Some of the world’s biggest investors have been taking significant positions in the commodity resource sector as of late, most notably in gold. With geopolitical tension and fear of economic breakdown reaching a near boiling point, it’s not difficult to see why. Instability pervades the entire system, encompassing everything from financial markets to social safety nets. And while it is easy to ignore the seriousness of current events because stock markets remain at record highs and mainstream pundits continue to toe the recovery line, the fact is that an unexpected and seemingly minor event could well send the entire world into a tailspin.
According to analyst John Kaiser, this is exactly what we need to be concerned with. In a candid interview with Future Money Trends Kaiser explains just how political dislocations could result in supply lines to critical commodities like food, copper, zinc and gold being cut – even without a major war – should the United States, Russia and China continue to bump heads.
Forget about the big, giant macro-economic increases in overall global GDP, but instead let’s look at the turbulence we’re starting to see where China is asserting itself in the South China Sea area… where Putin is eyeing its lost colonies in Europe and Central Asia and thinking maybe we should re-establish the Soviet empire… where we see instability in the middle east.
Then you also realize that a lot of metal comes from China… a lot of metal comes from Russia. And if we end up in a shoving match where, say, the United States pushes back in the South China Sea… and Chinese generals get all up in arms and we end up with an incident… well what happens if China suddenly has sanctions going against it… or something similar, that Russia goes beyond messing in the Ukraine and starts taking out Latvia or Estonia?
All of a sudden we have not so much nickel coming from Russia anymore… and similar in China.. Tungsten, 85% of it comes from China… graphite, 85% of it comes from China… 40% of the world’s zinc comes from China.
These types of geopolitical dislocations… they could result in supply simply disappearing.
And because the rest of the world is still using the same volume of copper and nickel as before, that’s where you can see price spikes.
As we know, much of our critical supply chain is dependent on China. Likewise, Russia supplies necessary industrial metals. One misstep here, whether in the South China Sea, Ukraine or the middle east and we could very well see massive price spikes for commodity resources across the board.
This instability, as John Kaiser notes, could lead to a collective rush of risk capital into safe haven assets, including gold:
Gold is also supposed to respond to geo-political stresses. When you recall in 1980, yes we had inflation. But also part of the problem in 1980 was that the United States appeared to be losing it… we had the Tehran hostage crisis… we had the Soviet Union expanding itself in Afghanistan… the perception was that the United States was losing its dominant role.
If we ended up in a situation of anxiety about… are China, Russia and the United States about to square off? Is the world going to embark on a war footing?
We could see anxiety about this spike [gold] higher.
The similarities within this context is that the perception of the United States today compared to 1980 is that we are, indeed, losing our dominant role as the world’s leading economic and military superpower.
Couple that with geopolitical tensions and economic upheaval around the world, and it’s not hard to see why resource investments into core commodities like food, gold, and industrial metals could spike significantly in the near future.