The markets took fright this week as a slew of negative PMI numbers for several of the world’s most important economies were revealed.
The Dow Jones index has now lost around 800 points since the start of October and has given up all of its’ gains of the last six months. The Nikkei is off 40 points over the past couple of days and the FTSE, to the extent that that’s any guide given the machinations of Brexit and the collapse of sterling, is down just over 300 points.
Whether markets will really be able to crash this time round, given the new era of discounted currencies that we’re now in, is open to question.
But what is beyond doubt now is that all the signs are pointed to an upcoming period of prolonged weakness.
What’s really changed is that the US, which had seemed immune to the negative headwinds buffeting the rest of the global economy, is now starting to take the hit too.
The latest ISM manufacturing numbers indicate that growth is likely to slow significantly in the US in the coming months.
That’s bad on its own terms, but it’s worse in the context of the prevailing political dialogue in the US.
President Donald Trump has laid a huge amount of political capital on the line in his claims that he will be able to revitalise the American working class heartland and bring back the blue-collar jobs that have been exported overseas to the Far East and in particular China over the past two or three decades.
On some measures, he has been able to point to relative success in meeting his aspirations, as non-farm payroll numbers have generally been strong over the past year or so.
But whether broader communities are being revitalised as a result is more open to question. And if it turns out that a combination of cyclical factors exacerbated by Mr Trump’s propensity towards tariffs leads to a major manufacturing slowdown in the US, then it’s clear that his credibility will be on the line.
What’s perhaps worse is that, as his established patterns of behaviour already show, he will seek to deflect blame by decrying the rate-setting policy of the US Federal Reserve.
Mr Trump’s verbal and Twitter attacks on the Fed as an institution have been unprecedented in the modern era, but to date they’ve occurred against a backdrop of relatively positive economic news.
If the picture turns darker, it’s likely the President’s attacks on the Fed could get nastier, and this in turn will likely unsettle markets still further.
In the midst of all this, as impeachment proceedings were getting underway too, it was hardly surprising that gold pushed back up above the US$1,500 mark.
Such bears on gold as were emerging from the woodwork during the temporary dip in price have now scurried back. With both the Dow and the dollar falling, and the VIX volatility index spiking, gold is currently one of the best places for those seeking a safe store of value to go.
There’s property too, of course, and utilities, which always do comparatively better in a risk-on environment. But for liquidity and insurance, gold is hard to beat.
In the current global economic and political context it’s hard to imagine anything other than more strength in the gold price in the months ahead.