In fact, as far as markets are concerned, the more Sturm und Drang over Ukraine, the better. Draghi needs an excuse to launch some form of European QE, and an ECB staff projection of the dire consequences of Gazprom shutting off the pipelines is just what the doctor ordered. A few days of media hand-wringing over Putin’s intentions, perhaps accompanied by – gasp! – a 1% decline in markets, and even Janet Yellen can get into the act, promising to do “whatever it takes” to support our European brethren and overcome this horrific threat to global growth.
Ultimately this all further strengthens the Narrative of Central Bank Omnipotence – the market-controlling common knowledge that market outcomes are the result of central bank policy rather than anything that happens in the real economy. How can you know if this Narrative starts to waver or shift? If and when gold starts to work. This is what gold means in the modern age .. not a store of value or some sort of protection against geopolitical instability, but an insurance policy against massive central bank error and loss of control. So long as the dominant narrative remains that central banks are large and in charge, so long as – like today – global investors hang on every throwaway line that Draghi utters .. gold doesn’t stand a chance.
W. Ben Hunt, Ph.D.