Has Gold “Ever Given” To You?

Neither the Suez Canal blockade nor the SLR exemption’s expiration should significantly affect gold, whose price is likely to be soon shaped by other factors.

Do you think you’ve had a bad day? If yes, then imagine the helmsman of the Ever Given who somehow managed to get his giant container ship stuck in the Suez Canal, disrupting global trade and causing economic damage worth millions of dollars each hour. Sure, the blockade won’t sink the global economy (pun intended), but it won’t help it either. After all, the Suez Canal is the gateway between Europe and Asia, through which around 12-13% of world trade flows, as does 30% of the world's daily shipping container freight. So, every day of obstruction disrupted the movement of goods worth about $9 billion, having a significant impact on global trade.

Of course, the world won’t end, and ships can always choose an alternative route around the Cape of Good Hope at the southern tip of Africa, but this route takes several days longer. So, the blockade has significantly delayed the consignments of goods and fuel, and exacerbated the already pandemic-disturbed supply channels. As a reminder, there are shortages of containers, semi-conductors, and other inputs and finished goods, that have significantly lengthened delivery times and pushed prices up. Although the blockade of the Suez Canal was temporary, it added additional disruption on top of existing supply problems. Meanwhile, the central banks and governments interpret everything as demand problems that need to be addressed through easy monetary policy and loose fiscal policy.

The accident of the Ever Given won’t significantly impact gold prices. And, as the chart below shows, we haven’t seen any substantial effects so far.

However, the blockade could remind investors (if they somehow managed to forget amid the pandemic) that black swans exist and fly low, and it’s reasonable to have a portion of one’s investment portfolio in safe havens such as gold (for instance, the insurance part of the portfolio). Additionally, the upward pressure on prices (although limited) could strengthen the appeal of gold as an inflation hedge, especially considering that officially reported inflation is likely to jump next month because of the low base effect and all the recent supply disruptions.

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Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it ...

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