Civil War, Gold and Donald Trump

Is there a 35% chance of Civil War in the US? Probably not, but if fake news is the news, print the fake news

We're not waving bye-bye to stability quite yet

Threats of nuclear war are flying back and forth between North Korea and Washington and Americans are killing each other under statues of Confederate Generals.

The gold price is up, but not by that much.


In the last 60 days it’s risen by slightly less than US$20 an ounce to its current price of US$1,285. That’s less than where it was a year ago, when Brexit uncertainty was still spooking markets and the prospect of a Trump election victory was still breeding fear and uncertainty.

So what does this tell us?

It tells us that even in a generous universe in which the liberal press is considered credible, the headlines do not always deliver the whole story.

For instance: a political analyst had a burger in a restaurant in Austin Texas in March and asked a group of well-informed “national security thinkers” what they thought the chances of a re-run of the US civil war were now that Donald Trump is president.

This was a long time before a woman was killed as Robert E Lee’s statue was pulled down in Charlottesville, and even before the worst of the noise about North Korea had got underway.

The consensus answer, over this burger, was that in a post Donald Trump world there is a 35% chance of a rerun of the US civil war.

In the UK we might call that “pub talk,” have one for the road and stagger home. In a burger joint you’d wipe your mouth with your napkin and walk away.

Or you would have done in the pre-internet age.

But not anymore. That consensus burger survey has now morphed into a hook for a serious feature in the New Yorker [http://www.newyorker.com/news/news-desk/is-america-headed-for-a-new-kind-of-civil-war], which has itself been the subject of a rebuttal in Business Insider.

So what really are the chances of a new Civil War in the US?

What we know for sure is that some people eating burgers thought it was 35% back in March, and the New Yorker and Business Insider are now going at it over how relevant this figure, or any of the analysis that follows it really is.

Which brings us back to the gold price.

It’s up, but not by much. And that shows what the market and international investors think generally about the global political situation. Civil War in the USA? Not likely. Nor is war in Korea, nor a Trump impeachment.

In fact, the most influential factor in pricing gold has very little to do with Donald Trump at all: rather, it’s the decisions made periodically by the Federal Open Markets Committee as to US monetary policy.

To be sure, gold investors might not be trustworthy as future predictors. They are already setting the price artificially high on generalised fears of Federal government overreach, as we’ve discussed earlier, here.

And, the gold price can move sharply and significantly on certain types of news, so there’s not necessarily a need for investors to assume that any particular looming catastrophe is already priced in.

The most recent example of such a steep and sudden move harks back to 2011 when gold leapt by more than US$300 in the space of a month or two as the Fed let loose the taps of monetary easing. Even so, that move reflected the value of a dollar more than the value of an ounce of gold, and not some impending collapse of the political, international or economic order.

Indeed, the actions of the Fed went a long way towards fixing a major issue with the economic order, and gold’s spike was simply an unintended and to highly intellectualised economists, probably an uninteresting consequence.

So, it’s not as a predictor that gold is of interest, but simply as a measure of fear. Right now the fear is there, but it’s general. Gold has been trading at over US$1,000 per ounce for over eight years now as the erosion of faith in the economic system and the political structures that support it continue to be undermined.

But one event like the recent killing in Charlottesville won’t make too much difference to that. The volatility spike on markets was brief, profit-takers moved in on the VIX and the world in general moved on.

And if there is a civil war brewing, the battle lines have yet to be fully drawn. 

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