World facing “financial abyss”

Rush to gold ideal protection against hard times ahead: expert.

The world is standing on the precipice of a “financial abyss”, evidenced by a global shift to gold, according to New Zealand precious metals expert Tony Coleman.

The New Zealand price of gold has gone up 15 per cent in just five recent weeks now selling at $3244 per ounce; it’s basically never been that high and he says the market could triple and maybe even quadruple in the longer term as people move money to safety over what is happening globally.

So, what is causing this rush? A big factor is the increased tension between the US and China. This growing crisis is not going away anytime soon, and tensions continue to mount over Taiwan.

Why? China’s extraordinary growth over the past 2 decades has moved them into the second-largest economy in the world. America has responded by imposing strict export controls on anything that can be used by China to manufacture integrated circuitry. Taiwan is one of the world’s most accomplished I.C. manufacturers, so you can see the current encirclement of Taiwan by China, combined with strong rhetoric, appears more than just saber rattling.

The freezing of more than US$600 billion of Russia’s foreign reserves, has made many governments around the world question American dominance, he says, and the US dollar stranglehold on international trade and finance is starting to be tested.

“China is leading this new era in trade, building roads, bridges, and ports to facilitate trade. China and Saudi Arabia have transacted their first yuan-for-oil purchase, Ghana is purchasing oil with gold. These trades are small in comparison to US dollar trade, however, new payment gateways have been developed and are currently being tested. In time, all that will be required is to scale up the transaction size.”

While that scenario threatened world trade and economies, the big bank failures – Silicon Valley Bank in the US and Credit Suisse in Europe – have led to a growing mistrust of banks.

“People like to think money is safe in the bank and, when they have doubts, they are often highly decisive in making swift change. Significant capital has moved into gold and silver since the collapse of SVB on March 10, indicating strongly that money is looking for a safety zone.

Meanwhile, inflation rates globally were only threatening to go higher and governments which responded by printing more money were only delaying a day of reckoning, says Coleman: “Inflation is looking sticky globally, this will create issues for individuals, companies, and governments alike”.

“We are likely already in a recession,” he says, when asked about the US Federal Reserve’s prediction that the banking crisis would cause a downturn this year. “Here in New Zealand, if we want inflation to go down, we cannot just rely on the Reserve Bank hurting people with mortgages – we all have to make our own personal efforts to reduce spending; save some money instead of continuing to spend it.

Coleman says gold is a proven performer when times are tough, as seen the last time the world experienced as big a backwards step as is now being taken – the global financial crisis of 2008. When the stock market crashed then, gold also fell initially but, in 2011, had increased 270 per cent from its 2008 low (275 per cent in New Zealand).

That’s how gold works,” says Coleman, “protecting the downside risk in times of trouble and behaving predictably under normal market conditions. Gold and silver helped to counteract losses from the huge stock market and property bubbles. Precious metals came into their own when governments (including New Zealand) printed more and more money to manage their way through Covid-19 and other pressures.

Treasury bonds were another secure possibility but were low yield and can only be bought on the secondary market, through financial institutions, for example. Cryptocurrencies were another option – but are high risk and not easy to manage unless you are very tech-savvy, Coleman says.

“Gold and silver are real money, real assets; they’re not some contrived financial manoeuvre and they come into their own when the going gets tough. We never say people should put all their money into gold – but it should be part of a portfolio. Financial history proves that gold protects your wealth from big downturns; it’s the ultimate insurance.”