This week the world’s biggest gathering of business leaders,
politicians and thought leaders will commence.
Usually referred to as Davos, The World Economic Forum’s Annual
Meeting in Davos will begin today. The gathering focuses on a range of
economic and social issues, which it has done since 1973 following the
collapse of Bretton Woods and the Arab-Israeli war.
The media go crazy for it, often focussing more on the glamour than
the outcome, whilst protestors get angry about globalisation and
environmental issues. But does the world’s biggest powwow actually make any
difference?
We can’t comment on poverty rates, CO2 emissions or trade tariffs, but
we think our area of expertise, gold, is one of the top indicators as to the
success of the annual meeting.
It’s not an unreasonable approach to take. After all, the gold
price is the best indicator of confidence in the global
economy.
Confidence and the gold price
Gold
investment firm The Real Asset Company decided to look into
how the gold price reacts over the Davos meeting. Looking back over gold’s
12-year bull market we looked at the price at the beginning of the gathering
and at the end of the week to see if there was an impact.
The truth is there’s very little difference at all. Considering the
gold price moves we have seen following press conferences from central
bankers, which in truth haven’t said much at all, one would think that we
would at least see some dramatic changes.
What this shows is that the conference has a make very little
difference to confidence in the economy. If it did, then we would see far
greater decreases in the gold price, as opposed to the -0.86% we saw back in
2005.
What we can see is that there are far greater increases, than
decreases, in the gold price over the last 12 years which suggests that when
it comes to the global financial system, the gathering does very little to
instil confidence in how the world’s greatest can pull together and find a
solution.
In 2008, just as the severity of the financial crisis was peeling off
the scales on everyone’s eyes, the gold price increased by nearly 4% in less
than a week over the Davos meeting. General feeling at the conference was
that government intervention would soften the impact of the events in the
preceding year. Roubini warned that a “severe recession” could last 12
months: “this time round the US suffers a protracted pneumonia, and we can
only guess what happens in the rest of the world.”
In 2009 conference attendees were said to be surprised at the
drastically bleaker world outlook than the one they had discussed the
previous year. Thanks to the on-going crisis, now enveloping Wall Street,
very few bankers turned up, leaving it to governments to get the show on the
road. Once again they failed to restore confidence in the system, resulting
in gold’s rise of 2.5% across just 5 days.
By 2010 bankers began to return to the fold, prompting a less than
congenial atmosphere as industry CEOs slammed the financial system and
bankers their risky practices. Financial regulation was high on the agenda,
but this wasn’t enough to reverse the loss of confidence in the markets. Gold
declined by less than one per cent as it made its way into its 9th
year runoff this bull market.
For both 2011 and 2012, the Eurozone seemed to be to blame for the
gloomy atmosphere, whilst Jamie Dimon admitted he was fed up with all the
blame being placed on bankers. Very little change was seen in the gold price
over the 2011 meeting which perhaps suggests no-one paid much attention. 2011
ended with a 10 billion euro bailout for Greece which meant 2012 was
particularly sombre, with the mood not helped by the presence of the Occupy
Movement. As world leaders acknowledged that the crisis was not ‘solvable’
overnight, gold saw its biggest Davos climb in this bull-run.
One has to ask whether if all these discussions and great thoughts
being exchanged can’t boost confidence in how the global economy is being managed,
then what can? Why not tell us below…
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