According to the World Uncertainty Index (WUI) quarterly reports, the first and second quarter of 2019 has had the highest levels of uncertainty in global trade since 1996. The latest IMF projections also indicate that amid Economic uncertainty the growth of the global economy is set to slow down from a 3.6 percent growth in 2018 to a 3.3 percent growth in 2019.
Various reports including that of the IMF and the World Economic Outlook show that the downward trend in the global economy is as a result of various factors. Some of those factors include the growing tension between China and the US, the introduction of new regulatory policies in the German auto sector, Argentina and Turkey’s economic stress and the prolonged uncertainty about the Brexit outcome in the UK, to mention a few.
The high levels of uncertainty around the world have a profound effect on the economy. For instance, fiscal pressure is increasing as some economies (including the US, India, Spain, Japan, and Russia) run into fiscal deficits that make capital markets volatile. In an attempt to adapt to the new financial times, companies are forced to delay projects, cut down on investments as they assume a “wait and see” approach.
Gold is at a 5-year high
According to the US Federal Reserve, the motivation behind the dovish tilt is in preparation for the “growing global and domestic economic risks [as they take stock of the] rising trade tension and growing concerns about weak inflation.”
By lowering interest rates, the US Federal Reserve has essentially made gold a much cheaper investment holding than fiat currencies like the dollar. Gold prices have been on a bullish trend since May 2019 as investors stabilize investments amid escalating uncertainties in the global economy.
Economic uncertainty is good for gold
According to Phil Streible, a market analyst at RJO Futures, “Renewed trade war fears are breathing life into the gold market as the possibility of a rate cut enters investors’ minds.” Streible further added that the ramifications of the trade war could last even longer.
This is good news for gold prices since more investors will turn to gold as a hedge against inflation. Gold tends to move inversely to the dollar. As global inflation increases due to rising tension between the US and China, among other factors, gold investors will be able to retain the purchasing power of their wealth.
Apart from the current shakedown of the global economy, other similar events in the past have also triggered gold prices to rally. For example, after Britain’s vote to leave the European Union in 2016 gold prices soared in response to the high levels of uncertainty about the future of Britain’s economy.
Global instability and Economic uncertainty is good for crypto as well
Apart from gold, cryptocurrencies are also emerging as a reliable long-term investment as the global financial crisis intensifies. Cryptocurrencies like bitcoin draw most of their characteristics from gold to the extent that they have been called "Digital Gold."
If a cryptocurrency like bitcoin is adopted worldwide, not only will the common man have access to an investment instrument free from global economic trends, but the technology would also render banks irrelevant. Currently, however, cryptocurrencies like bitcoin are turning out to be a source of refuge in countries like Venezuela and Zimbabwe where economic uncertainty has rendered the national fiat currency valueless.
The rise in gold, bitcoin and currency devaluation
The momentum of the narrative about bitcoin as the digital gold continues to gain speed. The long-overdue bear market is the crypto space is seemingly coming to an end as analysts predict a bearish trend going forward. Gold has also been on an upward curve over the past month as interest in gold investment products intensifies.
This comes at a time when a study by the IMF shows that a 10 percent fall in the value of a nation’s currency can boost GDP by an average of 1.5 percent. Therefore in a dash to drive economic growth, the major economies of the world are planning to devalue their national currencies.
Concerns about national currency devaluation are on the rise as countries risk falling deeper into fiscal deficit. According to Andreas Kalteis, the CEO of Novem Gold, this can further increase “economic uncertainty [which can] again drive people [towards] looking for a way to store wealth that is safe and independent of the state.“
Countries can seize your wealth
In the US for instance, individuals earning over $200,000 a year are bombarded with Medicare tax deductions, education tax, net investment income tax to mention only a few.
In China, the Beijing government has been working hard since 2016 to clip the winds of billionaires bowing heavily to fund aggressive investment projects. This has lead to situations where the world’s wealthiest individuals are forced to hide their wealth from the public’s eye in what is now called stealth wealth.
Having stealth wealth involves living a modest life, using offshore accounts, keeping gold bullions in safety deposit boxes and investing in crypto as a store of wealth. With such trends, Tim Draper, a crypto enthusiast, believes that alternatives like bitcoin, “The greatest opportunities we’ve ever had” and that more interest will be driven towards bitcoin for the betterment of the planet.
There is no denying that the world is moving into a pernicious and dangerous era in terms of finance. Apart from economic uncertainty other issues such as climate change also affect the current environment. Everyone has a role to play to enable advancement into a safer and healthier planet. Could gold and bitcoin be the conduit through which we can realize this economic reality?