Gold’s Ups and Downs

King Midas lusted after it. The Incas worshipped it. Shiny flakes of it set off a 19th-century rush to California and families in India use it to store wealth on the arms of their daughters. Gold’s allure remains as untarnished as the noble metal itself. But its price is subject to manias and periods of ambivalence. Since the turn of the millennium, gold has seen a seven-fold rally, a 45% crash and sustained periods where its price moved very little. The drivers of sentiment change over time, and understanding how they shift can be as revealing about the collective psyche of global investors as it is about the nature of bullion itself. Just what is it that keeps investors coming back to gold?

The Situation

Bullion’s time-honored appeal as a haven from unexpected events is demonstrated again and again: It surged to a seven-year high as the coronavirus began to sweep the globe in early 2020, and briefly spiked after Donald Trump’s upset victory in the U.S. presidential election in 2016. In between there were two years of steady prices, with every rally capped as gold approached $1,350 an ounce. That began to change in 2019, when slowing global economic growth, worries over tensions in the Middle East and a trade war between the world’s biggest economies dented the belief that riskier assets would continue climbing. Holdings in bullion-backed exchange-traded funds hit a record, hedge funds bet on higher prices and central banks piled in. In February 2020, Goldman Sachs Group Inc. said that gold was acting as a haven of last resort, and predicted that the price could top $1,800 an ounce within months if the virus outbreak worsens. With interest rates and bond yields at historic lows, the opportunity cost of owning gold has largely evaporated.

The Background

Discarded as a monetary system when its peg to the dollar ended in the 1970s, gold spiked to $850 in 1980 on a bout of inflation. Prices slumped in the following two decades as central banks around the world shrank their reserves and miners locked in prices for future production. The launch of the first gold ETF in 2003, which made it possible for retail and equity-market investors to directly access the metal via their stockbrokers, set off a wave of gold buying that lifted prices for almost a decade. Then the 2008 financial crisis sent prices steadily up to a record high in 2011 as money was parked in havens on fear that bond-buying by central banks would lead to hyperinflation. Even so, some investors never warmed to gold. Legendary business guru Warren Buffett expressed his disdain for the metal because it has no inherent yield and isn’t productive like, say, companies or farmland. He wrote in 2012 that investors in gold are motivated by their “belief that the ranks of the fearful will grow.”

The Argument

More than perhaps any other investment, bullion acts as an echo chamber for anxieties about the global financial system and the ability of central bankers to keep economic growth going. Gold bears say it is a relic of history and that there are better ways of hedging against uncertainty, including financial instruments such as derivatives. Bulls say it offers them a simpler way to protect against a wider range of risks. Demand for gold is supported by rising incomes in China, India and other Asian countries, where families often buy it for dowries and there are fewer safe stores of wealth. In the West, some fans of gold, known as “gold bugs,” believe it should be restored to its place as the guarantor of government-issued currencies. Even one of Trump’s nominees for the Federal Reserve was historically an advocate of returning to the gold standard. But ultimately, gold’s reputation for withstanding the effects of inflation — at the cost of sacrificing yield — comes into its own when interest rates on bonds drop below the rate of general price increases. Compared with the trillions of dollars’ worth of bonds around the world now delivering negative returns, gold is shining once again.

The Reference Shelf

• Peter Bernstein explores the history of the metal in his book, “The Power of Gold.”

• Comments from former U.S. Federal Reserve Chairman Ben S. Bernanke on not understanding gold.

• Richard Nixon ends the convertibility of the dollar into gold on August 15, 1971.

• The World Gold Council website has explanations of everything from the gold standard to central bank gold agreements.

• Supply and demand figures.

• Industry facts and specifications from the London Bullion Market Association.

• “The New Case for Gold,” a 2016 book by James Rickards, argues that gold is still an important tool for wealth preservation.

- Source, Washington Post

James Rickards: “Mandate of Heaven” in Jeopardy

The U.S. markets are closed today for Presidents Day. If you have the day off, I hope you’re enjoying your long weekend.

But one event is taking center stage in the world that affects not only basic survival for millions of people, but the health of the global economy overall.

Of course, I’m talking about the coronavirus outbreak currently playing out before our eyes in China.

China’s economy was slowing substantially before the outbreak of the highly contagious and deadly virus last fall. This slowing was the predictable result of excessive debt levels, Trump’s retaliation in the trade wars, and China’s encounter with what development economists call the “middle-income trap.”

Developing economies can grow at double-digit rates as they move from low-income (about $3,000 annual per capita income) to middle-income (about $10,000 annual per capita income).

The main requirements are limits on corruption, a large pool of available labor, and an attractive legal environment for foreign direct investment. Once investment is used for infrastructure and labor is mobilized, large-scale basic manufacturing can commence.

This powers growth and the accumulation of hard currency reserves from export earnings.

The difficulty begins when an economy tries to move from middle-income to high-income (about $18,000 annual per capita income). That move requires more than cheap labor and infrastructure investment. It requires applied technology to produce high-value added products.

Only Taiwan, South Korea and Singapore have made this transition, (excluding Japan after World War II, and oil-exporting nations).

This explains why China has been so focused on stealing U.S. intellectual property.

Trump has been closing that avenue. China cannot generate the needed technology through its own R&D. China is stuck in the middle-income trap and a slowdown in growth is the inevitable result.

The story gets worse for China.

As of Friday, the total reported number of people infected by the coronavirus was 64,435. And the death toll was up to 1,383, including three people outside of China.

Those figures are official statistics released by China and other countries around the world where the virus has spread.

However, there is substantial medical, anecdotal, and model-based evidence that the actual infection rate and death rate may be ten to twenty times higher than those official statistics.

Over 60 million Chinese in several major cities are under “lock-down” where individuals are confined to their homes and may only leave once every three days to buy groceries.

Streets are empty, stores are closed, trains and planes are not moving, and factories are shut. The Chinese economy is slowly grinding to a halt.

This not only affects China’s economy as a whole, but the contagion filters down into individual companies that are dependent on China both for supply chain inputs and final sales.

And it will have a rippling effect on the U.S. economy also. This story has a long way to run.

- Source, James Rickards via the Daily Reckoning

James Rickards: The Democrats Are in Complete Disarray

President Trump delivered his State of the Union speech last night. He talked a lot about the booming economy and stock market, which are his main strengths heading into this year’s election.

The visuals said it all, as Republicans were on their feet cheering much of the night, while Democrats remained seated in obvious disgust.

House Speaker Nancy Pelosi provided the most dramatic theater of the night, ripping up her copy of the president’s speech in front of the nation.

The president didn’t mention impeachment. But he was acquitted in the Senate on both the abuse of power and the obstruction of Congress charges late this afternoon. The vote on the abuse of power charge was 52-48, with Mitt Romney being the only Republican to vote for conviction. The obstruction charge broke down 53-47.

The outcome was never in doubt, and is just another blow for Democrats. Trump has all the momentum right now.

Meanwhile, chaos in Monday’s Iowa caucus has further compounded the difficulties Democrats face in their efforts to defeat Trump in November. Much of the trouble in Iowa surrounded glitches with an app that was used to report the caucus results.

Many who downloaded the app to their smartphones received error messages or experienced difficulties in following its instructions. The party’s backup phone system also reportedly failed, adding to the problems.

Widespread reporting issues resulted in mass confusion, leaving the ultimate winner still undecided.

In an early vote count, Bernie Sanders held a slight lead in the popular vote, with Pete Buttigieg leading in state delegates. As of early today, 71% of precincts have reported in. They show Buttigieg with 26.8% of state delegates, followed by Sanders, with 25.2%. Elizabeth Warren has 18.4%, with Joe Biden trailing at 15.4%.

The results are a big red flag for Biden, who fell short of the critical 15% threshold in some precincts. It was a clear failure. Now he has to go to New Hampshire with no momentum whatsoever. It’s not over yet, but it’s not looking good for Biden at this point.

Many have suggested the Democratic Party establishment intentionally skewed the results to obfuscate Sanders’ good showing and to avoid embarrassing establishment favorite Joe Biden.

Democrat Party officials naturally deny the charge, arguing that the glitches with the app were just that — glitches, and that there’s nothing else to it. But I’m not convinced.

I believe Bernie Sanders probably won Iowa, then Iowa’s Democratic establishment ginned up a “systems failure” to deny him his big moment and stop his momentum going into New Hampshire. Get used to this. Democrats are out to stop Bernie.

The surge of Bernie Sanders in the Iowa caucus and New Hampshire primary polls have mainstream Democrats in a panic. Bernie is vibrant and authentic, but he’s also a hard core socialist who took his honeymoon in the Soviet Union during the height of the Cold War.

Election outcomes are always uncertain, but Sanders looks like a sure loser to Donald Trump in critical heartland swing states like Pennsylvania, Ohio, Michigan, and Wisconsin.

What about Elizabeth Warren?

She is no better with her equally socialist outlook and support for open borders, nationalized medicine and the Green New Deal. Meanwhile, Buttigieg is only 38 years old and was the mayor of a small city with no other political experience.

And the other Democrats are doing poorly in the polls. Tulsi Gabbard is as much disliked by Democrats as she is opposed by Republicans. The party has nowhere to turn among the frontrunners.

It’s true that Biden is ahead (barely) in national polls. The Real Clear Politics poll-of-polls (one of the most accurate available) shows Biden with 27% nationally and Sanders with 21.8%. But that’s almost inside the margin of error and Sanders has been surging lately. Besides, national polls don’t matter because we don’t have national elections; we go state-by-state. When you get to important state polls, Sanders is dominating.

He beat Biden solidly in Iowa, and is ahead 25.6% to Biden’s 17.6% in New Hampshire. No candidate has ever won Iowa and New Hampshire without becoming their party’s nominee. With the Iowa caucus results still not final, it’s possible Sanders could still win both states. The Democratic establishment is having fainting spells as a result.

If Sanders continues to surge and Biden continues to fade, expect mainstream Democrats to coalesce around Michael Bloomberg as the moderate alternative to Sanders. But there’s only one problem with Bloomberg — he’s not really a moderate.

Bloomberg supports late-term abortions and has called for gun confiscation. Those positions may be OK with Democrats, but they get no support among Republicans and moderate independents from the Midwest.

In addition, Bloomberg wants to impose a surtax of 5% on high-income individuals. The problem with taxes like that is the money is usually wasted and the tax itself can slow investment in the economy. Also, taxes of this kind always start out aimed at the “wealthy” but sooner or later trickle down to affect the middle class by amendments or inflation in tax brackets.

Bloomberg may appear moderate to Democrats frightened by Bernie Sanders, but he appears extreme to everyday Americans. That’s one more reason why Trump is on a path to victory in November regardless of what Democrats do in the meantime.

The only factor that can realistically derail Trump, barring the unforeseen, is a recession between now and November. That’s unlikely. While the economy is sluggish, my models aren’t telling me that a recession is likely before the election. So Trump is on track for reelection. Even some of Trump’s harshest critics agree he stands an excellent shot this fall…

Mara Liasson, for example, is an NPR reporter and well-known Trump-basher. If you support Trump or just want to get a read on the electoral landscape, your first reaction might be to skip an article by a Democrat partisan. But that would be a mistake. In a recent article, Liasson exhibits her usual Trump attacks, but she does so in a context that takes the Democrats to task for such weak opposition.

She points out that Trump has a “locked-in base” (which is true). That gives Trump considerable leeway to expand his support since he does not have to worry about his base. Importantly, she recognizes that presidential elections are decided by the Electoral College, not by a majority of the popular vote.

This means Trump could lose the popular vote by as much as 5 million votes (in 2016 he lost to Hillary Clinton by 3 million votes) and still win reelection by the Electoral College. This is because Democrat votes are heavily concentrated in New York and California. Those states are certain to vote Democratic, but millions of extra votes over a simple majority are wasted because they provide no additional electoral votes.

Meanwhile, Trump’s support is spread more evenly among important states like Wisconsin, Michigan, Florida and Pennsylvania that collectively give him an Electoral College edge.

Finally, Liasson points out that turnout is critical. It doesn’t matter if you have fewer supporters as long as you have higher turnout. That’s another Trump advantage that does not show up in opinion polls. Liasson may be a Trump-basher, but she has practically written the playbook for how Trump will win.

And right now, he’s on course to.

- Source, James Rickards

Jim Rickards: Coronavirus Slams Chinese Economy

How bad is the coronavirus pandemic in China? It’s worse than the Chinese government knows and worse than the world believes.

Here are the official statistics on the coronavirus (technically COVID-19) as of today: There are 75,685 confirmed infections worldwide, with 98% of that total in China alone. Of those cases, 82.5% are in the single province of Hubei, mostly centered in the city of Wuhan, with 11 million residents.

Of the over 75,000 worldwide cases, there have been 2,236 deaths; that’s a mortality rate of roughly 2.5%. If a 2.5% mortality rate sounds low, it’s not. That’s roughly comparable to the Spanish flu pandemic of 1919–20 that killed 50 million people by some estimates.

Coronavirus has reached pandemic proportions in China. Over 60 million people are locked down, which means they cannot leave their homes except once every three days to buy groceries. Streets are empty, stores are closed, trains and planes are not operating. The Chinese economy is slowly grinding to a halt.

While the disease has been predominately centered in China, and Wuhan in particular, there have been significant outbreaks in Singapore (58 cases), Hong Kong (56 cases), Thailand (33 cases) and Japan (29 cases including one fatality). Approximately 218 cases have been identified among those trapped on cruise ships where all passengers are under quarantine. Fifteen cases have been identified in the United States.

These statistics barely scratch the surface of what is happening with coronavirus in China. There is good reason to believe that the actual incidence of the virus may be five–10 times the official numbers.

Tencent (a popular internet search and social media platform in China) reported on Feb. 1, 2020, that actual infections were 154,000 and deaths from the disease were 24,589. (A screenshot of the Tencent release is shown below; source: Taiwan News).

The infection figure was approximately 10 times what the official figure was on the same date.

The death toll was more than 300 times the official figure. Applying this death toll to total infections gives a fatality rate of 16%, which is over seven times the official fatality rate.

There is no reason for a high-profile platform such as Tencent either to fabricate data or incite panic. It is reasonable to conclude that these figures are close to actual data. The Tencent posting was suppressed by the Chinese government within minutes of what may have been an accidental release of accurate data.

The preeminent U.K. medical journal The Lancet also published an article on Jan. 31, 2020, using hard data (city populations, incidence of travel, estimated transmissibility, etc.) and a reliable SEIR model (susceptible, exposed, infected, resistant).

That article estimated total infections of 75,815 in Wuhan as of Jan. 25. That figure is 17 times the official figure of 4,400 available on Jan. 27. The multiple of the estimate by The Lancet to the official figure is roughly in line with the multiple of the Tencent release to official data five days later.

Using either The Lancet or Tencent as a baseline suggests that the official infection and death rates are grossly understated.

Anecdotal evidence is consistent with the view that official data are materially understated.

Many bodies have been picked up off the streets and sent for cremation without blood samples or autopsies. It is highly likely that these victims died from coronavirus but are not included in official counts because no tests were performed.

Authorities are running out of body bags and refrigerated trucks, so bodies are simply being wrapped in plastic sheets and hauled away in ordinary vans.

A shortage of face masks, latex gloves and testing kits has also emerged. This means that doctors and medical personnel are highly susceptible to infection. It also means that patients who complain of fever and difficulty breathing are sent away because officials have no way to test them for coronavirus.

These developments simultaneously inflate the number of infected and deflate the official count.

The story gets worse. Wuhan, the city that is ground zero for coronavirus infections, is also the location of the sole bioweapons laboratory for the Chinese military and Chinese Communist Party.

One of the scientists at the laboratory is Zhengli Shi, a virologist. Shi formerly worked at a laboratory at the University of North Carolina, where he engineered a hypervirulent bat-based coronavirus that bears a striking resemblance to the COVID-19 coronavirus, including gene sequences not found in nature.

These linkages at least suggest that the outbreak of the coronavirus in Wuhan may be linked to an accidental release of the virus from the biological weapons laboratory located there.

If this thesis is correct, the coronavirus may be difficult to contain with vaccines or drug therapies since it would have been engineered to be highly resistant to such treatments.

What impact will the coronavirus pandemic have on the Chinese economy and global supply chains, especially in the technology sector?

Right now my models are telling me that the impact of coronavirus on the Chinese economy is orders of magnitude greater than most analysts estimate. In fact, the Chinese economy, second largest in the world, may be grinding to a halt.

The following excerpt from an article by Ambrose Evans-Pritchard in The Telegraph on Feb. 12, 2020, tells the tale:


Property sales in 30 big cities released every day… have collapsed to zero and have yet to show a flicker of life.

Property is a slow-burn issue compared to ruptured manufacturing supply chains, but by March it will start to bite for developers with dollar debts on Hong Kong’s funding market. Companies deemed “stressed” (borrowing costs above 15%) have to repay $2.1 billion of offshore dollar notes next month. Standard & Poor’s says they rely on a constant flow of sales to cover past debts.

Some 25 provinces and municipalities were supposed to go back to work this week but this clashed head on with virus control measures. Companies may not reopen plants unless they can track the exact movements and medical data of each worker and comply with a 14-day quarantine period where necessary (we now learn the incubation may in fact be 24 days). Officials dare not be lenient after Xi Jinping’s latest tirade.

The Guangzhou authorities have ordered plants to remain closed until early March in large parts of the city with warnings of ferocious penalties. Apple supplier Foxconn has yet to restart its core iPhone plants in Zhengzhou and Shenzhen. Just 10% of its workers have turned up. Caixin reports that Foxconn may wait until March before restarting.

Meanwhile the near complete shutdown of Shanghai’s manufacturing hub in Songjiang belied early claims that 70% of plants were going back to work.

This article contains valuable vignettes of what is happening in China, but they barely scratch the surface. An even bigger story is the extent to which the disruption in China from coronavirus is not only slowing the Chinese economy but is also disrupting global supply chains and slowing output around the world.

This chart prepared by the Johns Hopkins University based on official data provided by China and other nations shows the total number of confirmed cases of coronavirus infection as of Feb. 14, 2020 (orange line). Wall Street was encouraged by a prior update that showed 44,700 confirmed cases. Then cases increased by over 15,000 in a single update. The resulting near-vertical slope of the graph blew up Wall Street wishful thinking and triggered a downdraft in stock markets worldwide. As of Feb. 15, confirmed cases had increased to 64,447. The pandemic is far from under control and spreading quickly.

Production shutdowns in China are reducing exports of high-tech inputs from South Korea, Japan and Germany. Likewise, the extreme reductions in exports from China (due to plant closures) are hurting sales by European and U.S. distributors and retail outlets.

Independent of production and sales bottlenecks, there are massive transportation bottlenecks as vessels and crews are quarantined or refuse to enter Chinese ports at all.

The tech sector may be the hardest hit of all. In addition to coronavirus disruption, the U.S. Department of Justice last week indicted China’s largest telecommunications device and network provider, Huawei, on racketeering charges.

The Pentagon also reversed a prior determination and agreed that the Commerce Department can put Huawei on an export control list, which prohibits sales of processors and other high-tech components to Huawei by U.S. firms.

These measures are certain to invite retaliation by China against U.S. firms in the tech supply chain.

This story isn’t going away anytime soon.

- Source, James Rickards via the Daily Reckoning

James Rickards: “1984” Has Come to China

You’re probably familiar with George Orwell’s classic dystopian novel Nineteen Eighty-Four; (it’s often published as 1984). It was written in 1948; the title comes from reversing the last two digits in 1948.

The novel describes a world of three global empires, Oceania, Eurasia and Eastasia, in a constant state of war.

Orwell created an original vocabulary for his book, much of which is in common, if sardonic, usage today. Terms such as Thought Police, Big Brother, doublethink, Newspeak and memory hole all come from Nineteen Eight-Four.

Orwell intended it as a warning about how certain countries might evolve in the aftermath of World War II and the beginning of the Cold War. He was certainly concerned about Stalinism, but his warnings applied to Western democracies also.

When the calendar year 1984 came and went, many breathed a sigh of relief that Orwell’s prophesy had not come true. But that sigh of relief was premature. Orwell’s nightmare society is here today in the form of Communist China…

China has most of the apparatus of the totalitarian societies described in Orwell’s book. China uses facial recognition software and ubiquitous digital surveillance to keep track of its citizens. The internet is censored and monitored. Real-life thought police will arrest you for expressing opinions opposed to the government or its policies.

Millions of Chinese have been arrested and sent to “reeducation” camps for brainwashing (the lucky ones) or involuntary organ removal without anesthetic (the unlucky ones who die in excruciating pain and are swiftly cremated as a result).

While these atrocities are not going to happen in the U.S. or what passes for the West these days, the less extreme aspects of China’s surveillance state could well be. And while you might not be arrested for expressing unpopular opinions or challenging prevailing dogmas (at least not yet), you could face other sanctions. You could even lose your job and find it nearly impossible to find another.

You can certainly be banned from social media…

Anything seems to go on social media (primarily Facebook, Twitter, Instagram, Snapchat, YouTube and a few other platforms) — unless you’re a conservative personality or politico. That’s where the censorship begins.

Many conservative social media participants have had their acco‌unts closed or suspended, not for threats or vulgarity but for criticism of “progressive” views (albeit criticism with some sharp edges).

Meanwhile, those with progressive views can say almost anything on social media, including the implicit endorsement of violence. But nothing happens.

Other conservatives report being the targets of “shadow banning.” That’s where your acco‌unt is open and seems to operate normally, but unbeknownst to you, much of the network is being blocked from seeing your posts and popular features such as “likes” and “retweets” are being truncated and not distributed.

It’s like being a pro athlete who finds out the stadium is empty and no tickets are being sold. That’s bad enough. But Twitter took the war on conservatives a step further.

Well, one of the most widely followed acco‌unts on Twitter is none other than Donald J. Trump’s, with 68 million followers. President Trump uses Twitter to announce policy initiatives and personnel changes and to offer pointed criticism of political opponents. It’s a major platform for him.

Last month Trump issued a tweet that identified the so-called “whistleblower” of the Ukraine phone call that led to his impeachment. That’s not as big a deal as it sounds because everyone in Washington knew who the whistleblower was (you can look his name up on the web), and he wasn’t even a real whistleblower because he didn’t meet statutory requirements.

Still, Twitter blocked Trump’s tweet. Twitter blamed a temporary system “outage,” but that claim was highly suspicious. Later, Trump’s tweet was restored, but the original acco‌unt that Trump linked to had been deleted. No one ever said that politics was fair.

But Twitter’s blatant interference in the election could have adverse consequences for the company in Trump’s second term.

And a few social media companies are now de facto censors, taking over the job from the government. Given their massive media footprint, they wield extraordinary influence over the American public.

They’re in essence becoming propaganda outfits.

It’s not just here of course. Canada, for example, is actively pursuing digital surveillance to track the activities of law-abiding citizens.

A report for the Bank of Canada says that financial information gathered from digital transaction records could be used for “sharing information with police and tax authorities.”

If all transactions are digital (including credit and debit cards), authorities can track your whereabouts, buying habits, restaurant choices and much more. They could also reveal your political orientation and personal associations.

- James Rickards via the Daily Reckoning

Real Conversations: Jim Rickards on How To Protect Your Wealth When This Bubble Bursts

“I was able to ask Larry Summers about that at dinner a couple of days ago. I knew the answer, but I wanted to hear what his answer was. 

So the question was, ‘In the last 10 years, Russia has more than tripled its gold reserves and China has more than tripled its gold reserves.’ They have a lot more off the books, but let's take the official number. 

Why are they doing it? And he sort of thought about it for a second and he said, ‘Well, diversification.’ That's actually technically a good answer. 

But then he said, ‘Maybe they think the price will go up.’ So I’ve got Larry Summers on the record saying, higher gold prices. I'm on board with that.”

- Source, Hedgeye

James Rickards: A June Rate Cut is Coming and the Market is Not Pricing it In

James Rickards talks about what he sees coming next for the markets, with Sprott Media. 

He talks about how a June rate cut is likely coming and how the markets and precious metals are not correctly pricing this in.

Can the Fed advert the next major recession that is just over the horizon? Join James Rickards to find out the answers to this and much more.

- Source, Sprott Media

James Rickards: Why Being Impeached Would of Been Good for President Trump

James Rickards Warning: China’s Collapse Has Only Just Begun

James Rickards Ultimate Forecast for Investing in 2020

The macroeconomic growth forecast for 2020 will not be strong, but as long as the Federal Reserve remains accommodative, equities can remain high, this according to best-selling author Jim Rickards. 

“Some analysts give recession almost a 0% chance in the next six months, and I agree with that, probably not even more than a 30% chance,” Rickards told Kitco News.

- Source, Kitco News

Disease Contagion and Financial Contagion Both Work the Same Way

The comparison between medical pandemics and financial panics is more than a metaphor.

Disease contagion and financial contagion both work the same way. The nonlinear mathematics and system dynamics are identical in the two cases even though the “virus” is financial distress rather than a biological virus.

But what happens when these two dynamic functions interact? What happens when a biological virus turns into a financial virus?

We’re seeing it happen in China.

It’s the time of the Lunar New Year holiday in China, China’s most important public holiday. It’s traditionally a time of widespread celebration.

But, for many Chinese cities, not this year.

Many major Chinese cities have been shut down, with no citizens allowed to leave, and their transportation systems have been closed.

Retails sales are also suffering as consumers remain home instead of risking contagion with trips to the store.

The disease is causing financial panic in China at a time when it can least afford it. GDP growth has hit a wall and investors have curtailed new investment.

Could it unleash a global financial panic that ultimately results in a lockdown of the banking system?

It’s possible, but it’s far too soon to say. This is the type of catalyst that could take a year to build.

But it definitely bears watching...

- Source, James Rickards

James Rickards: Contagion!

The world is confronting the effects of the “coronavirus.” It likely originated in Wuhan, China, where it jumped from animals to humans at a local food market. It has since spread to other parts of China and beyond.

So far, there are 2,886 confirmed total cases of the coronavirus. All but 61 of them are in mainland China. The death toll so far is 81.

But cases have also been found in France, the U.S., Canada, Australia, Japan, South Korea and elsewhere. That list includes the world’s three largest economies (the U.S., China and Japan).

For many, it recalls the SARS outbreak of 2003, which also originated in China. It ultimately killed 774 people and infected more than 8,000 in different parts of the world.

Not surprisingly, global markets are on edge over fears of the “coronavirus” contagion spreading. And the U.S. stock market sold off today.

The Dow lost 454 points. The S&P and Nasdaq also had awful days. But gold has a good day, up over $10 to $1,582, as investors looked for safety.

But let’s discuss the word “contagion,” because it applies to both human populations and financial markets — and in more ways than you may expect.

There’s a reason why financial experts and risk managers use the word “contagion” to describe a financial panic.

Obviously, the word contagion refers to an epidemic or pandemic. In the public health field, a disease can be transmitted from human to human through coughing, shared needles, shared food or contact involving bodily fluids.

An initial carrier of a disease (“patient zero”) may have many contacts before the disease even appears.

Some diseases have a latency period of weeks or longer, which means patient zero can infect hundreds before health professionals are even aware of the disease. Then those hundreds can infect thousands or even millions before they are identified as carriers.

In extreme cases, such as the “Spanish flu” pandemic of 1918–20 involving the H1N1 influenza virus, the number infected can reach 500 million and the death toll can run over 100 million.

A similar dynamic applies in financial panics.

It can begin with one bank or broker going bankrupt as the result of a market collapse (a “financial patient zero.”)

But the financial distress quickly spreads to banks that did business with the failed entity and then to stockholders and depositors of those other banks and so on until the entire world is in the grip of a financial panic as happened in 2008...

- Source, James Rickards, read more here