With regard to prospects for the euro zone, I think it is only a matter of time before first Greece, then Spain, and possibly other still-sovereign European states decide that the consequences of more fiscal restraint (and, with it, rising unemployment and declining living standards) are just too much distasteful medicine for an ailing and sickly patient - and opt instead to opt out and go it alone . . . and who knows where this might lead!
Climate change is yet another source of uncertainty and risk for the global economy – with possible consequences for gold.
Global warming is already having a significant influence on farm output, agrarian income, and food prices in some countries and regions. For example, below-average monsoons this past year hurt harvests and lowered household income in India’s farming regions – reducing this past year’s appetite for gold in this traditionally important gold-consuming country – and likely contributed to a lower metal’s price in the world market.
Last year’s weather restrained harvests in some important grain-producing regions contributed to higher food prices and political turmoil in some countries – most notably Tunisia, where widespread riots broke out, the country’s political leadership fled (with most of the central bank’s gold), and the Arab Spring was given birth.
Irrespective of how these and other potential threats and challenges are resolved, we must recognize that there is today a growing number and more diverse range of nations, public and private institutions, and other entities with sufficient economic power, political clout, or financial wherewithal to greatly affect the global economy and world financial markets – with possibly significant consequences, one way or the other, for the future price of gold.
An interesting sidebar to this discussion of uncertainty and risk has been the development of immediate and equal access to financial, economic, and political information – information that is incorporated, often almost instantly and sometimes without being well-understood, into market pricing for gold along with other commodities and assets.
Taken to its extreme, we have seen the growing influence of computer-generated, high-frequency, program and technical trading models that can trigger massive buying or selling of one or another financial asset (selling that has been aptly named a “flash crash”) all in a micro-second without any human participation or intervention.
Gold has always thrived on uncertainly – and, as uncertainty continues to rise in the years ahead, those who hold the yellow metal will be amply rewarded.
That said, an important conclusion or piece of advice for investors, central bankers, and others with an interest in gold: In a volatile, high-risk, volatile world prudence calls for managing against a range of risks by looking at how assets inter-relate, rather than searching for the one or two assets that might perform best in a more certain and low-risk world.