Gold’s stratospheric rise signals disaster ahead for the world’s financial order
he International Monetary Fund turned 80 years old this year, but seldom has its role in underpinning macroeconomic stability looked more in jeopardy than now.
Support for the organisation, which acts as lender of last resort to governments in financial distress, is still relatively strong in Europe and, for the time being, also the United States. But it is increasingly lukewarm in China and large parts of the rest of the world.
This should be a matter of grave concern among Western finance ministers and central bankers gathering in Washington this week for the IMF’s annual meeting.
Over the years, the Fund has proved one of the more successful of the multilateral organisations born out of the Second World War.
Certainly, it has been through periods of comparative irrelevance, but on the whole it has stood the test of time, and in engineering countless debt restructuring programmes, has played a key role in sustaining today’s dollar-based, global financial order.
Yet with geopolitical tensions once more on the rise, barriers to trade and cross-border capital flows ratcheting up and public indebtedness across the world spiralling out of control, cracks are fast appearing. Slowly but surely, the IMF is losing legitimacy. Worthy multilateralism gets left at the door at the first sign of international conflict.
The canary in the mineshaft is the price of gold, which hits new record highs on an almost daily basis.
At first glance, this is curious. As an investment proposition, the gold price tends mainly to reflect interest rate and inflation expectations. There is no dividend or coupon on gold, so when interest rates are high it loses its relative attractiveness.
Over the past two to three years, however, the gold price has almost entirely decoupled from this relationship, surging anew right through a period of strongly rising interest rates.