POINT OF VIEW: In a way, it is as if we found ourselves again at the beginning of the war with Ukraine in the last week – that is, at least when it comes to the mood on the financial market. Just of course on a much smaller scale. After Vladimir Putin announced a partial mobilization, the financial markets reacted in the same way as when the war broke out: the stock markets are falling again. Energy prices are rising again. And the price of gold in dollars is rising.
Not that it is materially very relevant, but even the American economist Roubini has now warned that there will be a “long and ugly recession” that will last the whole of next year. At the same time, shares should fall by 40 percent. Anyone can expect what they want (by the way, I have repeatedly written something similar in this place), but Roubini has the aura of a “great economist”, so when Roubini says something, the financial markets sit on the ground. And when you combine the fact that Russia is becoming even more militarily active, plus Roubini claims that the shares will go even significantly lower, it must necessarily follow that the shares are currently falling.
And the last nail in their coffin is the fact that interest rates are expected to increase more and more in the US and in the Eurozone. Specifically, ECB chief Christine Lagarde said today that the ECB “may” have to raise its interest rates to a growth-limiting level in order to weaken demand and bring unacceptably high inflation under control. (To me, it’s not “maybe”, but “definitely” and it should have been done long ago.) However, this is also negative for stocks.
But that brings us to another question. So when financial markets are falling, where do you put your money at this point? Stocks – no. They will go even lower by tens of percent. Bonds – no. There, the same applies in pale blue, despite the fact that the clouds of the debt crisis are receding in Europe. Reality – whoever has them, well, they have them, but now there is already a decrease, so at the moment it is better to wait, or to buy only on the very edges of the country.
Then there’s the honey. And this arouses mixed feelings among many. Gold was at its highest this year with the start of the war in Ukraine, but until today, its price has fallen. A year ago, on 9/21/2021, the price of gold was $1773.36. It then surged, fell again and is now at $1675.32. At the same time, during the year, the price varied between 1664-2048 USD. From the point of view of one last year, nothing much. The reasons are clear: on the one hand, the rise in interest rates for gold does not bode well, and secondly, the strengthening dollar makes it more expensive in other currencies, which reduces the demand for it in some currencies. But…
… but that’s a very limited point of view without context. As we have just said, practically all financial assets lose their price, at least in real terms, i.e. after deducting inflation. Therefore, now the game is not about how to make money, but about how to minimize losses.
Over the last more than 20 years, since 1/1/2000, gold has gained 492 percent, the US stock index DJIA has gained 162 percent. Over the past year, i.e. since 9/21/2021, gold has lost 5.5 percent, the DJIA stock index has lost 9.5 percent. And that’s about it. That’s the point of gold. In that its long-term performance, especially during financial crises, is better than the performance of comparable assets.
We perceive the whole thing completely incorrectly – we look from the inside of the box. We try to measure the price of gold in crowns or dollars, which are very inflationary currencies, and thus have a very severely impaired ability to measure value. We should see it as gold is actually a global anchor – a global currency that copies the average global standard of living, and we measure the value of individual inflationary national currencies in gold. When we turn the point of view like this, we suddenly find that the value of the dollar has increased slightly over the last year, but the value of the euro has fallen significantly…