Dryblower's Biblical experience

WITH apologies to whoever wrote the Bible’s book of Ecclesiastes but there is a line missing because nowhere in any versions seen by Dryblower does it mention a time to buy gold and a time to sell base metals.
Dryblower's Biblical experience Dryblower's Biblical experience Dryblower's Biblical experience Dryblower's Biblical experience Dryblower's Biblical experience

The rest of the section dealing with the appropriate time to do things, such as planting and sowing, hating and loving, and killing and healing, is pretty well known thanks to a Peter Seeger song from the 1950s about there being a season for everything.

Seeger used the words from the King James version of the Bible almost in their entirety, though a modern version could easily include a warning about metal markets because a clear division between base and precious is emerging, perhaps described like this:

  • "A time to buy gold and a time to sell gold, a time to buy zinc and a time to sell zinc etc etc….

There is, of course, a touch of sarcasm in the comment about a missing line though it's not entirely incorrect to use a famous bit of writing to make the point that "the time's they are a changing" - to borrow a line from another song about time and change.

The reason Dryblower has gone all musical and Biblical this week is that there have been a series of significant developments in the global economy over the past few days which should be leading investors to the conclusion that base metals have a problem and gold does not.

Singapore is the location of the most recent turn for the worse because last Friday its government reported a spectacular collapse in economic growth.

Rather than expand by a modest 0.5%, as expected by economists who measure these things, Singapore shrank by 3.4% on an annualised basis - the experts call it negative growth which is absolute nonsense because shrinking is shrinking.

Whatever the official description what happened in Singapore was the latest, and loudest, warning shot across the bows of the global economy which is already reeling from the depressing effects of the China vs US trade war.

Because so much of Singapore's economy is export focussed, thanks to its historic status as a trading post, what happens on the tiny island nation is a glimpse of the wider financial world or, as one commentator put it: "Singapore is the canary in the coal mine".

Everyone with an inkling of knowledge about mining knows what a canary does when there's gas in the air; it dies.

Singapore is not dying but it is certainly wheezing quite loudly because the level of business being booked by companies inside its borders, and that includes a number of big metal traders and miners, is slowing dramatically.

The next few weeks will be incredibly important for the mining sector, if not the entire world because it is starting look like a recession has started and that means reduced demand for all sorts of things, especially minerals and metals - but not all of them.

Gold, which has also been likened to a canary from time-to-time (and not just because of its colour), is a commodity that also behaves like a currency, especially when times are tough and investors look for safe havens, also known as ducking for cover.

What really drives gold, up or down, is the value of its great rival and the currency in which it is most commonly-traded; the US dollar.

It's in the dollar, and the interest rates paid by the US government on the bonds it issues, that gold's bright future can be seen because rates are falling and seem likely to keep on falling and that means gold is poised to move the other way, perhaps quite sharply.

There are multiple moving parts in the current situation, including the increasingly unpleasant status of events in Iran, and the ongoing uncertainty about the trade war which does not appear to be worsening, but conversely does not appear to be dissipating.

The key man is what happens next, to both base and precious metals, is the US president, Donald Trump, not only because he is on one side of the trade war but also because he's leaning heavily on the US central bank to make a deep cut in official US interest rates.

The bank's chairman, Jerome Powell, hinted last week that a rate cut is on the way but didn't say by how much or when, something that investment banks did for him with Morgan Stanley tipping a fall of 0.5%, and others preferring a 0.25% cut.

Whatever the number Dryblower's theme for the week is intact, as interest rates fall gold comes into its own and base metals are exposed to declining economic activity.

As Peter Seeger said in his mimicking of the Bible "In everything there is a season" and the next season could well belong to gold.