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Ukraine and the price of gold: What Mark Bristow gets right and wrong

An advantage of this Kitco interview with Mark Bristow of Barrick Gold (GOLD (ABX.to) is that it comes with a text report and quotes of his main points, so there’s no need to listen to him speak. As for the contents, here’s a quote:

“Gold price(s) (in) crises behave strangely because people use it, that’s what it’s for. A lot of people sell the gold at that point in a crisis. We’ve seen the markets all over the place, we’ve seen them show that nervousness earlier in December of last year, and it’s gotten worse,” he said.

Plans by the Federal Reserve to raise interest rates won’t be enough to push real interest rates into positive territory, Bristow added, which is also positive for gold.

Agreed. Your humble scribe has been making the same point in the last couple of editions of the Weakly, such as this from the intro of IKN667, last Sunday:

Without labouring the point, last week’s highly volatile markets provided plenty of evidence to underscore our twin statements on gold over the last couple of weeks:

  • Geopolitical events do not affect the price of gold, not in the long-term anyway.
  • Gold does not make you rich, instead it stops you from becoming poor.

We saw these in action on Wednesday and Thursday, when Russia’s invasion threats became a reality and gold spiked hard on the news. We then saw the gold rally fade almost as quickly as it arrived, as President Biden addressed the crisis and made the case for a strategy of sanctions.

That argument developed, as we pointed to the way Russian hopes for gaining a decisive early advantage in Ukraine have become bogged down. It may sound callous (and it’s not meant to be, it’s just a focus on gold) but Ukrainian defensive successes in the last few days bring uncertainty in the markets. That’s gold bullish and the reason bullion has rallied again this week. We saw gold’s 1900 go to 1980, then back to 1890 and up to 1940, before some selling this morning has dropped gold back to U$1,918/oz as these words are written. That’s gold doing its thing, so get used to the idea. As for the other point Bristow made about the Fed and inflation, yes also agreed and while it’s not set fair yet, US data has more chance of changing gold’s trend in the medium-term. Here’s how IKN667 put it on Sunday:

Ukraine’s stalwart defence has allowed political and financial support to move for Ukraine and away from Russia, causing a new wave of uncertainty in the financial markets and that makes gold’s unfettered ownership more attractive. Protracted hostilities may also imply more inflation added to the world financial system and if that happens at the same time as The Fed backing away from its plans to tighten, gold should run further.

So again, we agree with Bristow. However, his Kitco interview today is headlined with a scream: “Market At Risk of Collapse If War Persists” and that’s where Bristow is plain wrong. Here’s a final quote:

“If you look at this crisis, there’s a whole lot of potential of unintended consequences. We’ve got very hot markets, and we are now going to really stress the global economy out. Everyone’s going to be impacted. If this goes on for much longer…the threat of that is it could collapse the market,” Bristow said.

The markets are not going to collapse due to the Ukraine invasion, no matter how bad the images get in the weeks to come, no matter how much concrete is destroyed by metal. That is not how it works, markets adjust rapidly to new geopolitical events however large and what’s more, Putin knows his limits. It’s one thing to grab back the territory of a disputed neighbour state which is not part of the EU and not part of NATO, quite another to cause real, long-term impoverishment to his major and mortal enemies of the type that would make higher gas prices in Germany look like chickenfeed. Not going to happen, Russia may be aggressive, autocratric, dictatorial and oppressive (my personal opinion would also include evil) but it’s not suicidal, a deliberate move to collapse the West’s most precious centrepiece would be akin to the old 1970’s concept of M.A.D. So when Bristow remarks…

And remember, we’re in the longest bull run, ever, and markets don’t go up forever.”

…it’s only half-right in context, because…

…they do go up forever. And woe betide the world if they don’t, because no matter what gold does if that chart collapses you still won’t be able to eat your bullion.

6 Comments

    China and Europe need oil from Russia. Do you think Russia might start asking for payment in gold?

    Reply

      I would say it’s wrong to use “need” re Europe and Russia’s hydrocarbons. Agreed Europe would much prefer them, or will have a hard time weaning off them, but we’re not witnessing any old border dispute here. Putin has catapaulted us back to the 1970’s and the Cold War.

      Maybe Putin underestimated the response, maybe not, maybe he doesn’t care. I do not know, but people like Roman Abramovich understand, they’re liquidating western located assets for solid and pragmatic reasons. This is going to change the whole financial and economic map and part of that implies fueling Europe via alternative means.

      I’m not going to hazard any guesses about China, I only know enough to be dangerous to myself (let alone others).

      Reply

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