Gold, silver and oil rise on Greek debt deal, stocks fall
Posted on 22 February 2012 with no comments from readers
Global stock markets closed mostly slightly lower on news that Greece has reached an agreement with its paymasters on a second bailout deal, at $170 billion the largest ever in the history of sovereign debt. Oil hit a four-year high, silver moved decisively above $34 and gold past $1,750 an ounce.
With the Greek debt issue pushed into the background at last stock markets are likely to focus on two more recent problems: the outlook for much higher oil prices as the showdown with Iran hots up; and the mounting evidence of a slowdown in China.
China slowdown
Trade flows from the Middle Kingdom are down this year and a slump in electricity consumption points to a 2008-style contraction that is not yet acknowledged in the official figures. Money supply growth has also ground to a halt.
At the same time oil prices are going up and not down as a slowdown in China would suggest. The growing tension with Iran and rising probability of a strike on nuclear installations by Israel as soon as this summer is supporting the geopolitical risk premium on oil prices.
Gold, silver and oil tend to move in lock-step in such crises and there is no reason to suppose this time will be any different. It was the Iranian Revolution of 1979 and its immediate aftermath that sent oil, gold and silver to all-time highs in 1980, precipitating the nasty global recession of the early 80s.
Consensus wrong?
Stock markets could just be about to wake up to this reality, although the conventional wisdom is that high central bank liquidity will stop this happening. Veteran market observers should know that the consensus is seldom right.
Shares in the Dubai Financial Markets have soared more than 20 per cent from a seven-year low in January. As the trading entrepot of the region there is generally a six month time-lag between a surge in oil prices and business in Dubai.
On the other hand, any trouble in the Strait of Hormuz with Iran would have an immediate, if temporary impact on trade. For the moment the DFM thinks the risk of the former is outweighed by the impact of the latter.
