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Davos, what does it do for global confidence?

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Published : January 28th, 2013
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Category : Crisis Watch

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.

24hGold - Davos, what does it ...

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


Lost confidence in the global economy? 
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Jan Skoyles is the Research Executive at international gold specialist Goldcore
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