8 July 2015

Global Recession Coming?

China’s stock market collapse is becoming a major global story. The country is the worlds biggest basic materials consumer. The rout in Chinese stocks could be signaling that a global slowdown is right around the corner.

Copper prices are often looked at as a barometer for industrial demand and the health of the overall economy. Copper hit a six year low this week; Crude oil dropped almost 8% on Monday alone. Platinum, Iron ore and many other industrial commodities are also selling off.

China Shares Suspended

The Chinese stock market collapse is accelerating as the Shanghai Composite index plunged another 5.9% on Wednesday. In addition, according to an article in Business Insider, The South China Morning Post is reporting that 51% of mainland Chinese stocks, which represent about $2.2 trillion in market capitalization, have asked for voluntary suspensions from trade. (Source: Business Insider 2015 July 7th)

This represents more than 1,000 listed Chinese companies temporarily suspended from trade on Wednesday. This has all happened despite interest rate cuts from Chinese policy makers as well as augmented rules to prevent selling. (Source: Business Insider 2015 July 8th)

What Does This Mean For Gold Prices?

Many financial mainstream media sites have been running articles suggesting that Gold has lost its safe haven status because the yellow metal was not able to rally during the unfolding crisis in Greece. Investors mostly turned to government bonds instead of Gold.

Investor and trader confidence in Central Banks to engineer a recovery in the global economy is still relatively high. However, the events of the past few days in China suggest that a global recession could be fast approaching. Central Banks will be pushed to the limit to try and flight another recession.

This means that easy money policies and low interest rates will be here for a long time to come. Over the short term, Gold could succumb to the deflationary wave that is hitting the commodity sector. But as of now Gold is showing resiliency.

Gold is the longest standing currency in the world with a track record that goes back thousands of years. I’d rather be aligned with the track record of Gold, than that of government bonds.

Author: celticgold.eu

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