Sparkling gold a dark, gloomy sign

Editorial | Mary Ma 27 Jul 2020

Gold has had a great time recently.

But this isn't something to celebrate because, when gold is bullish, something in the economy has to be wrong.

The more the metal sparkles, the greater the misfortune elsewhere.

The last time gold had a great run was after 2008. The price climbed non-stop from US$739 per ounce in October 2008 to almost US$1,900 per ounce in August 2011. The culprit was the financial tsunami. As a result, the global economy was battered throughout.

So I frowned when the gold price shot past the last record to hit above US$1,900 an ounce before the weekend. It was a warning sign.

Needless to say, there are plenty of woes around - a pandemic which gripped the world in no time after appearing in China suddenly, and an escalation in Sino-US conflicts, from trade war to probable direct conflict in the South China Sea.

Worse still, a new cold war is looming on the horizon.

A race for a vaccine may stop the pandemic that scientists say is getting increasingly infectious months after its first outbreak.

Yet they are equally realistic to caution against premature optimism in the search for a permanent cure.

In Hong Kong, Financial Secretary Paul Chan Mo-po said he may have to lower his forecast for the rest of the year.

As gold climbed steeply, so did silver. Clearly, investors have become defensive, looking for safe shelters to park their wealth.

Meanwhile, the US dollar index dipped to a new post-pandemic low - meaning the world's most circulated currency has weakened against major currencies. Did the drop signal an outflow of capital from the greenback to other assets like precious metals?

The US dollar's weakness will likely continue. The question is: how much further can it fall?

The euro has managed a better performance, thanks to the 750 billion euro stimulus package sealed after a marathon summit.

This came as the Trump administration in Washington is still trying to push another economic package through Congress.

Despite the various attempts, the packages will not stop companies from laying off workers if the pandemic lasts longer than feared.

Even if a vaccine is found, it will take a long time for the global economy to recover to the pre-pandemic level.

This round of gold's bullish run began in 2018 along with a rise in Sino-US trade tensions. The momentum picked up steeply in March 2020 when the pandemic began enveloping the western hemisphere.

The US declaration that Beijing's claim over the South China Sea was unlawful and Secretary of State Mike Pompeo's de-facto cold war speech at the Richard Nixon Presidential Library and Museum were the final straw.

The stock market will come under pressure, making the timing of Hong Kong's plan to launch a SAR version of the Nasdaq unfortunate.

After all, new-economy stocks in the US have surged to a new record and are losing the momentum to advance further.

Will the gold price climb even higher? I hope not, because this would bode ill for the economy.

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