By Byron King
This post Major Catalysts for Gold appeared first on Daily Reckoning.
“Markets are sleepwalking through history,” wrote Michael Lewitt in a recent issue of The Credit Strategist. “Investors fool themselves into thinking they live in a stable world. Our world is more unstable than at any time since World War II.”
“Investors who do not reduce risk in their portfolios now are demonstrating a dangerous ignorance of history,” advised Lewitt.
I agree. The world is awash in risk, evidenced by all manner of natural and man-made events.
For example, Houston — the principal energy-focused city in America — has been utterly devastated by epic flooding. And as rain fell on Texas, North Korea shot a missile directly over Japan.
I could go on and list a slew of other headline-grabbing news events, but you read newspapers too. Suffice it to say that there’s a long list of hotspots across the world where anything could happen, most of it being bad. We live in a world filled with risk events.
Gold prices punched through the $1,300 level, early last week, and held firm until the last bell rang on Friday. It’s up again so far this week. As Jim and I have noted on many occasions in the past, gold prices rise when the dollar weakens. Thus, by definition, last week was not good for the dollar.
Houston, of course, staggered under the blast of hurricane and flood. I’ve been talking with people in the area about their recent inundation by Hurricane/Tropical Storm Harvey. According to the writer of one email, “Byron, it’s as bad as it looks. As we learn more, it’s going to get worse.”
Historically, some major natural disasters have caused wider economic calamity, with lengthy follow-on impact.
The best example of the foregoing is the San Francisco earthquake of 1906, which led directly to the Panic of 1907. That’s because after San Francisco was devastated, numerous banks and insurance companies — from New York to London — had to pay out immense sums on damage claims and write-offs against borrower bankruptcies.
In turn, the Panic of 1907 crystallized a high-level, national political consensus — especially among New York bankers — about the need for a U.S. central bank, based on the then-novel concept of an “elastic currency.” In other words, out of the San Francisco earthquake, the Fed was born.
Now, 111 years later, Houston has been similarly devastated. The place is a wreck, and the damage is ongoing and open-ended.
Millions of people have been displaced. There’s vast property damage — residential, commercial and industrial. Just consider submerged cars and trucks, all destroyed by water. These likely number in the hundreds of thousands of units, if not millions. Cars and trucks alone will account for many billions of dollars of loss.
I’ve lived through a massive flood. I experienced a family business utterly destroyed by floodwaters — Hurricane Ivan, in 2004. Eight feet of water in the warehouse; trucks fully submerged; every item of stock, every box and every bag of everything destroyed by immersion. …read more
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