The Telegraph has reported record purchases of gold in London with queues at bullion dealers.  This is on account of the stock markets unraveling.  Everyone believes that we are witnessing 2008/2009 all over again.

While we are liable to see a recession very soon, if not already, is probably fair to say that this will not progress like the 2007-2009 Financial Crisis for several reasons:

  • Central Banks now have experience with dealing with financial shocks; the (electronic) markets have been safeguarded from crashes to an extent.
  • Big market moves are rarely obvious until after they happen.  The fact that this crash seems obvious is going to catch a lot of people out.
  • Regions are becoming increasingly protectionist post crisis (both in terms of trade and finance), this will mitigate some of the impact of a crash and inter-regional exposure.  We are still in a highly integrated financial system, but there are better barriers in place.

This move in gold and silver prices highlights the real distinction between financial and real assets; this is likely to be a tremendous short-squeeze in the financial markets and despite gold and silver being purchased as a safe-haven asset, it is unlikely that the bear trend is over yet.  When all commodities move down together, we’ll see the bottom- probably coinciding with a US Dollar top.

Gold is a safe-haven against counterparty risk and taxation.  It is a very misunderstood asset class.  We’ll need to shake the poorly informed loose before it rises again- there is a lot of nonsense floating around in this market space.

Suffice to say that this recession will neither be a “this time it’s different” moment as many bankers and politicians are touting (we’ve seen this type of market correction before, but not for a long time), nor will it be a carbon copy repeat of the Global Financial Crisis.

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