Russian President Vladimir Putin speaks during a meeting with members of the Russian Security Council at the Novo-Ogaryovo residence outside Moscow, on Friday, Jan. 24, 2014. (AP Photo/RIA-Novosti, Alexei Nikolsky, Presidential Press Service)Alexei Nikolsky/The Associated Press
Don Coxe, a contributor to Globe Unlimited's Inside the Market, is chairman of Coxe Advisors LLP and is an adviser to several commodity funds. He has been consistently ranked as a top portfolio strategist.
Russia produces lots of oil, gas and gold–and weapons.
Demand for all those products increased since the world learned that Vladimir Putin had decided that winning Ukraine would more than make up for losing at hockey and in the courts of Western public opinion. In the medal round for imperialist victory all he has to do is keep doing what he is doing–absorbing Ukraine and humiliating the Euroteam and President Barack Obama. (As to the latter opponent, a Republican Congressional Committee chairman appraised the contest: "Putin plays chess, Obama plays marbles.")
The main shrine in Crimea is Saint Vladimir, the Russian from today's Ukraine who not only founded the Russian Orthodox Church, but made many conquests which were the foundation of Russia.
Today's Vladimir is also made of stern stuff.
His professed motive for invading Crimea and promoting demonstrations in the mainland, was "Fascist attacks on Russians," of which no independent evidence has been adduced.
The capital markets impact was dramatic, but his professed restraint last night has apparently undone most of Monday's wild action–notably in the price of gold–which had leapt to a new high of $1,350, but has today retreated to a still-healthy $1336. Notably, Monday's lusty gains in gold and silver stocks have been mostly sustained.
My recent column listing eight reasons for owning gold failed to list revived Russian Imperialism as a possible reason for owning the classic Fear metal. That was a notable oversight, but, as these recent events prove, gold is still valuable because it is the universal resort when governments do evil–or just plain stupid–deeds. Much of the reasoning behind gold's bear market was that the Eurozone had mostly solved the problems inherent in a multinational currency lacking backing from any government, tax system, army or navy. That Russia and China kept buying gold heavily through its long plunge was not deemed any reason for longer-term concern. Now that China is making increasingly worrying territorial demands, we may soon see another–perhaps sustained–rally for what enlightened economists still sneer is "a barbarous relic."
That the Fed multiplied its monetary base four-fold in five years is generally considered a mere statistic. (When Stalin, much admired by Putin, was challenged about one of his large-scale slaughters, he replied, "The death of one man is a tragedy; the death of a million is a statistic.)
Gold will cease to be a necessary protection for private wealth when there are no powerful regimes bent on settling old scores, no significant central banks printing money beyond the rate of GDP growth, and no significant governments incurring deficits beyond the growth rate in their nations' longer-term liabilities.
That the Fed has printed money at a rate beyond Milton Friedman's worst nightmares without triggering a major inflationary response has naturally dulled gold's lustre. But those trillions in bank reserves–what we have been calling "financial heroin"–are still there. That some people–including even Sherlock Holmes–have been able to resort routinely to heroin without showing signs of hopeless addiction does not disprove the medical profession's conviction that heroin is a devastatingly dangerous drug.
If the global economy manages to escape unscathed from six years of radical monetary and fiscal policies across the industrial economies, gold may ultimately retreat to the margins of investment utility.
As of today, most investors seem to have convinced themselves that Obama–with a little help from his European friends–has cowed Putin into abandonment of his revanchist fixation on Ukraine. The Dow has retraced its Monday losses, and European stock markets are giddy in their ebullience.
But Russian troops remain in Crimea, and a few "spontaneous demonstrations" in favour of Russian re-entry into mainland Ukraine still occur.
The test of Putin's willingness to return to dour decency may well be in what happens next in Odessa–the other major Ukrainian Black Seaport. Odessa also has a large Russian population. If it also falls into Putin's hands, he will have a choke-hold on much of the desperate nation's total exports and imports.
Significantly, corn future prices are up again today, and wheat future prices remain above their February levels, despite large global grain carryovers, and huge announced US planting forecasts. Ukraine is #5 in wheat exports and #3 in corn exports globally. Apparently, some investors remain unconvinced that pricing need no longer include a Putin component.
We hope they are wrong.
But we're not selling our gold and gold stocks.
Our previously-cited eight reasons for owning remain intact–unruffled by geopolitical mood swings. The multi-millennium-long store of value has seen it all–and remains unruffled.