What Are Higher Gold Prices Warning Us Of?

February 26th, 2014 by

world goldMarketWatch offers up the editorial “Three Warning Signs From Higher Gold Prices” by Matthew Lynn, where he tries to determine what the soaring gold market is trying to tell us.

According to him, the three most likely events over the horizon are:

  1. A financial crash in China brought about by the collapse of the shadow banking sector, causing millions to flee to gold.
  2. Eurozone deflation spreading from the peripheral nations into the core of the continent. Will the EU break up, or will the ECB launch a huge quantitative easing campaign?
  3. Another global recession, which may already be starting.

Lynn notes that while gold may just be seeing the effects of physical demand minus the paper speculation that has been washed out by 2013’s losses, global markets have not followed the script that financial gurus laid out for them. He concludes his excellent article with the admonition:

Gold has a long and impressive record of warning of trouble ahead in the global economy. It has usually been right in the past — and it is telling us right now that the outlook is much less secure than the market assumes. You ignore it at your peril.