Tuesday, November 08, 2005

Bird Flu and the Gold Price

"It is only a matter of time before an avian flu virus - most likely H5N1 - acquires the ability to be transmitted from human to human, sparking the outbreak of human pandemic influenza"
said the WHO's director general, Lee Jong-wook today at a three-day meeting in Geneva at which hundreds of experts are drawing up a strategy to prevent bird flu from developing into a pandemic.

The World Bank warned today that a human pandemic stemming from bird flu could cause a "deeply disruptive and far-reaching shock" to the global economy that would cost up to $800billion. The World Bank predicts a 2 percent fall in global GDP if a human form of the virus were to spread worldwide.

The World Bank's outlook today was quite positive in comparison to a recent lengthy report titled An Investors Guide to Avian Flu. Sherry Copper and Donald Coxe, who work for BMO Nesbitt Burns, a Canadian bank, warn that Bird Flu could trigger an economic collapse similar to the Great Depression of the 1930's, with food, tourism and insurance industries devastated in a relatively short time.

Free Market News Network gives this perspective on bird flu and the gold price:
"If bird flu were to cause a human pandemic through mutation, would eventually drive gold prices higher. Why? An irrefutable and ongoing international crisis such as one that might occur in a rolling pandemic killing millions erodes belief in central government; absent a belief in central government, the value of paper or "fiat" money becomes questionable, then fungible, then worthless.

People in the West, having never for the most part (in this generation, anyway) been exposed to a crisis of survival, do not understand how truly fundamental is the human affinity for gold or silver. Money metals evolved in a fierce competition over 20,000 years - their value is literally "hard-wired" into the human psyche. Should a real crisis loom, the price of metals might well rise in concert with its REALITY (as opposed to HYPE about an impending reality). Throughout the millennia it has been an accurate gauge of panic. Is everyone so sure that the bird flu pandemic is destined to wipe out millions? The price of real money, gold and silver, should tell us so."

"This is the time for every country to prepare their national action plan - and act on it," WHO's director general, Mr Lee said today. "If we are unprepared, the next pandemic will cause incalculable human misery - both directly from the loss of human life and indirectly through its widespread impact on security. No society will be exempt. No economy would be left unscathed."

Perhaps now is a good time to prepare your own bird flu action plan.
Buying a few gold coins could be a wise move at this stage.

Here is a quote from a recent article on this topic titled How Would Gold React to a Pandemic? by Clif Droke.

So how should a gold investor approach a potential bird flu or other widespread health crisis? First, by not panicking or being too hasty to draw conclusions based on a possibility that is still relatively remote. Buying or selling an investment vehicle based solely on fear is a sure recipe for failure in the financial markets. Investment decisions must be based upon one's discipline, whether technically or fundamentally based, which negates the possibility of emotion getting in the way of the buying and selling process.

That said, the fear of a major bird flu outbreak -- even if the chances of an actual pandemic are remote -- will be among the factors supporting the gold price in the next few years. Gold is a major barometer of fear and does tend to rise in value with an increase in public fear and pessimism. Now that we're only eight years away from the bottoming of the K-wave/120-year cycle we've entered the "fear stage" of this long wave cycle. The gold price tends to outperform other investments at two points along the K-wave: the first during the peak inflationary phase (a' la the 1970s). The next during the deflationary phase such as we're now in.

With the "hard down" phase of the 120-year cycle comes an increase in warfare, natural disasters and even pestilential outbreaks (the previous 120-year cycle bottom saw major epidemics of smallpox and cholera). But equally important is the widespread lingering fear that the final few years of the 120-year cycle engenders. This fear, though unwelcome to some, is actually a bolster to the price of many hard assets, including gold and silver. The "Wall of Worry" that is essential to keeping the long-term upward trend of prices intact is kept alive by fear, including fear (whether grounded in reality or not) of various pandemic threats. Gold's longer-term uptrend will most likely continue to be bolstered by such fears.

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