GEOPOLITICS AND THE PRICE OF GOLD & PROPERTY

12 February 2025

What happens to economies at the outbreak of war

Every time a war starts, stock markets collapse, there's capital controls, price and wage controls & rent freezes, there's rationing.

This is behind my feeling that markets have reached the top. 

             Has VHVG peaked at 92.30?

What affects the price of gold

There's three main factors that correlate to the price of gold (see an earlier article, here), and according to long run analysis, gold is seriously overvalued by about 25 or 30% at the moment. 

The rise of geopolitical risk

It is not just the threat of inflation and tariffs that is pushing gold to all time hires. Largely untalked about, but geopolitical risk and the certainty that the west has lost in ukraine, and that the middle east is out of control, needs a heavy weighting at this time. Central Banks and Investors are pulling out of equities and paper derivatives of markets, they're unhappy with government bonds or should be as they're based on fiat currency which collapses with printing and inflation, and they're putting their money into things solid, things physical.... Perhaps banks will do well if interest rates have to rise to protect the currency, but commodities really could rise as manufacturing needs to continue in a war economy, though it's true that a following recession would dampen demand.

Trump's policies

So it's the uncertainty, the unpredictable irrationality, that Trump the aging narcissist creates and thrives upon, that's driving capital flows out of unsafe maxed-out assets and into these different physical asset classes: 

- Gold & Silver → Best safe-haven assets during war & geopolitical risk

- Oil & Gas → Strongest performers if war affects major producers

- Wheat & Agriculture → Food commodities spike in supply-chain disruptions

- Industrial Metals → Short-term gains, long-term risks if recession follows.

Maybe mag7 earnings will continue to please on the upside... But what if they don't?

Can this uncertainty be mitigated away

I don't think this uncertainty is going to get mitigated away this year and I don't think change is unfolding in favour of Western markets. I mean, Trump is not simply tinkering with the system as new governments normally do. We are looking at major disruption, transformative change, big idea change - with little evidence of forethought and planning. The deep state that pushes across the decades for coherence and continuity, seems to have gone in America at least, Trump has overcome it, and that just leaves the Fed as the only consistent attempt to manage all this.

Factor's holding back the price of gold

If the risk of war seems to be driving the price of gold, what might work against the rise of gold?

Capital controls are governments trying to prevent a run on their currency. In the case of gold, I imagine that governments would oblige holders of these - and probably all assets - to register their holdings centrally. A national wealth inventory, a register of who owns what, that goes beyond financial numbers in the banks and into the physical holdings of the people.

This would be a further development of the cashless economy.

And after that? Once they've got everything you own on a central register, they'd tokenise it, meaning there'd be quotas, meaning there'd be taxes and confiscations, or at the least, you wouldn't be able to buy gold anymore.

I don't understand digital gold, but take care because war creates uncertainty and volatility in property prices:

- Local wars cause prices to collapse locally

- Global wars drive investors to safe-haven real estate markets like London and Edinburgh

- Higher inflation & interest rates can depress housing demand

- Supply chains start to fail, construction costs rise, new supply is hit, this could be expected to support prices in those stable markets.