XAO (ASX) Short Term Trading Weekend Lounge: 26-29 Oct

Originally posted by Dazedandconfused ↑

From the beginning of this year...if you held gold stocks then you will have done ok. But it is in only the last couple of weeks that gold stocks have visibly diverged from the general market.

fwiw... I spent a few years trying to understand the gold market. What I have come to believe about it is this. It is quite true that gold is never an investment. It is however a store of wealth....meaning it is one of the things people turn to when they are frightened and all they hope to do is preserve their wealth. Gold holds its value purely for psychological reasons. From that it is easy to say that this last year has been one of rising fear.... which has become most visible in the last few weeks.

I think there are now several things unnerving people. In no particular order... the escalating great power rivalries between US, China and to a lesser extent Russia, the unwinding of the rescue from the GFC, the shifting balances of power in the Mid East, the growing numbers of people migrating [from Africa mainly but now also Latin America] due to lack of economic opportunity and most recently a stern reminder from the IPCC that global warming is real and dangerous.

The rivalries.... these were always 'on the cards'. How it has played out is Trump started a trade war. I don't think a different President would have made any significant difference. Trump for a long time appears to have been fixated on "how America does bad deals" [going back to an interview he gave Playboy in the 1990's he was then blaming Japan]... it is highly unlikely he is going to back down or accept trivial concessions. But, in the event the US currently had some other person as President we would still be seeing some sort of major confrontation between the US and China... it has been brewing for at least a decade.

The real question is... will Trump win and so then will things settle down into some sort of semblance of order so we can all just get along with conducting our lives?

The US Mid Term elections are next week. The week after that Trump is scheduled to meet Xi Jinping in Latin America. I can't see things improving. If the Republicans lose in the elections, China will view Trump as being weakened and will not offer much.... if the Republicans largely hold their position Trump will be emboldened and will be even more demanding. Personally, I think Trump overrates himself and he therefore overestimates the US bargaining position. China has been maneuvering to take a more powerful role in World affairs for several years now and is well prepared for this confrontation. [Also, we have reason to doubt Xi's sanity... how mad do you have to be?... to assume the status of Emperor as Xi has done in becoming effectively President for life? As for Trump, he is at best an overconfident narcissist...].

It is possible that the US and China strike some sort of bargain in the next few weeks, in which case the markets will radically improve... but that outcome would be against the 'run of play' so far.

Interest rates and money supply. That is a settled question. Both the Fed and ECB are signalling rates are going up and central bank assets will be reduced. For the markets that means less credit and less liquidity... in other words the best case scenario is markets have topped. The question is ... what will replace the cheap money?... what will drive growth?

The straight forward answer is the World's response to Global warming. The recent lithium boom was the direct result of government intervention... regulations in Europe mandating the end of internal combustion engines in 20 years time, the massive, massive economic incentives China provided to its fledgling EV industry. For the moment these things seem to have stalled.... but... if the World decides to act on the IPCC's warnings the entire way the World operates will completely change. The electrification of everything and at the same time eliminating fossil fuels from the mix is what has to happen.

The question is... will it happen? So far it is looking like NO! The World's economy is dominated by large corporations. Of those about 100 are responsible for 70% of CO2 emissions. In the US government about half of the sitting members are climate deniers. Fossil fuels are cheap.... meaning they underpin profits. To adequately address the problem necessarily means radically and fundamentally transferring wealth away from the current beneficiaries.... i.e. The US, Russia and the Mid East voluntarily give up their oil related wealth... Australia stops selling coal... do you see that happening? At this stage I don't.

In recent times, on our little patch, we have seen a few things develop. HotCopper is not nearly as vibrant... lots of posters have disappeared [and I don't believe they are doing much better in birdland], the STT thread is down on views by a big margin, far fewer contributors and many who do post are talking about how tough it has become.

The move on gold is a bad sign... it is signalling a loss of confidence. It is a sign the optimism is draining away. It might be a store of wealth... but...it is not permanently so. In the final analysis it is only a shiny yellow metal. It is a safe haven only so long as some sort of a functioning, viable economy exists.

If the World is to become optimistic again it needs a clear vision of the future. That will mean embracing the problems and turning them into challenges.

It also will require we own up to a couple of things. The standard of living we have become used to has been gained by stealing from the environment. We burn fossil fuels and dump the pollution into the air and the sea.... we have just about used up all of the 'credit' the environment has to offer. It is not just big corporations which will have to readjust their view of themselves. Or.. we can just keep doing what we have been doing so far and see if we can get away with it.

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One of the really big issues at the heart of the US / China trade war is China's insistence on 'forced IP transfer' for those operating in China

Along with this is the complete lack of any engagement on this issue from the WTO