Gold and oil are likely to fall the least if the global economy slows down in the second half which, Deliberations on World Markets author, Ian McAvity, sees as a very real possibility.
Gold and oil are likely to fall the least if governments are unable to escape their continually growing debt burden.
Speaking on Mineweb.com's Metals Weekly podcast, Deliberations on World Markets author Ian McAvity said, "The debt numbers that are being created both in Europe and in the United States are absolutely frightening in an historical context and ultimately the perception is that they hope that they can inflate it away without having a deflationary crash in financial assets first."
"To me that's the major contest that's going on and I don't know whether they can pull it off or not."
One of the major reasons why he is doubtful of a successful end to the contest is his belief that the U.S. housing market is headed toward a double dip. this would have a significant impact on U.S. consumers and, by extension, Chinese exports. It will also, he says, see a return of the economic downturn that was reversed by all the bailout money pumped into the system in March of 2009.
"To me that was the first half of the downturn and I'm still looking for the economy globally to slow down in the second half. That will pull off a lot of the commodity markets."
For McAvity in the event of such an outcome, gold and oil (largely as a result of the ongoing destabilisation of the Middle East) are likely to be the least affected.
"The gold price holds up even while other markets come off largely as the only place to hide...Gold will come into one of those periods where it loses the least on a sharp decline on the other markets."
Part of the reason behind gold's resilience in the face of a very high likelihood of further problems in the west is the monetary role that it has played and, is increasingly playing again.
As McAvity explains, " These guys are just continually depreciating the purchasing power of money and in fact what you're seeing in the gold market is gold coming back on stage as a final form of money. I don't think that we're ever going to see a viable day-to-day operating gold standard kind of a system and nobody other than the US dollar is really going to replace the US dollar as a global reserve currency. But the US dollar has lost a lot of status."
McAvity says, at the moment, given the state of the U.S. dollar, with the questions being asked of the euro zone and the yen, "there is a real need for an alternate currency to the U.S. dollar and gold is playing that role to an extent.
Asked about silver's role in all of this, given its strong showing so far this year, McAvity says, he does not believe that silver has a monetary role in any official sense because central banks have no vested interests in it but, he says, it has "an extremely long monetary role in the minds of people around the planet".
Adding,." It's is the high price on gold that's driving an awful lot of speculative money back into silver playing in the role of ‘poor man's gold' -which does tend to materialise in the later stages of strength in the gold market and that's a fairly material factor that's going on right now."
However, while he sees a little more upside to the metal in the short term, he does not believe that silver is likely to continue rising indefinitely. And, given its strong recent showing, is likely to fall further than its yellow sister.
"I wouldn't be surprised if silver doesn't get a little higher in the short term but we've had an awful lot of tops."
He says when the S&P 500 takes a 10% or better break, which would come as a result of the pressure exerted by all the money sloshing in the system, he suspects "the silver price will find that the forces of gravity still work."
He adds, that he finds it interesting that the copper price has already been stalling for several weeks even while gold and silver were making higher highs.
"That's a change of character and that tells me that most of the commodity money is in the very late stages of this run."
"There has been a lot of money falling into a lot of commodity type instruments that are largely based on or driven by what I would call anti-dollar sentiment, and I believe a lot of that is getting a bit stretched on the high side... Copper, platinum and palladium to me have been exaggerated by investment flows competing with physical demand flows and investment flows are probably going to cool off and if China is in fact going to slow down for a couple of quarters, then you weaken the demand side of the equation as well which could lead to some pretty startling size corrections."
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