatly raise the already high level of uncertainty in the world today.
The unholy trinity of stock contrarians and gold bugs—fear, uncertainty, and doubt—are once again dominating the global headlines and may do so for the foreseeable future.
It just may be a perfect storm for gold—at least, that’s what the gold hawks are saying.
Are they right?
They might just be.