It follows that if deflation is mostly due to production increases, including commodities, then a mild deflation may not indicate a future global recession. Still many believe with the decelerating growth in China, the slow growth in emerging markets and stagnation in Europe that the demand side is weak.
Even with a growth of around 6.5%, China’s real GDP growth rate still exceeds virtually all other major mature industrial countries. The world is not in a global recession, and with the exception of the oil-producing emerging market countries, there are signs of incremental increases in real GDP growth for 2015, according to Blu in this paper.
If oil prices remain low versus gold for an extended period of time, as was the case in the 1986-88 period, the elevated gold:oil ratio may indicate that the energy production boom (whether U.S. or Saudi Arabia) is much more responsible for oil’s price collapse than fears of global deflation, lack of demand, and recession, which probably would have caused the gold price to fall too. That said, it doesn’t mean gold is protected from the pressures of economic growth, an interest rate hike, and the highly accommodative monetary policies of Europe and Japan.
This article was written by Jodie Gunzberg, global head of commodities, S&P Down Jones Indices.
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