A Bull Market For The History Books
A few years ago, I became convinced that a powerful bull market in gold would propel the metal to levels never imagined – at least as high as $20,000 an ounce and possibly well beyond.
I wasn’t sure about the precise timing. Ultimately, I knew that the timing was less important than the accurate prediction of a bull market in gold that makes history.
As an investor, if you can get on the right side of the truly big moves in any market, you’ve got it made.
And this was going to be a truly gargantuan move.
Since then everything I’ve witnessed happening in the world has only added to my conviction that an unprecedented long-term bull market in gold is inevitable. And now I suspect it will happen sooner rather than later. Moreover, the multifold gains I foresee in the metal itself understate the potential opportunities that will open up for investors. Even bigger fortunes will be made in some of the so-called junior miners, smaller companies with reserves but no production, as happened in prior bull markets in gold.
In the following paragraph’s I explain the events and trends that I see as pointing to massively higher gold prices. I hope I can convince you I’m right, because if I do, and if you act on it, I’m confident that you’ll be handsomely rewarded.
You will quickly notice that around 99 percent of my thinking revolves around China and the East. In fact, at times it might seem as if I’m writing (another) book about China. Almost a decade ago, in my last book, Red Alert, I wrote about China’s rise, its long-term perspective, its accumulation of vital resources, and the way its growth would inevitably challenge the U.S., which I saw as deplorably complacent.
Since then, most of what I forecast has been borne out as China’s status as a major power and major economy has come into ever clearer focus. In the past decade, China has become increasingly active on numerous fronts, engaging with the world more intensely and purposefully than ever before.
Today China is ubiquitous. It often seems to dominate the news, whether the focus is on trade wars, human rights, China’s activities in the South China Sea, its stance on Hong Kong, or something else. Books about China abound from across the political spectrum, some even suggesting China-U.S. armed conflict may be inevitable.
From a standing start a couple of decades ago, China has become what is generally termed the world’s second biggest economy, although actually, by some measures it’s already the biggest. It’s unquestionably the world’s biggest trader. Whatever you think about China, there’s no doubt that today it’s a really big deal. Love it or hate it, decry its authoritarian political system or marvel at how it has lifted hundreds of millions out of poverty, you can’t question that China matters.
But for all that is being written and said about China, I have yet to see anything that looks at China and whispers: Buy Gold.
Maybe that’s not surprising. For me to arrive at that conclusion involved connecting a series of sometimes far-flung and often opaque dots. But as I have studied China’s activities and pronouncements and assessed innumerable data points, those connections seemed increasingly clear. China’s rise is spearheading an historic shift in economic power from West to East that is leading to a foundational change in global relationships. It’s a change that points inexorably to higher gold. And the U.S. will be powerless to hold back the tide.
There are two powerful reasons why China’s continued rise as a global economic heavyweight will result in soaring gold.
Forthcoming Commodity Scarcities
Historically, commodity scarcities go hand in hand with bull markets in gold. Such scarcities will develop as China pushes ahead with its ambitious Belt and Road Initiative (BRI), through which it is investing at least a trillion dollars and likely far more to build up and link developing economies throughout the East and beyond. The effort has now even expanded into the developed world, with Italy the first Western nation to sign on as a BRI participant.
The enormous amount of new infrastructure China is creating, within its own borders as well as throughout the developing world, and the economic growth such infrastructure will foster, requires huge inputs of commodities of all kinds. It ensures that demand for commodities will be rising sharply, leading to scarcities and rising prices. These are conditions that have always led to gold rising. Commodity scarcities will constitute one pillar supporting gold’s rise.
A New Monetary Reserve System
If commodity scarcities were the only factor, I would still expect gold to be a strong performer. But a second development will supercharge gains in the metal. China intends to engineer a new monetary reserve system that will replace or at the very least strongly compete with the global dollar-based system that has prevailed since the end of World War II. This will be transformational.
It’s important to realize that China isn’t looking to replace the dollar with its own currency, the yuan. Rather, all signs point to China intending for the new reserve currency to take the form of a basket of currencies backed by gold. As a relatively fixed amount of gold underpins an expanding volume of international trade, gold’s price inevitably will be pushed higher.
Note that gold’s role in this new reserve currency will be very different from the old gold standard that once prevailed, in which gold was pegged to the dollar at a fixed rate. It’s not a return to a system that no longer fits our world. It’s a step into a system that will better match the realities of the future.