Bello

Two extremists vie in a run-off for Peru’s presidency

Pedro Castillo, barely known until recently, faces the unpopular Keiko Fujimori



Cajamarca, in peru’s northern Andes, is known mainly as the place where Atahualpa, the last ruler of the Inca empire, was murdered by the Spanish conquistadors despite having paid his ransom by filling a room with gold. 

Today Cajamarca is the capital of a large region of struggling farmers, rough roads and modern gold mines. 

It still feels betrayed: the mines have brought more prosperity to the nation than to the region, which is Peru’s poorest. 

It is the home of Pedro Castillo, a rural schoolteacher and union leader who surprised the country by winning 19.1% of the vote in a presidential election on April 11th, ahead of 17 other candidates. 

He did so on a platform that calls for the nationalisation of foreign mining firms, a new constitution and a much bigger state.

These are the standard demands of the chavista left in Latin America. 

For the past 30 years Peru, with a fast-growing free-market economy that has slashed poverty, has rejected them. 

But political instability, corruption scandals and public disaffection have all mounted. 

The pandemic has overwhelmed an unequal health system. 

In a run-off election on June 6th that will pit Mr Castillo against Keiko Fujimori (13.4%), a conservative, might Peru break its political mould?

Until a month ago Mr Castillo was barely known, though he was a leader of a three-month-long teachers’ strike in 2017. 

A mestizo, like most Peruvians, he has a skilful populist touch. 

He excoriates a distant governing class “with their golden salaries”. 

“We cannot allow more poor people in a rich country,” he says, with a nod to those mines. 

He is a rondero—a member of the vigilante groups that patrol Cajamarca’s countryside, originally against rustlers, but which now act as a local power. 

He is also a Christian and a social conservative. 

Having recovered from covid-19 in January he was one of the few candidates to campaign in person, often on horseback and with a cowboy hat. The teachers’ union, ronderos and evangelicals spread his word.

In the past three elections up to a third of Peruvians, mainly in the Andes, have voted for candidates who promised to change “the model”. 

Only one went on to win a run-off: Ollanta Humala, a nationalist former army officer, lost in 2006 offering chavismo but won in 2011 on a more moderate, social-democratic platform. 

Mr Castillo could be another Mr Humala. 

As a typical Peruvian trade unionist he combines radical rhetoric with pragmatism. 

To win the teachers’ strike he allied with a movement descended from Shining Path, a terrorist group of the last century, but also with legislators from Ms Fujimori’s party.

However, Mr Castillo has a problem. 

Not only does he lack time to re-invent himself, but he stood for a Marxist-Leninist party controlled by Vladimir Cerrón, a former regional governor disqualified for corruption. 

Whereas Mr Castillo has been conciliatory in victory, his running-mate, Dina Boluarte, an ally of Mr Cerrón, threatened that “the comfortable middle class of Lima will certainly cease to be the comfortable middle class.”

Run-offs in Peru “tend to be a plebiscite on one of the two candidates”, says Alberto Vergara, a political scientist. 

“This will be a plebiscite on Castillo and he will probably lose.” 

Unless he moderates, he is likely to lose by a landslide. 

But he has one big thing going for him. 

Ms Fujimori is the most toxic political figure in Peru. 

Her father ruled as an autocrat in the 1990s. 

For the past decade anti-Fujimorismo has been the dominant political current. 

This twice denied Ms Fujimori the presidency. 

Her party won a majority in Congress in 2016, and repeatedly tried to bring down the government. 

She spent time in jail on unproven allegations of campaign-finance corruption which she claims are politically motivated. 

She is the candidate who has the highest rejection rate (though the proportion of people saying they would never vote for her is falling). 

Like Mr Castillo, she has a lot of work to do.

For many Peruvians, to have to choose between these two extremes is painful. Lots may abstain. 

The next president will be weak: the two contenders won less than a third of the vote combined; the total of blank and spoiled votes was more than Mr Castillo’s haul. 

The new Congress is likely to be split among 11 parties. 

Peruvian parties have become the property of individuals, often for financial gain. 

Their only shared interest is to raid the treasury and central-bank reserves for short-term popularity. 

That, rather than an ideological shift, is likely to be the biggest risk facing Peru. 

Ever closer union?

Europe’s radical economic response to covid-19

The EU can now borrow, but how well can the member nations spend


Gianluca pila is perched on a handrail in his straw hat and blue-and-white striped shirt, whiling away the time on his mobile phone as the Grand Canal laps at the jetty. 

What else is an underemployed gondolier supposed to do? “The only people who’ve been hiring gondolas come for the day from cities nearby,” he says glumly.

Like much of Europe, Venice has been hammered by the effects of covid-19. 

Also like much of Europe, it is looking to Next Generation eu (ngeu), a pandemic-recovery fund, to get back on its feet, or in Mr Pila’s case, on to the water. 

In the spring of 2020 it became clear that not only would the covid-19 pandemic wreak havoc on Europe’s economies, but that some would be hit much harder than others. 

Seeking to mitigate this shock to the system, Chancellor Angela Merkel of Germany and Emmanuel Macron, France’s president, agreed a plan that would see the eu issue hundreds of billions in debt in its own right and distribute the proceeds mostly to the poorer member states.

Clément Beaune, Mr Macron's Europe minister, has called the initiative “revolutionary”. It would have been unthinkable before the pandemic, notes Paolo Gentiloni, the eu’s economy commissioner. 

Previous suggestions that there might be a role for debt collectively backed by member governments had always been roundly rejected by Germany and countries which share its views on fiscal probity. But a global pandemic changed minds.

The idea Mr Macron and Mrs Merkel proposed in May was put into legal form by the European Commission and approved by the leaders of the 27 member states at a gruelling five-day European Council summit in July. 

All told, the ngeu which came out of that meeting is worth up to €750bn ($880bn), or 5.6% of the bloc’s annual gdp, over five years: €672.5bn will be used to create a Recovery and Resilience Facility (rrf) which makes grants and loans to member states; the other €77.5bn will be spent on eu-wide programmes like react-eu, a top-up to the union’s structural and investment funds.

The way allocations have been calculated means that small countries in a bad way will see inflows of real macroeconomic significance: Bulgaria, Croatia and Greece each stand to receive grants equivalent to around 10% of their annual gdp or more. 

Richer countries like Denmark or Germany can expect less than 1%. In absolute terms, Italy and Spain will be the largest beneficiaries (see chart 1).


Even before getting under way the ngeu started to have an effect on bond markets, helping to keep the cost of borrowing in countries with weaker economies close to that experienced by their stronger brethren. 

When the bonds begin to be issued they could fundamentally change those markets. 

By issuing a large pan-European bond, the eu will create a financial instrument to match us Treasuries: a safe asset underpinning a true economic union. 

Believers in ever-closer union think such a bond would have staved off the worst of the euro-zone crisis a decade ago.

In February Lucas Guttenberg, Johannes Hemker and Sander Tordoir of the Jacques Delors Centre, a Berlin think-tank, wrote that the creation of the fund marked an irretrievable change in Europe’s financial architecture. 

It shows the eu that it can issue common debt at scale and gives it a model for doing so the next time crisis strikes or a grand European ambition develops. 

But for that model to appeal the ngeu has to deliver, and for that to happen the member states must play ball. 

Finance ministries have to present the commission with recovery plans which contain proposals for both investment and reform if they are to get their money, and these proposals have to meet various criteria.

National investment plans must devote at least 37% of their outlay to climate-related objectives and a further 20% to digital initiatives. 

And the reform proposals need to follow, at least in part, the commission’s previously stated “country-specific recommendations”: structural-reform proposals that governments have ignored for years.

As ways of improving and greening future growth, these conditions have their logic. 

Mr Gentiloni is confident that the mandated environmental spending will help make the eu a global leader on climate. 

But many countries want the new funds to relieve current suffering, and the conditions feel to some like constraints on that goal. Spain’s stricken businesses “don’t need solar panels or windmills, they have to survive until the tourists come back,” says Angel de la Fuente of Fedea, an economics think-tank in Madrid. 

“Things that might make sense in Denmark don’t necessarily help us in Spain.” (As it happens, a supererogatory 65% of the spending in Denmark’s plan is indeed on climate goals.)

And the required reforms are, almost by definition, difficult, unpopular or both—were they not they would have already been made. 

Though some reforms which the commission wants, it argues, could help the money be spent more swiftly and effectively, the time taken by others could, countries fear, slow things down.

Plans acceptable to both sides are meant to be finalised by the end of April. 

Then comes a process of formal approval by the commission and the eu Council. 

Behind the scenes, commission officials are pushing governments hard to knock their plans, each of them thousands of pages long, into shape. 

Since some look unlikely to do so in time there are worries that the timetable may slip. 

Laurence Boone, chief economist at the oecd, has suggested that the process is “getting lost in bureaucratic procedures”. Christine Lagarde, president of the European Central Bank (ecb), has also expressed fears of a slow roll-out.

Eurocrats know that time is of the essence; they also know that the success of the scheme rests on governments’ ability to spend the money not just quickly, but also efficiently and productively. 

If they do, the ecb predicts that the euro zone could see a 1.5% boost in gdp over the medium term: good in itself and also a worked example of what the union can do when it pulls together, strengthening the case for further economic integration. 

If they do not, Brussels will share some of the blame on the basis that the plans it approved either didn’t work or were not delivered on. 

“We are taking a massive bet with this exercise,” says one senior official in Brussels.


The highest stakes are in Italy, where even before the pandemic the economy had barely grown in real terms for 20 years. 

Opportunities for changing this through investment undoubtedly exist, but they have proved hard to exploit; by the end of last year Italy had got through barely half of the money from the eu’s four structural and investment funds to which it is entitled (see chart 2).

Whether or not it can revive Italy’s economy, ngeu has already had a profound impact on its politics. 

Its generosity in a time of trial has curbed a long rise in Euroscepticism. 

And a row over the recovery plan submitted by Giuseppe Conte, the prime minister until early February, saw Mario Draghi elevated to the premiership in his stead. 

Mr Draghi, who as president of the ecb during the euro crisis introduced the phrase “whatever it takes” into Europe’s political vocabulary, heads a government which, though made up of some odd bedfellows, seems to have calmed the churning waters of Italian politics.

Rubies in the dust

Mr Draghi will hope to exploit this more positive mood as he wrestles with a revision of Mr Conte’s recovery plan. 

The work is taking place in the finance ministry—headed by Daniele Franco, a long-standing associate of Mr Draghi—and in the ecological- and digital-transition ministries, whose technocrat bosses, Roberto Cingolani and Vittorio Collao respectively, were hand picked by the prime minister. 

Commission officials are cautiously optimistic, but they still want commitments to reform Italy’s public administration, guarantees that promised reforms will be implemented and more granular detail on proposed investments. 

The high stakes and Italy’s poor record with structural funds mean they are pushing that much harder to ensure the plan is up to snuff. 

“The key”, says Silvia Merler at Algebris, an asset-management firm, “is to get rid of impediments that have made previous rounds of public investment unsuccessful.”

Top of the list is Italy’s sluggish public bureaucracy. 

On March 16th Mr Cingolani told parliament that companies had been put off bidding for wind farms by the prospect of delays and lawsuits. 

To have an ecological transition, he said, Italy first needed a bureaucratic one. Mr Gentiloni, who was Italy’s prime minister for 18 months in the late 2010s, notes that removing bureaucratic barriers will be crucial if investment is to tackle a depressed Mezzogiorno.

The south, which has long acted as a drag on national growth, hopes to gain disproportionately from Italy’s rrf grant allocation of €68.9bn (4.2% of gdp). 

There is talk of laying high-speed rail across the Apennines from Naples to Bari and of upgrading other tracks; of improving the south’s port infrastructure and its leaky water networks. 

The problem is that such ventures require time, and the ngeu funds have to be spent by 2026. 

That reinforces the argument for more easily realisable projects, such as a drive for more crèches. Italy’s woeful female labour-market participation is largely a southern phenomenon.

The fervour of Italy’s negotiations is being felt on the other side of the Alps. 

Mujtaba Rahman, managing director for Europe of the Eurasia group, a consultancy, credits “the Draghi effect” with getting French officials to take negotiations with Brussels more seriously over the past month, offering moves on unemployment benefits and pension reform to help the money flow. 

The French government takes pride in having helped mastermind the ngeu, but there has been a growing sense of frustration about how long it is taking to translate the historic agreement into spending. “Things are moving too slowly,” fumed Bruno Le Maire, the finance minister, early in March.

French officials recognise there must be rules and oversight; indeed they helped draw them up. 

But they fear things will get bogged down in bureaucratic procedure. 

And they know that with a presidential election looming next year, Mr Macron needs to show that lofty pro-European talk secures actual benefits for French citizens, while not committing to unpopular reforms that need enacting in the meantime. 

Officials in Brussels concede they cannot be blind to political timetables in France (or for that matter in Germany, which will hold a general election in September). But, says one, “we must not fall into the ‘France is France’ trap”.

Asked to single out a plan for praise, such officials will typically plump for the Greek or Spanish one. Indeed, they have used the latter to spur the efforts of laggards. 

Pedro Sánchez, the prime minister, wants to use the money to help Spain become a leader in “e-mobility”, shovelling money to battery and electric-car manufacturing facilities and building thousands of recharging points. 

The government also wants to invest in digitising its own operations and using renewable electricity to produce hydrogen, an undertaking on which Europe is becoming quite keen; some €10bn will be devoted to stemming rural depopulation.

But though it may meet approval in Brussels, the recovery plan is not without critics in Spain, where it was drawn up in Mr Sánchez’s office with little consultation. 

There’s “not much detail” in the plan and no “clear-cut procedures for evaluating projects,” says Mr de la Fuente. 

Though it has happily cut red tape for recovery projects, Mr Sánchez’s left-wing coalition shows little interest in long-standing commission requests to make its pension system financially sustainable or to reform a pernicious labour market which leaves 22% of workers on temporary contracts and 16.3% unemployed.

The ngeu is not quite a done deal. 

On top of the last-minute hardball being played between Eurocrats and finance ministries, on March 26th Germany’s constitutional court blew the whistle when it temporarily blocked a national law needed to allow the commission to begin borrowing. 

German officials are hopeful that progress will soon resume after a broader ruling. 

But the early fruits of ngeu are already being picked as countries increase their spending in anticipation of a happy ending. 

Spain included €27bn of the €69.5bn (6.2% of gdp) it expects in the form of grants from the rrf in this year’s budget; by March 1st France had already put €16bn of the €39.4bn in rrf grants it is expecting towards the €100bn (4.4% of gdp) it plans to spend on its recovery.

Out of the black

Money from bond sales should start to flow in the summer, with a quarter of the total disbursed this year. 

The ecb does not expect gdp levels to return to pre-pandemic levels until the second quarter of 2022. 

When compared with America’s near instant doling out of the $1,400 cheques at the centre of Joe Biden’s $1.9trn stimulus, and predictions that its gdp will have rebounded a year earlier, this looks sluggish. 

But America is using existing channels. 

The eu is using a completely untested scheme of mass public investment. 

Nevertheless, Mr Macron and Mr Draghi have already suggested that the fund will need to be enlarged.

That will mean more borrowing—and, potentially, new taxes. 

In June the commission will propose several new “own resources” (ie, common taxes), including a digital tax and a levy on climate-unfriendly imports. 

The current plan is to start repayment in 2028, with the borrowing wound down over the next three decades. 

Such tax plans, which require unanimous support from governments, have tended to flop in the past. 

The hope is that the need to repay the money will change their incentives.


Markets, though, believe that the bonds will be repaid with fresh borrowing, as most government debt is. 

And many European politicians hope they are right. 

They see ngeu as a precursor to a permanent fiscal capacity for the eu, or at least the euro zone. 

Mr Gentiloni notes that the eu’s history shows that “if you introduce a new tool that works, it can be repeated.”

No one wishes the project ill. 

“It's important for ngeu to succeed, meaning that funds are spent wisely and economic growth in the euro area picks up,” says Isabel Schnabel, who sits on the ecb’s board. 

But it will need to overcome real hurdles if its success is to lead to its repetition. To extend its debt-issuing provisions beyond 2026 would require new laws. 

Fiscal conservatives in Germany and elsewhere, who grudgingly acceded to ngeu as a one-off, retain a visceral opposition to a permanent “transfer union” they fear would leave them on the hook for Europe’s fiscally incontinent. 

Such a capacity would require the sort of grand centralising moment that has become unfashionable in Europe.

In most countries the ngeu’s grants will matter less than national fiscal efforts, and the reform needs of many states are too great to be fixed by a short-lived intervention. 

Nevertheless its existence has stoked ambition. 

Italy’s minister for the South, Mara Carfagna, likens the situation to one her country tackled in the 1950s, when 800km of highway were built between Milan and Naples in just eight years. 

She wants “once again [to] enable Italy to become an example to the world.” Elsewhere aspirations are less grandiose, and doubts about delivery and reform persist. 

“We don’t know if, when the money arrives, it will be for the relevant minister or the region to spend,” says the deputy mayor of Venice, Andrea Tomaello. 

The city favours local priorities; it wants to refurbish its secondary schools and make them more energy efficient. 

Mr Pila, idly doing his part for the digital transition beside the Grand Canal, just wants the tourists back. 

Gold Rises as Financial Faith Weakens

By Matthew Piepenburg



An Ode to Law School

In recent weeks, I’ve authored many reports pointing toward the certainty of both current as well as rising inflation ahead, which, of course, is favorable to the long-term price direction in gold.

That said, I also joked that the only thing certain in life is uncertainty; and yet I stuck to my inflationary certainty.

With this paradox openly confessed, one of my former law professors sent me a polite yet challenging email to make a contrary case for inflation, as he had taught me (and many others) to do as part of a 3-year legal education in seeing two sides to every fact pattern.

And so, in deference to a wise professor, as well as the humility of seeing more than one’s own certainty, let’s give deflation a fair look, as well as fair argument.

In the end, fortunately, the net result is the same for gold: Its best days are still ahead.

The Case for Deflation

Despite all the reasons discussed in preceding reports (i.e., money supply, commodity super cycles, deficit spending, and governmental credit guarantees to commercial banks) as to what we see as the current as well as future inevitability of rising inflation, there are many credible individuals, including those who strongly favor gold, who see a very different horizon.

That is, there are many who see a deflationary rather inflationary setting ahead.

The key arguments made by deflationary thinkers are not to be mocked or disregarded.

Their primary argument in favor of deflation boils down to one simple idea, namely: 
When economies and markets stall (or even collapse), this leads to dramatic slow-downs in consumer demand, and hence dramatic declines in consumer pricing—ie. deflation.

Needless to say, current economic conditions are anything but robust, which favors a deflationary premise.

By the turn of 2020’s in general, and during the global pandemic in particular, the world witnessed extreme levels of excess capacity (i.e. surplus rather than demand) in labor, manufacturing, retail and commercial real estate.

Banks this year, for example, are already telegraphing that in a post-COVID world, they will require 40% less office space as more and more systems have since been put in place to manage operations outside of traditional office settings.

All of these factors of excess capacity, from retail to commercial office space, one could sanely argue, point toward continued deflationary rather than inflationary forces going forward.

As to the staggering growth of the money supply unleashed by global central banks printing trillions of fiat currencies at record levels since 2008 in general, and the 2020 COVID period in particular, the deflation camp can further (and sanely) argue that such extreme money creation has not led to rising inflation, including hyper-inflation.

This, they legitimately argue, is for the simple reason that all those printed fiat currencies never enter the real economy, but remain contained within a closed-circuit loop of Treasury departments, central banks, commercial banks and Wall Street—not the real (i.e. Main Street) economy where money velocity truly can do its inflationary damage.

In short, so long as central banks act as insider-lenders of last resort to government treasury departments and overpaid CEOs, all that printed money is safely contained behind a Hoover-like dam of bank balance sheets, not the real economy where such levels of money growth would and can do their inflationary damage.

Fair enough. Good points.

In fact, these deflationary views, make logical sense, and it would be arrogant to simply discount them.

That said, there are some key mistakes, I contend, in the premises behind such logic.

In short, let me now switch hats from a deflationary defense to a deflationary prosecutor.

Holes in the Deflation Case…

First, the broader deflationary argument that all this central bank money can and will stay contained within a closed-loop circuit outside of Main Street is not factually the case.

By 2020, for example, the Fed pivoted from being a lender of last resort into a spender of last resort, making direct purchases into various credit ETF’s and even specific corporate bond issuances.

This means central bank money was beginning to leak outside of the foregoing “Hoover-dam” (cemented together by central banks, treasury departments and commercial banks) and hence directly into the real world.

Such a trend, by the way, is highly inflationary rather than deflationary.

Additionally, the deflationary camp ignores the massive (and rising) amounts of fiat currencies going directly into the real economy on the heels of unprecedented fiscal stimulus (i.e. deficit spending) as governments, most notably in the U.S., send trillions of dollars directly into the hands of consumers and businesses in the form of COVID relief checks, PPP loans and other “Care Package” policies.

Such “hand-out money” travels straight into Main Street.

Of course, trillions of dollars flowing directly into Main Street leads to an increase in the velocity of that money, which again, is an inflationary rather than deflationary force.

Finally, it is worth repeating to all deflationary thinkers that the very scale used to measure inflation in the U.S., namely the Consumer Price Index published by the creative writers at the Bureau of Labor Statistics, is an open charade.

As I’ve argued in prior reports, the real measure of CPI inflation by 2021 was closer to 9% not the creative and fictional 2% rate promulgated out of a truth-challenged (i.e. desperate) Washington DC.

Stated otherwise, inflation is not a debate; it’s already here.

In short, the deflation and inflation arguments, as well as debate, will continue to rage, and although I see a distinctly inflationary future, I am not blind to deflationary forces or those who foresee more of the same.

Does Gold Really Care About the Inflation/Deflation Debate?

As importantly, and perhaps most dramatically, we have to also raise an additional, and perhaps even blasphemous question when it comes to gold pricing, namely: Does gold even care about this inflation/deflation debate?

That is, it’s worth underscoring here that gold price movements in general, and the role of gold as counterforce to increased currency debasement in particular, is and can be relatively agnostic to whether the world turns inflationary or deflationary in the near or long term.

Yes, of course, inflation still matters, in so far is that gold prices rise highest when the rate of inflation exceeds the nominal yields on 10-Year government bonds.

Such negative real yields, as I argued in a separate report, are absolutely ideal settings for gold pricing.

But keep in mind, all that is required for such an ideal gold setting is not that inflation shoots to the moon (i.e. hyperinflation), but simply that inflation rates be higher than nominal yields/rates, which is a future I see as both inevitable and consistent—and hence a major tailwind for gold over the long term.

Are Rising Rates Really a Threat to Gold?

Despite hysterical fears of rising rates, which are a clear headwind to gold pricing, most realists have little to no doubts that in the near term, governments will continue to create liquidity to purchase bonds and hence keep nominal yields compressed.

This is because global government debt levels are at such record highs that their central banks will have no choice, at least near term, but to do “whatever it takes” to artificially keep the cost of that debt (i.e. rates and yields) down so that global governments, including in the U.S., do not become insolvent in a world of naturally rising rates. 

And as for nominal rates, people may be scurrying, screaming and worrying about so-called “spiking” yields, but folks, 1.6% or even 2% yields on the U.S. 10-Year is hardly nosebleed territory (and still negative when adjusted for even mis-reported inflation).

Thus, compared to more normal eras, yields in this broken “new normal” are remarkably low, and for all the Realpolitik reasons discussed above, won’t be going much higher any time soon.



Given such historically low nominal rates, most informed investors see very little upside in bonds, and as such continue to buy silver and gold.

In fact, nominal yields would have to climb to at least 3% for gold investors to exit the precious metals space in large numbers, and we don’t expect nominal yields to reach such levels, again, because governments like the U.S. (or corporations on the S&P) could not afford such sustained rates.

In short, don’t fight a desperate Fed.

Furthermore, even if the central banks implode tomorrow under the weight of their own grotesque debt and mismanagement, and yields and rates were to shoot to the moon, so too would inflation, and hence so too would gold prices.

Either way: Gold wins.

In the meantime, most of us also know that the Fed serves Wall Street not Main Street. 

Always has; always will.

Needless to say, the current (and dangerous) stock market bubble is about the only thing the U.S. can brag about, and more low rates are the rotten wind beneath the wings of this rotten market, which the Fed will still fight to support, Main Street be damned.

Don’t forget as well that CEOs within this rotten and rigged-system get paid based upon share price, not profits and earnings.

More artificial low rates, compliments of their Rich Uncle Fed, will thus help the spoiled nephews on the S&P continue to borrow cheap and buy back their own shares to make their otherwise zombie-like stocks rise on debt rather than free cash flow.

In case you think I’m just a cynic, see for yourselves:



Gold’s Real Tailwind: Direct Consumer Demand

Furthermore, and with specific reference to gold pricing, the real driver for its price has been, and always will be, direct consumer demand.

Such demand is in fact driven by variables that go well beyond interest rates and inflation/deflation debates.

In fact, such demand is driven far more by emotion than math or lofty market reports like this.

More specifically, demand for gold rises when faith in political & social stability, economic policies and currency value falls further and further toward the basement of time.

And as we’ve all discovered over many years and many objective market reports, faith in each of these critical areas has sunk, and will continue to sink, toward further lows, as all debt-saturated systems do.

Such declining faith in the total mismanagement of the global financial system helps to explain why gold (despite all the maniacal enthusiasm for BTC and fears of rising rates or even muted inflation) continues to attract consumer demand.



In short, and despite all the complex technical, mathematical and academic discourse regarding inflationary and deflationary forces, faith in the financial system, or rather a growing lack of faith in it, will always be among the strongest forces behind gold demand.

Needless to say, our faith at Matterhorn Asset management in the global financial system has been openly weak for decades, which is why we created our unique precious metals service in Switzerland years before this ever-growing storm in the monetary, commercial banking and currency systems began to make headlines.

Nor were we alone in this growing lack of faith, including our open lack of faith in paper currencies and the paper traded (in the futures markets) to mis-price the paper price of gold, which has nothing to do with actual demand for physical gold and hence physical gold pricing when measured against ever-debased currencies.

Strangely, this critical faith indicator, and the fact that the global financial system is so openly broken (from Elon’s Tweets to Powell’s double-speak, or from COMEX price fixing to the CPI lie) serves as a primary reason behind our confidence that gold will reach far higher highs in the years ahead.

Stated even more simply, as awareness of the growing mismanagement of the global banking, financial, economic and currency system increases, faith in the same decreases.

And from this lack of faith, our conviction in the golden days ahead for gold only rises with each passing day.

Vaccine Diplomacy

The Surprising Success of Sputnik V

For Russian President Vladimir Putin, the development of the Sputnik V vaccine is a welcome boost to his country's image. And it has been received with open arms in Latin America. In Europe, though, people remain skeptical. Rightly so?

By Christian Esch, Jens Glüsing und Christina Hebel, in Moscow and Rio de Janeiro

A delivery of vaccine from Russia arriving in Bolivia Foto: David Mercado / REUTERS


Last week, Vladimir Putin finally got vaccinated against COVID-19. 

For almost half a year, the Russian president has been tirelessly praising the vaccine developed in Russia. 

Sputnik V, he has said, is the "best vaccine in the world." 

Nevertheless, he was disinclined to take it himself, and even withdrew from the public eye for a time. 

Now, though, it appears that he has changed his mind.

But there's a catch. 

No information was provided about which vaccine he chose to use. 

Nor were any images or video footage provided. 

Why not? 

"As to being vaccinated on camera, well he has never been a fan of that," Putin's spokesman said. 

"He doesn't like that."

Putin's delayed and covert vaccination fits well with the strange story of Sputnik V, the first vaccine approved for COVID-19 in the world. 

It is a success story, to be sure, but there are some pretty large qualifiers.

Millions of people around the world have already been vaccinated with Sputnik V and more than 50 countries have approved it. 

Images from faraway countries like Argentina, Bolivia and Venezuela show pallets stacked with vials full of Sputnik V being welcomed. 

The world needs help, and Russia is there to provide it: That's the message.

But many places don't completely trust the Russian offer. 

And nowhere is that mistrust as pronounced as it is in Europe. 

But even in Russia, Sputnik V is viewed with some skepticism.

The vaccine continues to be dogged by the fact that its introduction was less than perfectly transparent. 

It was similar to Putin's recent vaccination: You have to believe it, because you're not going to see it. 

The result is that Sputnik V has become a matter of faith – as if the vials weren't full of vaccine, but of a cocktail of politics and medicine.

"Provocations" from the West

The birthplace of Sputnik V is the Gamaleya Research Institute of Epidemiology and Microbiology on the outskirts of Moscow. 

For more than two decades, it has been under the leadership of Alexander Ginzburg, a cheerful biologist with a chortling laugh. 

It's not easy get permission to visit him in his wood-paneled office: The institute answers to the Health Ministry, which rarely allows visitors. 

The Kremlin has warned of "provocations" in the Western media. 

On the other hand, though, the U.S. film director Oliver Stone, who is a friend of Putin's, dropped by the Gamaleya Institute recently and was vaccinated with Sputnik V.

Ginzburg doesn't share the ministry's concerns. 

Thank God, he says, that Sputnik V is now receiving more positive attention abroad than in the past – both in the media and in scientific circles.

It has almost been an entire year since Ginzburg was vaccinated with Sputnik V. 

The institute first began developing its vector vaccine, made up of two components, back in February 2020. 

Inactivated flu viruses (so-called adenoviruses) were used as a carrier to transport genetic material from the coronavirus pathogen into the cells of the human body.

Gamaleya had experience with vector vaccines, having developed one for the Ebola virus as well. 

The institute merely had to fill its carrier with a new payload. 

The researchers obtained the necessary COVID-19 viral material in mid-March from a clinic in Moscow, where a patient, who had picked up the infection in Rome, was receiving treatment.

Ginzburg said he was administered the vaccine on March 30, at a time when animal testing was still underway. 

"We staff members were vaccinated before the monkeys, right after the mice and at the same time as the hamsters and guinea pigs."

Russian President Vladimir Putin has now been vaccinated, but with what? Foto: Alexei Druzhinin / TASS / ddp images


Still, the decision to receive the vaccination at such an early stage wasn't quite as daring as Ginzburg makes it sound. 

The Gamaleya Institute had already developed a comparable vaccine for a similar coronavirus – the one that causes MERS, the virus behind the 2012 outbreak in Saudi Arabia. 

And that vaccine, says Ginzburg, had already been tested on humans. 

Basically, MERS provided the researchers at the Gamaleya Institute with an unexpected head start on the development of a COVID-19 vaccine.

The research group was led by Denis Logunov, a sturdily built 42-year-old. 

A week ago Monday, he received personal praise from Putin for his work on Sputnik V in a televised video call. 

"I want to see this man and I want the entire country to see him," the president said.

David vs. Goliath

Logunov is visibly offended by the hail of criticism of the Sputnik V vaccine that came from abroad. 

It was particularly strong around the time the vaccine was approved in Russia – despite the fact that the results of the Phase I and II testing hadn't yet been released and Phase III testing hadn't even started yet. 

It looked as though Russia was taking shortcuts.

"It was an emergency authorization," Logunov says. 

The vectors used in the vaccine, he says, were well-established – a major difference to the new development techniques used by some of the competing vaccines, such as the mRNA approach used by BioNTech and Moderna.

Logunov believes the criticism from abroad is hypocritical. 

"It's offensive," he says. 

"You really are carrying out experiments on people, but you accuse us of doing so, even though we are using components that have been tested hundreds of thousands of times." 

The Gamaleya Institute sees itself as David in a battle against the Goliath of the international pharmaceuticals industry. 

They feel they are being treated unfairly.

Institute head Ginzburg says: "I can understand the skepticism. 

From outside, the process looked overly hasty, as though we were trying to be the first. 

That maybe played a role. 

But it was done in accordance with the rules for approval and against the background of the de facto war-like situation in which we found ourselves."


It was only in February 2021, half a year after the vaccine was approved, that the Phase III results were released in the journal The Lancet. 

Those trials indicated that Sputnik V has an efficacy of 91.6 percent, higher than the vaccine developed by AstraZeneca.

Criticism has quieted noticeably since then, but it hasn't gone away completely. 

Some researchers are demanding access to the raw data from the trials, others believe there are inconsistencies between the number of trial participants and the efficacy calculation, and still others have speculated about possible manipulations. 

Logunov has rejected all such allegations.

Naming the Vaccine

Kirill Dmitriev is the man responsible for marketing Sputnik V around the world. 

A former banker, Dmitriev went to both Stanford and Harvard, and his rapidly spoken Russian is frequently peppered with English. 

In describing the European reservations that he is trying to overcome, Dmitriev – speaking via Zoom from his office in Moscow – uses the terms "anxiety" and "overthinking."

Dmitriev is head of the multibillion-dollar, state-owned Russian Direct Investment Fund (RDIF), which invested in the development and production of the vaccine.

Dmitriev is well-connected. 

His wife attended university and continues to work with Katerina Tikhonova, Putin's presumed daughter, who leads a foundation promoting innovation.

If the Gamaleya Institute is the birthplace of the COVID-19 vaccine, then Dmitriev is the one who christened it, having come up with the name Sputnik V. 

Initially, it was simply called Gam-Covid-Vac, which is how it is still referred to on Russian vaccine certificates. But it is bought and sold under the name Sputnik V.

The V stands for "vaccine," but also for "victory." 

And "Sputnik," of course, is a reference to Moscow's triumph in the race for space between the superpowers: That was the name of the first satellite launched into orbit by the Soviet Union in 1957. 

"Americans were surprised when they heard Sputnik's beeping," Dmitriev said back in July 2020. 

"It's the same with this vaccine. 

Russia will have got there first."

This kind of chest-pounding rhetoric did the vaccine no favors abroad. 

These days, Dmitriev is a bit less strident. 

"We underestimated the degree to which Sputnik would be associated with a race in the West." 

He says that in such a crisis, cooperation is more important than competition.

Currently, relations are particularly difficult with the European Union. 

"Europe has the impression that Sputnik V is doing all it can to force its way into the EU. 

As if Russia would absolutely need it. 

In truth, though, it's the other way around: Europe needs Sputnik," says Dmitriev. 

Russia, he says, must first take care of itself and it has plenty of other partners.

Dmitriev believes that the pharmaceutical concerns and their lobby are behind the reservations against Sputnik V. 

"They wanted to kill Sputnik from the very beginning. 

First, they claimed that we had stolen the recipe, then that we hadn't registered it properly, then that it was ineffective or dangerous," he says. 

"And now, with all of those objections cleared up, comes the final argument: It is a Russian vaccine."

Gamaleya Director Ginzburg: "I can understand the skepticism. From outside, the process looked overly hasty, as though we were trying to be the first."

Gamaleya Director Ginzburg: "I can understand the skepticism. From outside, the process looked overly hasty, as though we were trying to be the first." Foto: Denis Sinyakov / DER SPIEGEL


Politicians in Brussels are waiting to see if the European Medicines Agency (EMA) will recommend that the vaccine be authorized. 

"We are shocked that the European Commission hasn't yet begun negotiations for the purchase of Sputnik," Dmitriev says, adding that Europe started talks with other producers before authorization was complete.

EU Approval?

Thus far, the only EU member states that have authorized Sputnik are Hungary and Slovakia, with both having decided to move ahead on their own without the EU. 

An authorization for the entire bloc is still months away, and the EMA only started its rolling review in early March. 

Russia, though, applied for the review on January 21, Putin claimed last week. 

EMA denies that assertion. Indeed, it looks as though the application was not filed correctly.

In April, EMA experts will travel to Russia to visit production facilities and hospitals in addition to examining the clinical data. 

Gamaleya Institute head Ginzburg has assigned 10 staff members to assist the process.

"Russia now has to deliver sufficient data and allow and independent review," says European parliamentarian Peter Liese, health policy spokesman for the European People's Party group in European Parliament. 

He is extremely skeptical of the rapid approval of the vaccine last August in Russia. 

"That wasn't an authorization. 

That was fake," says Liese.

The longer the approval process lasts, the smaller the role Sputnik V will play in overcoming the pandemic in Europe. 

Thierry Breton, the European internal market commissioner, says that Europe has "absolutely no need for Sputnik V" since the bloc will have sufficient vaccine from other suppliers by summer to meet its needs. 

Liese, though, disagrees. 

"We have to take whatever is available, as long as it meets EMA criteria."

But would the Russians be able to deliver? 

"We don't have enough vaccine doses for Latin America, Africa and Asia," Dmitriev says. 

"But after June, we would be able to deliver vaccine doses for 50 million people within three to four months."

If the vaccine is approved, Germany alone could produce dozens of millions of doses by the end of the year, Dmitriev claims. 

The company R-Pharm in Bavaria will take the lead, with two other companies potentially joining the effort.

Triumph in Latin America

As Europe hesitates, though, the vaccine has enjoyed great success elsewhere. One region, in particular, has turned into a focal point of vaccine diplomacy: Latin America.

     Sputnik developer Logunov: Praise from Putin Foto: Denis Sinyakov / DER SPIEGEL


On the same Monday that Putin in Moscow praised Sputnik V developer Logunov, an Airbus A330-200 belonging to the airline Aerolineas Argentinas landed in Buenos Aires. 

Two government ministers were there to welcome the arrival along with a presidential adviser. 

The plane was carrying 500,000 doses of Sputnik V, the eighth delivery thus far. 

And each one has been cause for celebration. 

Since December, Argentina has received 3,299,000 doses of Sputnik V, part of the 20 million ordered by the government. 

The deliveries from Moscow have all been on time, and, at around $10 per dose, the price is right.

That makes Argentina the most important market for Sputnik V in South America – and a giant laboratory for the controversial vaccine. 

Latin America has been hit particularly hard by the pandemic, and Moscow's help is more than welcome. 

In addition to Argentina, Brazil, Mexico, Bolivia, Venezuela, Paraguay and Nicaragua have placed orders for Sputnik V. 

Left-leaning governments in particular have shown few qualms about buying up the Russian vaccine.

Like Argentinian President Alberto Fernández before him, Mexican President Andrés Manuel López Obrador called Putin personally on Jan. 25 and ordered 24 million doses. 

His country is home to one of the highest COVID-19 morbidity rates in the world.

Brazilian President Jair Bolsonaro, whose denialism transformed his country into one of the worst coronavirus hotspots in the world, is avoiding the Russian vaccine for ideological reasons. 

But several Brazilian states run by governors from opposition parties have ordered 37 million doses, in cooperation with the Health Ministry. 

Despite the fact that Sputnik V hasn't even been authorized in Brazil.

The U.S. government also appears to see vaccine choice as a matter of faith. 

In its 2020 Annual Report, the U.S. Department of Health included a section heading entitled: "Combating malignant influences in the Americas." 

The report went on to claim success in an effort "to persuade Brazil to reject the Russian COVID-19 vaccine." 

It isn't clear what arguments were used in that effort and the Bolsonaro administration has not commented.

A Slow Pace of Vaccination in Russia

There is, though, one country that wishes it was receiving more assistance from the Russian government, and that country is Russia itself. 

Whereas exports of Sputnik V are being celebrated, the vaccination campaign at home is faltering. 

Strangely enough, there isn't just a lack of vaccine doses, but also of those willing to be vaccinated.

Veliky Novgorod is one example. 

At first glance, the old city with its citadel and golden domes seems untouched by the coronavirus pandemic. 

Stores, restaurants, museums and theaters are all open, while masks are a rarity. 

As elsewhere in the country, most measures to combat the spread of the virus have long since been suspended, with Russia apparently holding the deceptive conviction that it has managed to successfully navigate the pandemic.

Mariya Granz was one of the first in the city to be vaccinated. 

That was back in September, at a time when doctors had priority. 

"It was frightening," says the medical doctor, "as though I was flying into space myself." 

She says that aside from a slight fever after the second dose, side effects were minimal. 

The 41-year-old is organizing the city's vaccination campaign.

Slightly over 7,000 residents of Veliky Novgorod have received at least one dose of the vaccine, not even 5 percent of the adult population. 

"That isn't much," she says. Moscow has given her a target of 60 percent of the adult population by the end of June.

Getting there, though, won't be easy, and there are a lot of hurdles along the way. 

In the vaccination room of Polyclinic Nr. 4 on the Saturday before last, they ran out of vaccine for those receiving their first doses. 

One of the two refrigerators where the vaccine is stored was completely empty, with a new shipment only expected in two days. 

That meant they were only able to administer the vaccine to those coming in for their second doses. 

One disappointed visitor could barely contain his anger as he left without his jab.

Irina Istomina, acting deputy health minister for the Novgorod oblast, speaks of a "previously announced delay in delivery" and insists that there is no shortage of vaccine. 

By the end of March, she says, she is expecting to receive doses for an additional 12,000 people.

Just recently, a video conference between Putin and the vaccine producer focused on the need to ramp up production. 

According to the president, Russia has thus far managed to produce enough Sputnik V doses for 20 million people. 

The industry minister has promised that another 17 million doses will be produced in April. 

But RDIF head Dmitriev has high hopes for overseas production, particularly in India. 

By the end of the year, 700 million people are to have been vaccinated with Sputnik V.

At the current pace, Russia will need three years before half the population has received at least one dose of vaccine.

Indeed, the largest problem Russia is currently facing isn't a lack of vaccine, but a lack of people willing to get it. 

According to a survey conducted by the independent pollsters from the Levada Center, only 30 percent of respondents are willing to receive the Sputnik V vaccine. 

Part of that, though, is the consequence of the Kremlin having spent months playing down the threat posed by the virus.

No Need to Wait

The state media completely ignores the excess mortality of 465,000 people since the beginning of the pandemic. 

The highly contagious coronavirus mutations also go largely unmentioned. 

And this despite the fact, says Gamaleya head Ginzburg, that Sputnik V has proven effective against the British variant.

There are no concerns in Russia of people jumping the line to get vaccinated early. 

Indeed, those who want to be vaccinated can generally get an appointment quickly, regardless of age or underlying health conditions. 

And nowhere is the wait as short as it is in Moscow.

Health officials have set up a vaccination station under the glass ceiling of the well-known GUM luxury department store on Red Square. 

It is midday and jazz music is playing quietly from the speakers. 

Young volunteers eagerly greet the few people who show up. 

No registration is needed, just a passport and a mobile phone number.

Ivan Sakharov, a 20-year-old economics student, says that his circle of friends is divided. 

Half of them, he says, don't trust Sputnik V and are wary of the side effects. 

"I don't want to infect my grandmother, so I'm getting vaccinated," he says.

Sakharov briefly closes his eyes as the vaccine is injected into his upper arm, and then he gets a free ice cream as a reward.

A first dose of the vaccine has been administered to 6.3 million Russians, with 4.3 million having received both. 

Those numbers are astoundingly low given how early the country was able to launch its vaccination campaign. 

Even in Germany, far more people have received their first dose. 

At the current pace, Russia will need three years before half the population has received at least one dose of vaccine.

One might think that the researchers at the Gamaleya Institute would be disappointed in their compatriots. 

But Ginzburg is philosophic. 

"It takes time for such a decision to mature in people," he says.

It's almost as if not just Putin, but also the Russian people, view Sputnik V more as an achievement that can help Russia's standing in the world than as a contribution to the health of the country's population. 

Something best observed and admired from a great distance – just like the accomplishment of the satellite back in the 1950s.

As such, the name was well chosen.

The Post-Vaccine Risk Phase

Although the United States, Europe, and Britain will have vaccinated their populations by the end of the summer vacation season, it will be far too early to celebrate. As long as the virus is still circulating elsewhere, governments in advanced economies will have to keep preparing for the worst.

Olivier Blanchard, Jean Pisani-Ferry


PARIS/WASHINGTON, DC – For all the drama over sluggish COVID-19 vaccine rollouts and export restrictions, there is little doubt that the vast majority of people in the United States and Europe will have been vaccinated by summer. 

Death tolls will differ according to each country’s policy record, but the public-health situation will have become largely the same for Americans, Europeans, and Britons.

But there is considerable uncertainty about how much of pre-pandemic social life will return, and how long it will last. 

Some constraints doubtless will remain in place. 

The recovery in travel, for example, will be slow and uneven, and there will probably be “travel bubbles” – a scenario already anticipated in Australia and New Zealand, where the virus has been nearly eliminated. 

The European Union, for its part, will likely accommodate the summer travel season by introducing quarantine-free border crossing for those with vaccine passports. 

But restrictions on long-distance travel will remain.

Disparities in the pace and scope of the resumption of social activities will most likely coincide with income gaps. 

While some emerging markets will have reached high vaccination rates (Chile, Morocco, and Turkey are already ahead of the EU), most of the developing world will not have contained the virus. 

Accordingly, border controls between the vaccinated rich world and the unvaccinated poor world will probably tighten, especially if new variants continue to emerge. 

The adverse fallout will be felt most directly by migrant workers, but there will be broader consequences, such as a contraction of long-distance tourism, which will severely undercut some economies.

Moreover, globalization will be affected. 

Although barely any person-to-person contact is required to ship a container halfway around the world, the same cannot be said for managing production networks or finding new clients. 

The evidence suggests that measures altering the movement of people (such as new visa rules or the opening of new travel routes) do indeed affect trade in goods. 

Lasting obstacles to passenger travel would ultimately reduce international trade and investment, productivity, and growth overall.

More important, a full (if gradual) return to normal life will be possible only if vaccines remain effective. 

So far, they seem to be succeeding brilliantly. 

But the emergence of vaccine-resistant variants would force governments to keep severe restrictions in place, possibly with recurrent lockdowns. 

Some experts, such as Monica de Bolle of the Peterson Institute for International Economics, regard this scenario as likely. 

But even if it is only a tail risk, it demands our attention.

Surprisingly little is known about the trade-off between public health and economic activity in the context of the coronavirus pandemic. 

Scoreboards based on GDP growth rates and death tolls may generate plenty of commentary, but they are grossly misleading. 

Italy experienced sharp losses of life as well as GDP last year not because its policy response was inefficient, but because it was the first European country to be hit, and thus had to respond to the unanticipated shock with economically costly measures.

To gauge how countries have managed this trade-off – and how they might continue to do so if the pandemic persists – we have compared the week-by-week evolution of infections with economic activity, as measured by the OECD GDP Tracker. 

Before the British variant (B.1.1.7) emerged, COVID-19’s contagiousness, as measured by its “reproduction rate” (R), was about three, meaning that one infected person could be expected to contaminate three others. 

The aim of confinement measures was thus to reduce R to below one, at which point viral incidence would be diminishing rather than growing.

In the spring of 2020, several European countries managed to reduce R from three to about 0.7 within the course of a few weeks. 

Here, the corresponding reduction in economic activity varied from around 15% in Germany (where the first wave was mild) to nearly 30% in France, where construction stopped altogether and one-quarter of private-sector employees were placed on furlough. 

The treatment was effective, but it came at an extremely high economic cost.

By contrast, when Europe braced for another lockdown episode in the fall, the economic cost of public-health measures was much lower. 

R was brought down to about the same level (0.8), but the economic cost was 2-3 times lower, and the effect was remarkably uniform across countries.

The reason is that governments had learned from the first wave. 

The second-wave response was less stringent but better targeted. 

Masks and protective equipment were more widely available, and companies had learned to adapt to the restrictions. 

Some of these adaptations have proved lasting: electronic payments have received a significant boost; e-commerce is booming; and companies in affected sectors managed to do business or even thrive. 

In France, where restaurants are closed and hotels are facing severe restrictions, one out of four nonetheless reported that activity had recovered by more than half in February (and 10% said it had returned to normal).

As for the future, the recurring emergence of variants would make further adaptations more likely. 

But if these variants are more contagious, the costs will rise. 

Companies that have been kept on life support by liquidity injections and tax deferrals won’t survive, and workers still on furlough (including 4.5 million British workers in January) will either lose their skills or their jobs. 

Major efforts will be needed to help them change occupations.

The longer the pandemic lasts, the more severe the damage will be, and the higher the costs. 

A truly global vaccination rollout therefore remains vital. 

In the meantime, governments must prepare for the risk of periodic outbreaks by devising new policies to contain their social, economic, and fiscal costs.


Olivier Blanchard, a former chief economist of the International Monetary Fund, is Senior Fellow at the Peterson Institute for International Economics. He is the co-editor (with Lawrence H. Summers) of Evolution or Revolution? (MIT Press, 2019). 

Jean Pisani-Ferry, a Senior Fellow at Brussels-based think tank Bruegel and a Senior Non-Resident Fellow at the Peterson Institute for International Economics, holds the Tommaso Padoa-Schioppa chair at the European University Institute.