Last Updated : 19 October 2012 at 12:10 ISTYesterday we saw that what that could be good for US economy may not be good for gold. Now as the yellow metal is set for its second weekly decline, one may read from investor's brow a question: is it the beginning of the end of a bull rally in gold?
The question though may appear simple, does not have a one-line answer. Gold is a global commodity and almost unaffected by demand-supply dynamics. Gold may move violently on factors ranging from geopolitical tensions to economic crises and their outcomes, more than on factors like demand disruptions and the like.
And geopolitical tensions, economic uncertainties and the like have never been so much to the brim of the cup of globe. On a lighter note, one may say that it is even spilling over to the space as reflected in debates over NASA budget cuts.
In fact, it has to be noted here that no other factor could drive Gold to stratospheric heights than Europe; and invariably and unfortunately, what is bad for Europe is good for gold.
I can explain.
Beware of the Black Swan
Though positive statements are coming out of Europe for now, one has to assume that when politicians , where ever they are, try to win the crowds as it is vital for their survival. So, when they sound too optimistiic, history tells us that we have something to worry about.
We may also have to think of Black Swan scenarios hitting the political economy. There is a point that once we identify Black Swan events, they cease to be Black Swans. But, with austerity drives continuing their ruthless pace in economies across Europe, mass unrest on national scales could not be too far away.
The troika is pressurizing countries like Greece to tighten their belts. But too much tightening may lead to some lethal suffocation. Especially if one has seen better days in the past followed by horrible days in present and no hopes for future. Memories of a good meal of past haunting in times of poverty and deprivation is terrible and potent and may herald new spells of unrest.
I am talking of a European Revolution demanding a total reversal and complete overhaul of the current system waiting in wings. (Latest reports suggest that unemployment rates hover at 25% in Greece and it is not uncommon to see many Greeks living on charity these days).
This may not occur in the immediate future, but unrest is almost a daily affair in European peripheries; a few silent, a few of high decibels. The former outnumbering latter in a dangerous trend.
Unfortunatley, what is bad for Europe is good for gold.
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