Economic Infrastructure = Commodities
Instead, China has made, and will be making for years, vast investments in infrastructure both within its own boundaries and, on an even greater scale, throughout the developing world via its Belt and Road Initiative (BRI). If this strikes you as something half a world away that has little to do with your own life, banish that thought immediately. China’s infrastructure push is something every investor, and particularly every investor interested in gold, should care about a lot. Why? Because infrastructure creation on the scale that lies ahead will consume massive amounts of commodities. That will lead to commodity scarcities and rising prices, the conditions that go hand in hand with bull markets in gold.
The Coming Infrastructure Explosion
Infrastructure covers the gamut of fixed physical assets needed to provide for the common good, including those related to supplying power, water, transport, and communications. It includes roads, rails, seaports and airports; cables and water pipes, dams and hydroelectric plants; oil and gas pipelines and terminals; solar panels and wind turbines and electric grids. It further includes installations needed for the internet and the transmission of digital data, the volume of which is growing by leaps and bounds. The onset of 5G (fifth-generation) wireless networks will be the latest digital expansion that will vastly increase the need for infrastructure to accommodate it.
Commodity Scarcities On The Horizon
None of these things are conjured out of thin air. They require steel, copper, zinc, silver and, leading the pack, essential in creating and running everything, energy. The greater the scope of the infrastructure creation that lies ahead, the greater the future demand for commodities.
But infrastructure creation is just the start. Once built, good infrastructure doesn’t just sit there – it promotes economic growth, and that, in turn, leads to further demand for resources. Infrastructure is the great enabler of commerce and growth. An economy can’t function if goods can’t be shipped from one place to another, if there aren’t docks for loading and unloading goods, if energy and water can’t flow to factories and homes, if there aren’t cities where people can come together and work, if people and companies lack the means to communicate. The initial step, the building of infrastructure in the first place, by itself devours huge amounts of commodities. But after that, infrastructure generates a further call on resources, especially in developing countries. As infrastructure spurs economic growth and raises living standards in developing countries, demand will grow in those places for more things – cars to drive along those new roads, air conditioners and washing machines for all the buildings going up in new or expanding urban centers, cell phones and TVs and more. These products, too, require large quantities of commodities. China’s push to build infrastructure at home and throughout the developing world is tantamount to a vast acceleration in demand for resources of all kinds.
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