It’s unfashionable in many precincts to admit it, but the market for precious metals still sends useful signals every once in a while. Gold’s ascent above $5,000 per ounce—or as some might say, the dollar’s drop to less than 1/5,000th of an ounce of gold—is one of those signals, and it doesn’t speak well of investor confidence in the world’s political leaders.
Investors probably aren’t acting on inflation jitters in this instance, although as always the market’s motivations are hard to know precisely. Inflation remains elevated, but there’s been little new news on that score lately that would cause investors suddenly to flee toward the safety of gold.
Look instead to a recent bout of global economic instability triggered in part by a certain U.S. President. His on-again, off-again trade war with Europe over Greenland constituted a warning that no economic deal is safe — even when, in the case of the European Union and United Kingdom, Mr. Trump negotiated those deals himself less than a year ago. He also threatened Canada with tariffs if Ottawa predictably (but mistakenly) pursues closer ties with China in response to U.S. bullying.
Not all the anxiety is Mr. Trump’s fault. Investors are trying to digest significant economic changes in Japan as interest rates normalize and Prime Minister Sanae Takaichi threatens to expand government spending to win the looming election. This helps explain recent swings in the yen-dollar exchange rate, which Tokyo and Washington appear to have tried to stabilize in recent days.
Some risks are entirely outside Washington’s remit. An apparent leadership purge underway in China’s People’s Liberation Army may or may not augur greater Chinese aggression regarding Taiwan. The opacity of leadership struggles in the world’s second largest economy is part of the confidence problem.
Mr. Trump also isn’t responsible for political gyrations in Paris that raise questions about France’s (and, by extension, Europe’s) capacity to repay enormous government debts. Government debt is rising across Western democracies, with little apparent political will to control the welfare state.
It’s enough to make any investor nervous, and that plays to gold’s strength as a safe haven. Mr. Trump could ignore this market move, which is what many conventional economists will advise. Many of Mr. Trump’s unconventional advisers may even enthuse over gold’s surge under their theory that an “overvalued” dollar harms the U.S. economy.
But markets are signaling a case of nerves about recent developments around the world — and perhaps also hedging against the dollar as a safe investment. Speculators may also be piling into gold, which is reason for non-rich investors to be cautious at such a lofty price. Gold has fallen before as suddenly as it rose.
Mr. Trump can win back their confidence with a consistent economic-growth agenda and less of the histrionics over Greenland or anything else. He’ll miss global confidence once it’s gone.
