Two More Reasons to Invest in Gold
Two recent events have major implications for the U.S. economy and for investors. Both further reinforce our big-picture investment outlook. In particular, they make plain that we won’t be able to control inflation. That means that inflationary beneficiaries – especially commodities, with a special shout-out to gold – should remain front and center in your portfolio.
The recent disappointing performance of commodities simply reflects the intense volatility that for a while will be an inescapable part of the investment landscape.
Bank Failure Highlights Inequality
Grabbing the biggest headlines was the bankruptcy of Silicon Valley Bank (SVB), which was squeezed on multiple fronts. Historically rapid rises in interest rates have left the yield curve deeply inverted, with short-term rates much higher than long-term rates.
Since banks pay depositors short-term interest and earn lower-term interest rates from loans (such as mortgages), the inverted yield is not a good thing for them. SVB was particularly vulnerable because it had a relatively small number of depositors, who were deep-pocketed institutions and many were tech companies that began to withdraw cash tough times befell the industry. Since FDIC insurance only covers $250,000, these depositors had a lot of uninsured deposits at risk. This led to a bank run when SVB didn’t have enough cash to cover withdrawals.
The situation sends a clear message to the Fed: accept high and very likely rising inflation or risk bringing on U.S. economic Armageddon. It’s also emblematic of a bigger problem. Most of the wealth in our country is concentrated in the hands of a small minority. What the affluent few do with their money can disrupt the financial system and potentially bring chaos onto the many.
China’s Diplomatic Triumph
The second event is China’s brokering of a deal between Saudi Arabia and Iran. Washington tried to be the mediator, but the Saudis turned to the Chinese instead because they felt the Iranians would be more receptive to China’s involvement. In the past the U.S. would have most likely been the nation to bring enemies together, but now clearly our clout in the oil-rich Middle East has shrunk.
China has now taken the lead in getting different countries to work together. Its diplomatic triumph in the Middle East will likely accelerate another trend: the coming together of a broad swath of countries in the Southeastern part of the world. China and Russia are founding members of two groups, the Shanghai Cooperation Or- ganization (SCO) and BRICS. SCO’s mission is to bring together countries, mostly developing Eurasian ones, with the shared goal of generating economic growth and security. The most important requirement is the willingness to cooperate with other members regardless of differences in religion, forms of government, or other factors.
BRICS is an acronym for the five current members, all of them developing countries: Brazil, Russia, India, China, and South Africa. While the members geographically are far-flung, they, too, agree to work together despite different political systems and cultures.
BRICS has been given the job of developing a reserve currency that would compete with the dollar. That will be preceded by many intermediate steps, including increasing the amount of international trade that is non-dollar-based. The war in Ukraine has given this goal an enormous boost. I think the end result will be a basket of currencies at least partially backed by gold.
Tough Spot for U.S.
This puts U.S. in a tough spot, facing complex choices about how to proceed in a world that’s changing rapidly and profoundly in ways that we can’t control and that increasingly challenge our ability to remain the world leader. I think our best path forward would be to choose to work with the rest of the world to work toward a win-win solution, which would include associating with SCO and BRICS in one form or another, rather than opt for conflict. If our leaders fail to take the right steps, I am afraid Americans will face a rough road ahead.
Editor’s Note: As the article above explains, we could be facing a tectonic shift in the financial world that brutally shakes out the winners from the losers. Our colleague Dr. Stephen Leeb has pinpointed the survivors of the upheaval ahead.
Dr. Leeb is chief investment strategist of The Complete Investor. Amid the financial “End Game” that lurks on the horizon, he’s convinced that the safest and most profitable plays won’t be tech stocks, “balanced funds,” cash, or any other typical asset.
All of Dr. Leeb’s research indicates it will be a tiny and obscure $5 real-world investment, as revealed in this report.