By MoneyMorning.com.au
Today I’d like to tell you about some of the ideas and themes that will be shaping my investment strategy in 2012 and beyond.
As a Money Morning reader you probably know the argument for the price of gold and silver to go much higher from here.
In short – we see more of the same financial conditions that caused the precious metals bull run of the last 10 years.
And by this I mean more money printing, loose monetary policy, and unstoppable sovereign debt growth.
The US is already up against its debt ceiling yet again. And it has almost $3 trillion of short-term debt to roll over in the next 12 months. Europe is getting closer to printing money by the day. And China has just started to loosen bank lending for the first time in three years.
Now imagine this happening for another eight years.
If it continues at the average growth rate we’ve seen since 2006, gold would be above US$10,000 an ounce and silver would be above US$200/ounce by 2020.
Your wealth should have been preserved, and your view validated.
Congratulations.
But I’m not writing to you today to sing the praises of gold and silver.
I’m writing to put a few questions to you.
A great deal of my time involves researching small-cap mining companies, looking for great investing opportunities. This is exciting work, and these companies can be anywhere in the world.
I’ve been to more than a few far-flung places this year. I’m a big believer in putting in the time to look at something before recommending it.
But that’s not enough anymore.
It’s one thing to make the claim that gold and silver will go through the roof, and then look for the best ways to leverage those moves…
But what we need to ask ourselves is – what are the social and geopolitical conditions that have allowed gold and silver to reach these prices?
Have you considered what they could be – and is your portfolio prepared?
Financial crises are the foundation of social change, geopolitical tensions and conflict. Think the great depression, the rise of Hitler and the Second World War.
So, what could the current circumstances lead to?
Who knows?
China and the US have fought a currency war in the trenches. And there is also that sticky question of whether China will ever get the trillions back that it has invested in US government bonds. This has graduated into a trade war, and right on cue we now see military posturing.
The Chinese military seems to see the weakening of the Western economies as a chance to flex some muscle. And things have quickly got very hot.
In fact, we now have two serious potential flash points for the young and restless Chinese military machine today: Iran and the South China Sea.
Iran’s nuclear ambitions are well known. The US and its allies have put the pressure on the Iranians to back off with sanctions, and Israel is ready to point the nukes at Iran.
But Major General Zhang Zhaozhong, a professor from the Chinese National Defense University, said:
“China will not hesitate to protect Iran even with a third World War”
What the hell is going on? When did things get so heated?
It’s all about the scramble for diminishing commodities. Iran is oil rich and everyone wants a slice. Fighting back against the US sanctions, Iran is warning of oil at $250 a barrel if the West doesn’t back off.
China is flexing its muscle in the South China Sea as well.
It has boldly laid claim to mineral-rich areas that also host strategic international shipping channels.
Meanwhile the US has stated its intention to police this area – as part of the Asia-Pacific region – throughout the 21st century.
An aggressive China versus an impoverished US? Is this the start of the next cold war?
As part of the US’s move into the Asia-Pacific region, it has started posting 2,500 US marines right here in Australia. Australia is now a political pawn… We are in a difficult position; because we are increasingly at political odds with our biggest customer, China.
To paint an extreme example, can we supply iron ore to China so it can build warships if this war of words turns into something more?
As Dan Denning reported in his recent Australian Wealth Gameplan update: China’s state-run Global Times – a mouthpiece for the ruling communist party – ran an editorial saying:
The US is carrying out smart power diplomacy that takes China as its target in Asia. Stopping it is not realistic, but it is equally unrealistic to expect China to stand idly by and indulge Asian countries as they join the US alliance to guard against China one by one. Confronted with such frictions, which has the most resources and means at its disposal?
Is an all-out confrontation possible? These should be the real concerns….China has more resources to oppose the US ambition of dominating the region than US has to fulfil it…
As long as China is patient, there will no room for those who choose to depend economically on China while looking to the US to guarantee their security [that’s us guys]…Any country which chooses to be a pawn in the US chess game will lose the opportunity to benefit from China’s economy…This will surely make US protection less attractive.
China has aggressively built its gold reserves in recent years, and is both the biggest producer and biggest importer of the metal. It can see the writing on the wall for its dollar-denominated debts.
So if China pushes its dominance into the South China Sea, what becomes of gold producers in SE Asia, the Philippines, and Indonesia?
And what of the companies operating in resource-rich countries bordering China like Mongolia and Kazakhstan? Each of these countries has a population of just a few million… Their citizens are already outnumbered by Chinese military personnel. Neighbouring Tibet was taken by China without a sweat, and their people are ruthlessly suppressed to this day.
As part of this country risk, many companies may find the ground moving beneath them as geopolitical plates shift during the coming decade. This will affect commodities such as oil, gold and copper in different ways.
Thinking about what all this means for you, and your investments, will be important as this situation unfolds.
Dr. Alex Cowie
for Money Morning Australia
Related Articles
Why the Fed’s Actions Make Perfect Sense
Swiss National Bank Intervenes…
Bailouts Still Boosting the Market
Was This Just Another Rigged Market?
From the Archives…
How to Profit from the Inevitable Return to Sound Money
2011-12-02 – Kris Sayce
Two Reasons the Market Should Have Fallen…
2011-12-01 – Shae Smith
Ditch Your Investor Pride to Avoid an Investing Fall
2011-11-30 – Kris Sayce
How to Play a Volatile Market for Profit
2011-11-29 – Kris Sayce
No Thanks to Central Banks
2011-11-28 – Kris Sayce
For editorial enquiries and feedback, email [email protected]
