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In recent months, we’ve talked about some of the reasons Americans are growing concerned about their economic prospects and how those potential problems could affect retirement savers in particular. But, as it turns out, those concerns are more than local to the U.S. – they’re worldwide.
A recent article in the Harvard Business Review titled Visualizing the Rise of Global Economic Uncertainty illustrates these international concerns. It was written by a Stanford economics professor and two staff members of the International Monetary Fund and looks at how the phenomenon affects companies, as well as what they can do to prepare for what may come.
At first glance, it might be easy for individual retirement savers to gloss over an article like this. However, while savers may not have to concern themselves with steering a large company, the core of the article is relevant to anyone concerned with the value of their long-term savings. Heightened levels of uncertainty are here – and likely not going away any time soon. In the case of retirement savers, this uncertainty has the capacity to negatively impact the value of IRAs, 401(k)s and other tax-advantaged retirement plans through by generating greater volatility.
It can be hard for some retirement savers to understand how economic uncertainty on distant shores can have an effect on what they’ve saved. It’s an abstract idea, after all. For one thing, it can be difficult to separate symptoms of uncertainty from uncertainty itself.
Events such as high inflation, high interest rates and recession might seem like examples of uncertainty but, in reality, they’re simply the symptoms of uncertainty.
The inflation you’ve likely heard so much about (and, even more likely, experienced for yourself at the grocery store) is ultimately a result of the COVID-19 pandemic. That goes for the interest rate hikes the Fed has used to try and rein that inflation in, as well. It was uncertainty at the onset of the pandemic that prompted the massive expansion of money supplies by central banks and presented significant challenges to the functionality of supply chains. Things got even worse when war broke out in Ukraine, which significantly shifted Europe’s energy market and had a large number of other long-reaching effects.
Global health crises, war and political upheaval are just some of the underlying sparks of economic upheaval. Governments trying to keep their economies on track through such volatile events sometimes implement policies that can wreak havoc on the value of retirement savings.
Fortunately, retirement savers aren’t entirely at the mercy of their government’s whims. There are a variety of strategies savers might consider trying to mitigate uncertainty’s impact. One method is to diversify their savings by acquiring assets that have sometimes performed well in other times of economic uncertainty. Gold, for example, has a history of holding its value—and even rising in price – through some time periods that were otherwise tough. We’ll talk more about that later on.
First, let’s talk about this article from the Harvard Business Review. You’ll see exactly why the authors think global economic uncertainty is on the rise – and why they think it won’t be slowing down any time soon.
Harvard Business Review: “New Normal of Greater Global Turbulence”
Visualizing the Rise of Global Economic Uncertainty pays particular attention to the rise in uncertainty since 2016. The article identifies five “uncertainty shocks,” in those last six years: Brexit, the 2016 U.S. presidential election, trade tensions between the U.S. and China in 2018, the COVID-19 pandemic, and the war in Ukraine.
They also provided a visual chart of the World Uncertainty Index since 1990 and elaborated on what likely caused each spike. It’s easy to see how these global shocks have had an outsized effect on uncertainty in the last several years.
Source: Harvard Business Review
The authors of the article credit this trend of uncertainty shocks to “domestic and international political fragmentation.” And, according to the authors, the trend is likely to continue for some time to come:
These global shocks are here to stay. While each event is different, the common theme is greater geo-economic fragmentation and more polarized politics in the U.S. and Europe. These trends are powering the rise in global uncertainty and they are not going away.
This falls in line with views that the world is moving away from globalization, after a few decades of nations first growing more reliant on one another.
Economists maintain that increased globalization has served to put downward pressure on prices around the world. The idea is that as nations have come to enjoy greater and easier access to one another, the amount of competition in the overall market has increased, creating pressure to keep prices low. But in recent years, many nations have taken steps away from globalization, Brexit being one major example. As that trend continues, it’s likely that chronic – even structural – inflation will become prevalent.
That’s only one example of how global uncertainty could have a drastic effect on the value of retirement savings. If the authors of this article are correct, and these uncertainty shocks will be a continuing trend, retirement savers will need to carefully consider how to react. Of course, past performance doesn’t guarantee future performance, but this is one of the very reasons some savers are considering diversifying their savings through assets, such as gold, that have performed well in past times of high uncertainty.
Gold’s Positive Performance in the Last 20 Years
The last several years have seen a dramatic rise in global uncertainty, it’s true. But if you take a close look at the chart above, you’ll notice uncertainty has actually been steadily growing since the turn of the century.
As you can see on the chart, uncertainty was relatively stable from 1990 to 2000. While the authors of the article chose 2016 as the starting point of this new wave of uncertainty, you’ll notice a clear uptick starting as far back as the year 2000. The uncertainty of the past half-decade stands out, but it’s clear that the previous 16 years were somewhat rough as well.
Though the article has chosen to focus on causes of uncertainty since 2016, with a little historical knowledge we can make some guesses about what could have caused the jump in uncertainty earlier in the millennium. For example, we know that the seeds of the 2001 recession were sewn partly the year before. March of 2000 represented the peak of the technology bubble for that period. Its deflation was helped along by a Fed rate-tightening regime that began in 1999 and persisted through 2000. It’s also worth mentioning that the quarterly U.S. GDP contracted in the third quarter of 2000 on an annual basis.
The takeaway is that while uncertainty worsened in the mid-2010s, it was already on the rise in 2000 and 2001. And it just so happens that at the same time, the price of gold began to climb as well – and it’s been climbing ever since. If you ask me, that’s no coincidence.
Performance of Gold, 01/02/2001 Through 10/25/2022* (Source)
*As represented by a continuous gold futures contract
When you’re considering buying gold, you’ll often hear it’s an asset you should buy if you want a historically stable store of value – not one you should expect to appreciate a significant amount. It’s true gold is often used as a store of value to hedge against inflation, but if you look at the price of gold since the turn of the century, you’d be hard pressed to deny that the metal has the potential to grow, as well. In fact, over the course of history the price of gold has risen during periods of uncertainty. While that’s not a hard and fast rule, that historical tendency to increase in value during difficult times could explain why gold’s rise has been matched with the rising uncertainty of the past 20 years. No one can say what the future holds, but it doesn’t seem unreasonable to think gold may continue to climb if this uncertainty persists.
Results of “So Much Boiling Conflict” Can Be Mitigated: Bridgewater CEO
Concerns about economic uncertainty on a global scale are no news to asset managers and analysts. And the idea of buying gold as a way to mitigate the economic realities of that uncertainty is no new idea either.
In early 2020, Greg Jensen, the co-CIO of Bridgewater associates – the world’s largest hedge fund – saw uncertainty on the horizon. “There is so much boiling conflict,” Jensen said at the time. “People should be prepared for a much wider range of [a] potentially more volatile set of circumstances than we are mostly accustomed to.” Jensen recommended at that time that buying gold could be a smart move.
Another more recent recommendation to buy gold came from Jeffery Christian, a member of the research firm CPM Group. Speaking as a guest on The Northern Miner podcast, Christian reminisced about CPM Group’s assessment of global uncertainty in 2000 – as well as their expectation that tough times would continue:
In November of 2000 we issued a “buy” recommendation [for gold]. We said, “We think that the next several decades will be more stressful economically and politically…than 1978, ’79 and ’80, and we think the gold price will blow past $850 and stay high for a long time.”
Now that was 22 years ago. The reality is that we’re 22 years into a period of greater uncertainty politically, economically…we are in a turbulent period of time with great uncertainty, and a lot of things are changing. And this is going to continue for decades to come.
It seems that no matter where you look, you’ll find concerns about future uncertainty in the statements of those most familiar with the global economy. Of course, many of these professionals speak with an abundance of caution, and it’s no guarantee that we’ll see the sky begin to fall in the coming decades. But these predictions aren’t made lightly, and to me it seems prudent to consider what could happen if they were to come to pass and how one might avoid the worst if they do. And, for retirement savers who choose to believe these projections of growing uncertainty, diversifying into an asset such as gold could soothe some of their worries.
 Nicholas Bloom, Hites Ahir and Davide Furceri, Harvard Business Review, “Visualizing the Rise of Global Economic Uncertainty” (September 29, 2022, accessed 10/27/22).
 Laura Silver et al., Pew Research Center, “In U.S. and UK, Globalization Leaves Some Feeling ‘Left Behind’ or ‘Swept Up’” (October 5, 2020, accessed 10/27/22).
 TheStreet.com, “What Was the Dot-Com Bubble & Why Did It Burst?” (October 20, 2022, accessed 10/27/22).
 FederalReserve.gov, “Open Market Operations Archive” (accessed 10/27/22).
 NBCNews.com, “2000 GDP figures revised downward” (December 10, 2003, accessed 10/27/22).
 Jennifer Ablan, Financial Times, “Bridgewater sees gold rallying as central banks ease” (January 15, 2020, accessed 10/27/22).
 CPM Group, “The Case for Gold in a Time of Uncertainty,” YouTube video (September 28, 2022, accessed 10/27/22).