It is possible that the mineral will continue its healthy correction (temporary fall), which should make us happy for allowing us to buy this financial shield at bargain prices.
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This story originally appeared on High Level
A week ago it started with a real “Black Monday” as a consequence of the oil ” war ” between Saudi Arabia and Russia. Both countries did not reach agreements to contain, through joint efforts, the drop in oil prices, which has been felt in full force as a result of the Chinese economy and others stopping due to the coronavirus.
Arabia announced on Sunday an ancestor a drop in oil prices and an increase in its production, which caused a collapse of risky assets since the opening of markets in Asia that afternoon.
The decline in oil was the worst since 1991 , sparking panic across the stock markets and the foreign exchange market that has not been seen since the 2008 crisis.
In this column we note that the bubbles, in this case a universal liquidity bubble caused by monetary stimuli from central banks, had been inflated since the Great Recession of 2009 to artificially lift the battered global economy.
Thereafter, thanks to said interest rate stimuli at historical lows close to zero percent, as well as the purchase of bonds by all the main central banks to “print” money and thus inject it into the economy, it began the highest growth cycle without recession on record. In fact, we are not even entering a global recession yet, but just like in 2008-2009, the global financial crisis sparked by the coronavirus pandemic, may spark a new Great Recession over the next year or two.
By the way, the Fed returned to the fray announcing what is in fact a new monetary stimulus for $ 700 billion and, again, the drop in rates to record lows of up to zero percent.
And it is that even the surprise rate reduction that the Fed had announced did not turn out to be enough to contain the fear of investors, who continue to sell all kinds of assets in search of liquidity (cash).
If there is a recession, investors prefer to be liquid to minimize losses, escape potential problems such as bank failures and / or take advantage of buying opportunities in cheaper markets.
It is that panic that is responsible for the recent collapse of assets such as the Mexican peso and bitcoin, but also for safe havens such as gold. Liquidity is seen at this time as the maximum refuge.
Now, we must be careful not to get carried away by appearances. Just as gold itself suffered in 2008 to the point of losing 30 percent of its value that year, three years later it was already hitting record highs in September 2011, accumulating a gain of more than 60 percent from the 2008 floor .
This I underline because there are some investors and readers who are puzzled by the drop in gold this week , when what they expected was a continuous revaluation.
However, we must never forget that nothing rises or falls continuously . It is possible that gold will continue its healthy correction (temporary fall), which, far from scaring us, should make us happy for allowing us to buy the quintessential financial refuge at bargain prices.
But not only that. The decline in gold that scares so many has been fundamentally IN DOLLARS. If you have followed our recommendation to acquire it, to minimize your holdings of Mexican pesos, your “loss” in the king of metals, in the worst case, has been minimal.
The data is overwhelming: during the last 30 days, gold in dollars fell 2.91 percent, but in that same period, in pesos it GAINED 14.37 percent . If we go two months ago, gold is up 1.81 percent in dollars and 19.12 percent in pesos. And if we go to a year earlier, the escalation in dollars of the king of metals has been 17.48 percent, and in pesos a powerful 34.01 percent. How does this week's correction look from this perspective? How does it compare to cetes annual rates, which pay less than 7 percent per year?
Seen in this way, it will be better understood what we mean by that any cheapening of gold should be seen more as a blessing than as a curse. Above all, because bull markets always end in euphoria, and we are still far, far from reaching a frenzy phase in precious metals.
After this “rest” -which may last longer-, gold will continue to rise to new records. The aforementioned, without losing sight of before, we may see him “suffer” more, for the benefit of those who know how to take advantage of it.