TRADE WAR, Switzerland, and GOLD

 

The axiom that everyone loses a trade war has to do with the fact that trades wars necessarily slow global growth.  This is especially true during a period that is seeing the global trade war viciously reverse 40 years of globalized trade.  Forty years of globalized supply chains that have significantly reduced transactions costs, sourcing costs, labor costs, and final product costs.  All of that necessarily becomes much more expensive for companies and consumers.

Slow global growth along with higher consumer product costs due to both the trade war and run away global debt leads to global stagflation which is the ideal environment for gold.

But the Trade War also has implications for the production, sourcing and  delivery of Gold itself,

This was in evidence this last week when the extraordinary 39 percent tarrifs levied against Switzerland included those same taxes on the large Gold bars most often used  by Comex for Stand for Delivery contracts.  

This caused  a small spike in the gold price.

The US regiem was quick to label this Fake News.  But the gold market didn't seem to care much about this characterization.  It reacted as if gold is becoming harder to source and deliver.

But this is just the tip of the iceberg for Gold.

China has nantionalized their entire gold production.  Russia is now in the process of doing the same.  And many other smaller gold producers like Niger and Mali, Burkino Fasso and Venezuela  (whom the US has dismissed as shithole countries) are nationalizing their gold production in consultation with China.  China is currently trying to foster resource relations with all global suppliers of gold who are under assault of the US Tarrif regiem.

What this will do to the sourcing of real physical gold is anyone's guess right now  We are right at the beginning of a trend that will have real implications for a resouce that is quickly becoming the global reserve currency of choice.  (If you don't believe that is so see Nasim's Talib's views on this subject).

But surely it will beome another driver in a perfect storm of conditions sending the price of gold ever higher.

Over time this will also surely affect the premium of physical gold over the spot price.  Right now, in the US, that premium is near record lows, because US retail interest in gold is still very low compared with the rest of the world.

But surely, as retail interest slowly picks up and gold sourcing becomes ever more difficult, that premium is bound to expand.