They year 2015 is upon us and the turbulence has already begun.
The year 2014 was another year of an uneasy calm interrupted by sudden bouts of abrupt market volatility. We were surprised how risk appetite remained so high despite emerging and a high level of risk especially from the geopolitical sphere.
This irrationally exuberant, risk appetite may continue in 2015 but we suspect that it is as likely to come to a shuddering halt with renewed volatility on global financial markets.
The sharp falls seen in stock markets in recent days may be a taste of what may transpire in 2015. As may be the tragic events in Paris.
There are many unresolved risks which were present in 2014 and indeed in recent years which did not come to the fore and impact markets. As Greece has shown again in recent days – the Eurozone debt crisis is far from resolved and there remains an underappreciated risk of sovereign crises in other major industrial nations.
Other unresolved risks that are being ignored for now – due to the panacea of cheap money and elevating asset prices – include the Eurozone debt crisis, the appalling fiscal position of Japan, the U.S. and the UK, the risk of an Ebola pandemic, risks posed by terrorism, the events in Syria and the Middle East, Ukraine and geopolitical tensions with Russia.
Gold's Positives and Negatives
As ever, there are positives and negatives for gold. Indeed, one could say there are as many negatives as there are positives – and most do. However, on balance we believe that the positives outweigh the negatives significantly.
Continuing ultra loose monetary policies
-Currency wars and the risk of bail-ins
-Risk of sovereign and banking debt crises and the risk of systemic contagion
-Increasingly uncertain political and military situation globally and the threat of terrorism and war
-Continuing record demand for gold from China and India
-Continuing robust demand from central banks such as the People’s Bank of China (PBOC) and Central Bank of the Russian Federation
-Sentiment, both in the western media and among the public, remains extremely poor. This is bullish from a contrarian perspective.