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Bullion Bulletin: Commodities cool a little

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Commodity prices cooled a little in July, according to the World Bank. By mid-July the US Dollar had gained 12% since the start of this year, which played a part in depressing commodity prices.

Energy prices fell 1.3%, led by a 10% drop in crude oil, but natural gas went up by more than 50%. Food prices fell by 8.5%, led by a drop in grains’ prices of more than 8% and a 13.1% drop in oils and meals. Fertilizers fell by almost 4%. The biggest fall was the almost 30% drop in palm oil prices. These price drops will help cool inflation in the coming months.

But the biggest drops, and a lead indicator of the likelihood of a global recession, came in base metals, which are in greatest demand by industry; their prices tell us much about the probable future direction of the economy. The tin price fell by almost 20%, that of iron ore by 17%, and copper and nickel by 16% each. If a global recession arrives – technically, the US is already in one – the big question will be how deep it might be. The economist Nouriel Roubini, who predicted the 2008 financial crisis, told Bloomberg TV recently that “there are many reasons why we are going to have a severe recession and a severe debt and financial crisis… The idea that this is going to be short and shallow is totally delusional”.

The bank reports that the gold price dropped by 5.65% from June to July, from $1,837/ounce to $1,733.

Some investment banks have nevertheless raised their forecasts for the gold price by the end of this year. Goldman Sachs for example at the end of June estimated the price would rise to $2,500/ounce. Mid-July Wells Fargo said that gold could still end this year above $2,000/ounce, even though a stronger Dollar helped depress the gold price. J. P. Morgan however said in early June that the price would remain around $1,800/ounce in the third quarter of this year.

Since 1971, when the gold standard finally was killed off by US President Richard Nixon, gold has generally seen improvements in its price during recessions. In the last three recessions since 2000 its performance has bettered that of the S&P 500.

At Glint, we make every effort to demonstrate balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

News Highlight: Latest US Inflation

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“Apprehensive” was the word that seemed to dominate the financial markets on Wednesday this week, ahead of the latest US Consumer Index (CPI) report, telling us the degree of inflation consumers faced in July. Most market commentators had already pencilled-in a slight drop in the inflation rate. That assessment was correct – the CPI fell in July to 8.5% compared to June’s annualized rate of 9.1%.

The dilemma for the US Federal Reserve has intensified – when it next meets should it continue to put interest rates higher? As we have said before, the risk of doing nothing is that inflation – which has its own particular dynamic – might stick around at this level, and make all US consumers poorer. But putting up interest rates aggressively could push the US into recession.

The US economy is still running red-hot – its unemployment fell to 3.5% in July, a half-century low, and back to what it was in February 2020. Job vacancies in the US dropped by 605,000 to 10.7 million by the end of June; still, there are almost two job vacancies for every available worker. Employers added 528,000 jobs that month, markedly higher than June’s 398,000.

News of the massive job hires had an immediate effect on US Treasuries – the yield on two year-Treasuries exceeded that of the 10-year; this inversion of the yield curve is widely regarded as heralding an economic contraction. And while jobs have been added, big employers (such as Ford and Walmart) have announced layoff plans.

The economist Nouriel Roubini sharply divides opinion but he warned of the Great Financial Crash two years before it happened. His view about where we are now is perhaps worth listening to. He wrote this week that the “Great Moderation” (characterized by low inflation, relatively stable economic growth and “sharply rising values of risky assets such as US and global equities”) is now over and will be followed by the “Great Stagflation” in which “long-term bonds and US and global equities will suffer, potentially incurring massive losses”.

The Biden Administration managed to squeeze the Inflation Reduction Act through the Senate last Sunday, which promises (if passed) to raise $739 billion and authorize $370 billion in spending on energy and climate change, reduce the deficit by $300 billion, will provide three years of subsidies in the Affordable Care Act, lower prices for prescription drugs, and introduce some fresh tax rises. The Act is oddly named; according to various sources it will have almost no impact on current inflation.

The major reason for the inflation drop seems to be a weakening of the price of gasoline, which rose to a national average of $5/gallon in mid-June and now average slightly more than $4/gallon. Gasoline accounts for just 4% of the overall CPI. The cost of food (almost 14% of the CPI ‘basket’) went up by almost 11%, the most since 1979 and shelter costs (almost 33% of the CPI ‘basket’) were 5.7% higher, the biggest rise since 1991.

We regard gold as a most reliable form of money, proven over time to be resistant to inflation. With Glint you are able to use gold as real, everyday money. At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline. For us, gold is security, and Glint its key.

 

Meet The Team: Iva – Operational Compliance Executive

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When you call Glint for assistance with your account you will always speak to a real human being – no automated bots here! We pride ourselves on giving the best possible personal – and human – service.

As humans, the Glint team is not just about gold – we all have lives outside the office.

Take Iva for example, who is one of our Operational Compliance Executives in the US. Iva (pronounced EE-VAH) originates from Bulgaria but now lives in Colorado. She and her husband settled in the US about 10 years ago. They have a two year-old German Shepherd and love to travel. Iva joined Glint in 2020 and says “I love my job as it’s exciting, I’m learning something new every day and the team is absolutely amazing!”. Her father “was very artistic person” and inspired Iva to take up photography. Now, in her leisure time, she has “an interesting niche” role as a photographer of minerals.

Photograph of native gold taken by Iva

 

When not helping our clients or taking amazing photos, Iva likes to read autobiographies (Matthew McConaughey’s Greenlights and Olav Thon’s Billionaire in a Parka are currently in a queue) and make beaded jewellery, unwinding from the daily stresses of life.

The mornings, Iva drinks an expresso and swaps that in the evenings for Bourbon Mules, sometimes accompanied by a “proper” Margherita pizza, ideally served in her favorite restaurant, Lino’s Trattoria and Pizzeria in Santa Fe, New Mexico.

Glint’s Helpful Hints: KYC – who are you?

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The financial world is full of acronyms but few are as important as KYC.

KYC stands for ‘Know Your Client/Customer’, a process which aims to prevent fraud and criminal activities. Verifying that clients are who they say they are is part of the important regulatory process under which Glint operates. KYC is why we ask you to prove you are who you say you are, your address, and so on.

But don’t worry – this doesn’t affect your credit score, although you may see an identity check on your credit report. This identity check is a type of soft search that is recorded on your credit report so that there is a transparent record of who has been viewing your credit history.

We need to know who you are, so that criminals stand less of a chance of getting away with it.

Soapbox: Two tribes at war

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According to Timothy Garton Ash, professor of European Studies at Oxford University, writing in The Guardian newspaper, “we are at war”. Garton Ash writes that Russia’s President Putin is embarked on a “campaign” to “defeat not only Ukraine but also the west”.

There’s now too much evidence amassed to doubt this assertion. President Putin wanted to join NATO, according to the NATO head between 1999 and 2003. But he didn’t want Russia to have to stand in line “with a lot of countries that don’t matter”. A missed opportunity.

When he was told that Russia would need to apply rather than be invited to join, President Putin saw it as a snub. Disenchantment set in and grew until it exploded in February this year. The result is that the west is now engaged in a proxy war with Russia, which is busily gathering sympathisers – not only China but even European Union leaders such as Viktor Orbán, who has said recently that “Hungary needs to make a new agreement with Russia”. Images of destroyed Ukrainian cities, credible reports of violations of civilians, the horror of the war are undeniable – but if it is a proxy war with the west, it must be somewhat uncomfortable to realise that Ukraine is scarcely less tainted a country than Russia, occupying as they do positions 122 and 136 respectively on Transparency International’s Corruption Perceptions Index of 180 countries. Criminal smuggling of weapons supplied by the west to Ukraine has become a concern.

But a bigger concern is also a more hidden one – if we are at war, does the west have the will and the money to sustain it? The real test is just a short time away; European resolve might crumble when cold weather arrives and gas prices soar or rationing spreads as a consequence of shortfalls in Russian supply. In the UK, the former Prime Minister Gordon Brown has warned that a “financial timebomb” will explode in October as fresh fuel price rises push “millions over the edge”.

Astronomical costs

At the start of July this year the Kiel Institute for the World Economy’s Ukraine Support Tracker said that it had recorded total support commitments to Ukraine since the start of the war of €80.7 billion ($82.25 billion), although there is a “large gap between pledged and delivered support”, and the momentum of support is “slowing”. The cost of the war doesn’t even begin to consider how much it might cost to rebuild Ukraine (around $1 trillion has been estimated), to assist millions of refugees, and Ukraine’s plea for several billion Dollars per month in support. Where’s the money coming from?

The US last had a federal budget surplus – an excess of revenues over spending – in 2001. The US has only been debt-free in 1835-1837. In 2021, the US federal government ran a deficit of $2.8 trillion in the last full fiscal year, which always starts in October. The deficit for the first nine months of the 2022 fiscal year is running at 23% lower year-on-year – but it’s still a deficit.

US federal deficits/surpluses since 2001

Wars are not only expensive, they also stoke inflation. According to one study, US prices rose by about 120% between 1913 and 1920 during the First World War and its aftermath, and by 200% in the UK and 400% in France. The “hyperinflation which reduced the value of money in Germany to zero from 1919 to 1923 would have been inconceivable without World War I and its aftermath… Wars and revolutions without taxation to cover the cost have been the principal causes of hyperinflation in industrial countries in the last two centuries”.

The key words there are “without taxation“. In other words, if a country decides to go to war and wants to avoid inflation, it would be advised to ensure it can pay the costs from the revenue it takes in. Otherwise, it simply builds up debts for its children and their children. Currently, the US national debt is fast approaching $31 trillion (£25.6 trillion), which means the US debt to gross domestic product (the monetary measure of all goods and services produced by the US) is around 124%. As a share of the economy, the US debt was a mere 2.7% in 1916.
The huge debt is sustainable for as long as the US’s creditors continue to think the country’s economy is sound; the World Bank says that an additional percentage point of debt costs 0.017% of annual real growth when the debt-to-GDP ratio is above 77%.

It’s alarming to be told that we are “at war”. It’s twice as scary to think that we might lose it, not militarily, but financially.

Even if sustainable, the debt acts as a huge drag on the American economy. The US resembles an elderly boxer slugging it out with an opponent while tethered to a ball-and-chain, clamped on during previous wars. And it’s only round three in a ten-round bout in this one.

Russia’s ‘Rocky’

But maybe President Putin has bitten off more than he can chew. He may not be a Russian ‘Rocky’ after all.

According to a paper published by Yale School of Management towards the end of July, “business retreats and sanctions [against Russia] are catastrophically crippling the Russian economy”. Its authors state that Russia faces “economic oblivion… as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia”.

The two main boxers in this fight are Russia and the US – without the support and encouragement of the US Ukraine would have crumbled by now, for all its soldiers’ bravado.

As the west inches closer to a recession – technically already in place in the US, with a 15-month-long one for the UK forecast by the Bank of England (BoE), and consumers in the Eurozone now the “gloomiest on record” – it’s not in a good position for a lengthy fight.

Neither is Russia, perhaps.

The future might be one in which a pair of bloodied, bruised, battered opponents, stagger around the ring, clinging to one another to avoid falling over. Meanwhile, the global economy shrivels, set back decades – restoring it, restoring trust, will be tough, and it is conceivable that we may never return to globalisation. From the ashes will slowly emerge a new political – and monetary – hegemony.

Bullion Bulletin: Zimbabwe’s gold bet

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While Honduras seems cautiously to be following a path trod by its Central American neighbour El Salvador, and accepting Bitcoin in payment in some parts of the tourist spot of Santa Lucia, a short distance from the capital of Tegucigalpa, the African country of Zimbabwe has launched gold coins as legal tender. The intention is to try to halt rampant inflation by providing a source of value that the country’s citizens can trust.

Zimbabwe has sporadically suffered from hyperinflation (technically, prices rising by 50% or more a month) and is on the verge of another taste of the same – inflation in June this year rose to 192%. The country’s central bank has put its key rate up from 80% to 200% as a consequence. In November 2008, the country’s estimated annualized inflation rate was almost 80,000,000,000%. That was a daily inflation rate of 98%, headed towards Hungary’s 1946 daily rate of 195%.

Zimbabwe’s inflation sickness owes nothing to the spike in prices of imported essential commodities. The Ukraine war may be contributing to higher prices, but this is a long-standing problem entirely related to high indebtedness and the printing of more money to finance it.

Hyperinflation meant that people could no longer afford basic goods, banking activity became paralyzed, a barter economy arose, savings were wiped out, and output collapsed. Eventually the government stopped printing Zimbabwean Dollars and normalized the use of the US Dollar. The Zimbabwean Dollar was formally demonetized in 2015, only to reappear in 2019 as the Real Time Gross Settlement (RTGS) Dollar, which has now lost almost all its value against the US Dollar.

John Mangudya, head of Zimbabwe’s central bank has now introduced the Mosi-oa-Tunya gold coins, which is Sotho (and means the smoke which thunders), otherwise known as Victoria Falls, a tourist attraction on the Zambezi River. 2,000 of the Mosi-oa-Tunya gold coins, each weighing one troy ounce, went on sale on 25 July with an opening price of $1,823 or Zimbabwean Dollars 805,000. This is out of reach of most Zimbabweans, where the average annual salary is around $230. The coins have “liquid asset” status, so can be converted to cash, used for transactions, and traded locally or internationally – 180 days after they have been purchased. Each coin is priced at the international market rate for an ounce of gold plus 5% for production costs.

The aim of the gold coin is to cut Zimbabweans’ appetite for foreign currency. Mangudya was explicit that he hopes the coins will be seen as a store of value. He has said that we “are now providing that store of value to ensure that people do not run to the parallel market in search for foreign currency to store value… And there is no other better product that can be used to store value other than gold…We know what you have been going through in terms of the fear factor of losing value and therefore we are providing this gold coin”.

Will it work? According to a local finance analyst: “not on their own and the market has to be pliable and play ball. Confidence has to return especially to big players sitting on those large amounts of Z$. Likely, overtures to them have been made behind the scenes already, which explains why the central bank is not going all out on a campaign blitz… if the ‘big players’ are agreeable and believe in the vision then the gold coin will prevail. Otherwise the mathematics is screaming a different story”.

News Highlight: Interest rates rise (feebly) amid escalating inflation

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Inflation is now a global problem. As the chart below shows, inflation across most parts of the world has now more than doubled what many thought it would be just a few months ago.

In the UK, the consumer price index (CPI) hit a fresh 40-year high in June of 9.4% on an annualised basis, up from 9.1% the previous month. In the Eurozone, inflation is now almost 9% annually, and in the US it’s slightly more.

Inflation is going to get worse before it gets better. The Bank of England forecast in May this year that it would reach 10%. That forecast is now looking seriously wrong. According to the Resolution Foundation, a respected and independent British think-tank, “inflation could plausibly hit 15%”.

Inflation is bad! From President Ronald Reagan – “inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hit man” – to Vladimir Lenin – “the way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation” – all political ideologies are united by one thing: inflation is a monetary demon.

The conventional definition of inflation is that it’s ‘too much money chasing too few goods’. The conventional method of trying to combat inflation – which ruthlessly erodes the purchasing power of fiat currencies, slashes savings, pushes people closer to the brink of financial collapse – is for governments and central banks to put up the cost of borrowing by raising base interest rates. Interest rates in the UK, US and Eurozone have been pallid for years; consumers, investors, bankers – all of us – have become accustomed to cheap borrowing costs and easy money. Those three regions have started, slowly, to raise interest rates; but they are still in negative territory, i.e. far below inflation.

Today, Thursday 4 August, the Bank of England launched another missile in its fight against rampant inflation. It put up its base rate from 1.25%/year to 1.75%. Financial media went wild – the “biggest increase in UK interest rates in 27 years” was one headline.

But today’s missile is a damp squib. As Jason Cozens, Glint’s CEO says: “This rate increase will do nothing to bring inflation under control. The major cause of this inflation is the wild money-creation spree that the world’s central banks embarked on under the Covid-19 pandemic. That laid the basis. The Ukraine war, and the threat that Russia might deprive Europe of sufficient fossil fuels, has of course pushed up energy costs to astonishing levels, and this will keep inflation going at a high level as manufacturers struggle – energy rationing is already happening in Germany. In the UK, producer prices are now their highest in 45 years. We should all be worrying about the prospects of a serious economic slowdown – for which governments and central banks seem to be unprepared”.

According to some reports, the Bank of England “risks falling behind the curve” but others take a more relaxed view. Paul Donovan, chief economist of UBS, thinks governments “really can’t change the oil price, central bankers can’t suddenly change the price of wheat and other commodities… in the short term, there is a limit to what governments can do to offset price increases”.

Inflation is now its highest since 1982. Over those same 40 years, the Pound Sterling has lost 75% of its purchasing power, the US Dollar 67%. Over the exact same period the gold price has of course moved up and down but overall it has gained 427.18% in US Dollar terms and 642.34% in Pound Sterling. It’s easy to safely buy gold with Glint, to get started just pop over to your favourite App store and download the Glint App.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.

Glint’s Helpful Hints: How to buy gold in gold buying season

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Last week, we brought you a special report on the best time to buy gold – this week we have some suggestions about how to buy gold.

There are lots of different ways, all of them shouting for your attention, all of them claiming their own advantages.

But, unlike Glint, they also have their own particular drawbacks.

Gold-backed exchange traded funds (ETFs) are one popular way of getting exposure to gold. But one of the biggest reasons for buying gold is that it’s the only financial asset that is not simultaneously someone else’s liability. With gold ETFs there’s a lot of counterparty risk – the risk that the other party in a transaction (generally a bullion bank used by the ETF Trustee to buy/sell/hold the underlying asset, i.e. gold) may default on its contractual obligations. On top of that, buying a gold ETF doesn’t really give you ownership of gold but only ownership of shares in the Trustee who runs the ETF.

You could buy a derivative on an exchange which trades gold; but once again this is a paper asset, not gold itself.

You could buy bullion coins, and pay a whopping premium over the current price of gold.

What about physical gold – a real piece of metal? That has clear advantages – you can see it, touch it, it’s not some paper representation of gold. But there are also disadvantages. You’ll need to buy insurance against possible theft; it’s cumbersome to lug about; and you can’t use it as money.

That’s why Jason, our CEO, founded Glint.

With Glint you can buy, sell, send or spend real, allocated gold, stored safely in a non-government Brink’s vault in Zurich. That ‘allocated’ is crucial – it means the gold is fully purchased and owned by you, the buyer, before being stored by Brink’s. Moreover, we want to restore gold to its rightful place as everyday money, so we have created a simple debit Mastercard® & App to enable Glint clients to buy almost anything, from a coffee to something much more substantial, in gold.

Gold is security – Glint its key.

Budgeting vs Financial Planning: What’s the Difference?

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man using calculator to plan

In similar lanes but with key differences, learn how to budget your money with this helpful guide.

As always, this is not financial advice, however, if you’ve never done either, then budgeting and financial planning might seem pretty much identical. And sure, they have their similarities. But they’re more like two sides of the same coin; both help to improve your individual finances, just in their own way.

So, what exactly are the differences, and how can both budgeting and financial planning help you to maintain a healthy financial position both now and into the future. We’ll go through how they differ, along with their benefits, in the article below. Let’s get started…

What does budgeting mean?

Budgeting is all about the short term. By tracking your income and expenses on a weekly or monthly basis, it looks at your money in the here and now. Essentially, budgeting covers how much you make, measures how much you spend, and lets you spend less than what you bring in.

Fixed expenses like your mortgage, rent, and childcare will take priority. You’ll then work out what you can spend on food, transportation, and clothing. Anything that’s left over can then be used on things like eating out, holidays, or long-term investments, if that’s what you want to do.

When you budget, you make active decisions as to where your money goes. Tracking spending in this way makes balancing your outgoings and paying bills on time far easier, and in the event of emergencies, you’ll have extra cash to deal with the unexpected too.

man looking over paperwork

What is financial planning?

Whereas budgeting offers a snapshot, financial planning looks at the larger fiscal landscape, so you can reach more long-term goals. There’s a lot more vision involved in financial planning, allowing you to plot a course on the way towards milestones like owning a home, starting a family, furthering your education, and retiring.

A financial plan lets you track your progress towards these kinds of goals quarterly or semi-annually. Generally, the process involves something akin to the following:

  • Listing the things you or your family want to achieve
  • Looking at your current financial position including analyzing assets, liabilities, income, and expenditure
  • Analyzing how far from achieving these goals you are
  • Creating a plan of action to help you reach your goals
  • Putting this plan into practice (aka the hard part)
  • Making the necessary adjustments if things change

You may employ a financial planner or advisor to be on hand to help you create a tailored financial plan and offer objective advice along the way.

How do budgeting and financial planning differ?

Starting to get a sense of their differences? Let’s take a closer look at their distinctions in more detail below.

Different aims

Budgeting is more concerned with cleaning up certain spending habits. Maybe you’ve been eating at too many fancy restaurants lately? Or you’ve been treating yourself to fancy new clothes more than you’d like. Putting more into your savings account every month might be a wiser decision instead.

Financial planning, on the other hand, is more concerned with reaching bigger financial goals, such as paying off debt or saving for your wedding day.

Slow and steady vs. quick and instant

When your spending habits are placed under the budgeting microscope, you’ll be tracking your progress far more often than you would with financial planning. Whereas the latter is more like a long-distance race, budgeting is a 100m sprint by comparison; you’re moving quickly to tick off short-term goals as often as you can.

Financial planning looks at larger goals, and for that reason, progress is slower and more measured. You’ll also be tracking your progress a lot less too, usually at quarterly or annual intervals.

piggybank to represent savings

Drilling into the details

Analyzing your spending habits means getting down to the brass tacks of where your money goes. When you’re committed to counting the pennies, you’ll be setting up spending limits that require a more incremental view of your outgoings, even if it’s just a few dollars a month you end up saving.

On the other hand, financial planning isn’t as concerned with such a granular view of things. Getting too hung up on the exact amounts you’re spending can actually end up getting in the way of your long-term goals.

What are the benefits of budgeting and financial planning?

The benefits of budgeting

  • More control over your cash – Rather than spending freely and hoping you have enough left in your account when it’s time to pay for bills, rent, or the mortgage, budgeting lets you know you have enough to pay for your necessities.
  • Helps you save for unexpected costs – A sick family member. Repairs to your car. Losing your job. When you budget, you can always fall back on your reserves when something you weren’t prepared for rears its head.
  • Highlights immediate money issues – By shining a light on your spending, you can identify any problems that need rectifying before they spiral out of control.
  • Makes talking about money issues easier – Nobody likes to have ‘the money talk’. But it definitely pays to mention your budgeting plans to your loved ones. Not only will they be on the same page regarding your spending limits, but they’ll be part of the solution too, all of which adds up to a more prudent approach.

family having discussion on sofa

The benefits of financial planning

  • Creates peace of mind – Money worries are a big issue. They’re also an avoidable one. With the right planning and financial tools on your side, it’s possible to create a greater sense of security and peace of mind, even in the event of emergencies.
  • Lets you live the life you want – With a plan that you can actually follow, financial planning lets you make the necessary adjustments and alterations that give you power over your money. With an enhanced view of your finances, you’ll always be aware of the amount you need to live life your way.
  • Greater goal setting – When you have goals to work towards, it gives your life a greater sense of direction and purpose. And it’s been said that people who actively work towards their goals are almost 10 times more likely to succeed. That’s the kind of motivation we like to hear about!

To learn more, visit our homepage or give us a call at (877) 258-0181.

Soapbox: Beware the bear

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The final week of July saw the US stock markets notch up their best results in more than two years – the S&P 500 rose by almost 9% in July, the Nasdaq 12% and the Dow Jones Industrial Average 6%, its biggest monthly gain since March 2021. Investors seem to be accustoming themselves to the war in Ukraine, 40-year-high inflation combined with central bank dithering, signs that economic growth is faltering, and taking comfort from a better than expected earnings’ season by big US companies. The broad market, as assessed by the Morningstar US Market Index, ended July almost 12% higher than its 52-week low on 16 June.

It seems to be a case of ‘happy days are here again!’ so fill your boots with shares.

But maybe this is a classic bear market ‘trap’? Do we think that recession/stagflation fears are over?

A bear market is one where there are prolonged price declines, generally in the order of 20%; the S&P 500 index dropped into bear market conditions towards the end of May this year. Bear market rallies can suck in the gullible and punish them mightily.

Bear markets are fairly regular – since the Second World war there have been nine declines of 20%-40%, and three of more than 40% in the S&P 500, with the last bear market being in February and March 2020, when the S&P fell 34%, only to rebound by mid-August.

What happens to gold in a bear market? Historically when stocks overall are falling, the gold price tends to move higher. It’s probably too soon to be sure which way we are headed – but all the circumstances that typically accompany a bear market seem to be in place.

Is this going to be 2008 all over again?

Few of those who were alive and aware at the time will forget the real fear that gripped the world during the Great Financial Crash of 2008. The catalysts for that were a collapse in US house prices and a concomitant rise in the numbers of mortgage holders unable to repay their loans.

Opinions are sharply divided as to whether conditions this year resemble those of 2008. Some have dubbed this as the ‘New Great Recession’; the chief investment officer of Morgan Stanley has said the “chances of a recession ticked higher last week, driven by the Federal Reserve’s latest rate hike and hawkish forward guidance” although added that the 2008 crash was fundamentally brought on by unsustainable debt rather than the problem today, which is “excess liquidity” – “extreme levels of COVID-related fiscal and monetary stimulus pumped money into households and investment markets, contributing to inflation and driving speculation in financial assets”.

Elon Musk, Tesla’s CEO, said at the start of June he had a “super bad feeling” about the economy and wanted to cut around 10% of salaried staff. Mind you, Musk evidently makes mistakes – in February last year, he said Tesla had bought $1.5 billion of Bitcoin, when the month’s closing Bitcoin price was $45,068.05, 36.5% up for the month. He said at the time that “Tesla will not be selling any Bitcoin”, only to sell 75% of Tesla’s Bitcoin holdings in July this year , when the price was close to $23,000.

According to the US Commerce Department, US gross domestic product (GDP) fell by an annualized rate of 0.9% in the second quarter of this year. That means the US is technically already in a recession as the first quarter saw GDP slump by 1.6%.

How do you feel?

Chat about bear markets is far removed from many peoples’ concerns. It’s how far money stretches that worries people at the moment – and that stretch is much less than this time last year.

The chart above shows that people living in the majority of US states feel pretty miserable, thanks to record-busting inflation of more than 9%, and above 10% in eight cities. US President Joe Biden urged Americans to ‘stay calm’ and said that his team was tackling the problem, by passing an ‘Inflation Reduction Act’, which will probably not “have any impact on inflation” according to an academic study. As the certainty grows that the slowdown will turn into a recession President Biden is running out of time to turn the economy around before November’s critical mid-term elections; according to the National Bureau of Economic Research (NBER) since 1945 the average recession has lasted about 10 months.

Misery is getting a grip on households both sides of the Atlantic. Across the 19 countries within the Eurozone inflation rose to 8.9% in July; in the UK it hit 9.4% in June. By October the UK will have a new Conservative Prime Minister, with the two candidates vying to outdo one another on unfounded promises to their party’s electorate, who will choose the winner. The European summer will soon be over and colder days are ahead. The Russo-Ukraine war drags on, with Russia’s gas supply to Europe now a useful weapon for the Kremlin. Energy bills for an average consumer in the UK could reach almost £4,000 by next January and some sources suggest that gas storage facilities across the European Union could run out entirely by March 2023 unless savings of 11% (compared with previous years) are made; 22% in Germany.

The Ukraine war has already seen some unexpected consequences. Uniper, which supplies around 60% of Germany’s natural gas, has been bailed out by the government (at a cost of €15 billion or $15.40 billion) to save it from bankruptcy – German customers of Uniper will have to pay an extra €1,000 a year for the period October-April. As David Frum has said in The Atlantic magazine, one of the “world’s largest energy producers is using its oil and gas as a weapon against its formerly best customers. World markets are disrupted as a result”.

Since 1980, the US Dollar has lost 72% of its value, the Pound Sterling 79%. This year’s record inflation rates exacerbate those declines in fiat currency values. Until the war in Ukraine ends – preferably amicably – the world can only hope for no more inflationary shocks. Central banks have not just lost control of inflation; even monetary policy may no longer be in their hands.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.