Gold Digital Currency
October 24 (King World News) – Dr. Stephen Leeb:
"The world we know is changing profoundly, in ways that most people – including investors – haven’t yet grasped."
The World Is Changing…
The imminent change the world beholds, starts with a historic shift in the dichotomy between rich and poor nations. This includes the U.S. and other developed economies (20%) and the developing world (80%) of the world’s population. Currently, poorer nations are driving the global economy with exponential growth. Ultimately, this will create economic turbulence, especially in rich countries.
While the stock market has been the source of extraordinary gains for the past 20 years- it will be lucky to hold its own over the next decade. And if that luck turns for the worse- we could see a major financial crisis.
Within a decade… the world’s financial and economic infrastructure will be vastly different from today. The changes will come as the world shifts to a new monetary system that no longer gives wealthy nations an unwarranted advantage.
To understand how and why the world is changing, let’s look at some of the differences between the U.S. and China.
An average Chinese citizen makes $8k per year (GDP per capita)
An average U.S. citizen makes $54k per year (GDP per capita)
While the U.S. is focused on maintaining a perceived advantage in technology and economic infrastructure… China is focused on developing in every sector; from natural resources to high tech. As a result, the Chinese economy is far more commodity-intensive than the United States.
One massive difference is relative spending on tangible infrastructure- China spends 10x’s what the U.S. spends. According to Statista, its most recent data suggests that China is outspending the U.S. on tangible infrastructure by as much as 40:1.
Although, to put things in perspective, the U.S. has a massive lead in financial wealth. According to Allianz A. G., the United States average per capita net financial assets amount to more than $200,000 compared to $12,000 in China.
“That’s an astounding difference!“
However, in terms of material goods, ranging from cement to rhodium, the poorer countries have a per capita advantage and a massive absolute advantage. According to the OECD, China’s material resources exceed those of the U.S. by more than 5:1. And the ratio has been climbing as China develops more resources while U.S. resources have been depleting over the past 20 years. For most materials, whether critical or common, the U.S. is a net importer. For many critical areas, China is the leading exporter to the United States. While China is a net importer of energies, overall its exports far exceed its imports. In the energy sector, China is rapidly increasing its exports of various energy products as result of its leading position in refining.
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Skyrocketing Commodity Prices
With all this as a backdrop, let’s look at the recent behavior of the dollar, commodities, and gold. From any historical perspective, it’s uncanny. Since the beginning of 2021- the dollar has been rising. Directly at the same time, broad-based commodity indexes have been uptrending sharply. That positive correlation is absolutely unheard of, even during a brief influx. Skyrocketing commodity prices have been a historic event altogether. The fact that it’s happening in the face of a rising dollar is statistically so extreme- it’s an anomaly.
Even rarer is the inverse correlation between broad-based commodity indexes and gold. While the dollar has gained 4% in value this year, gold is the only tangible asset that has been plummeting. Why is this unusual? For thousands of years, gold bullion has been a reliable store of value.
The bull market in commodities shouldn’t come as a surprise. The U.S. and other wealthy Western countries have been short-sighted in their focus to eliminate carbon as the most immediate goal in transitioning to renewable energies. This is woefully short-sighted because that critical transition will require every source of energy that we can muster.
This forebodes an energy crisis in which the relative scarcity of fossil fuels will burgeon virtually all commodities. While the dollar has gained about 4% – the broadest measure of industrial commodities had a stunning 26% gain according to the CRB raw industrial index (which does not include energies). This inundation breaks out into all-time high. Raw food prices have risen by over 30%…
Prices for renewable energy have increased dramatically- the reverberations of rising commodity prices have been felt across the globe. The semiconductor chip shortages are a direct reflection of our ‘green’ delusion. Over the past two months, prices for the ultra-pure silicon (polysilicon) needed to fabricate chips have climbed an extraordinary 300%. It’s tempting to blame China, which also has experienced an energy shock. Although while China produces almost all of the pure silicon for solar modules, it produces only about 20% of the polysilicon needed to manufacture semiconductor chips. Recently, Elkem ASA of Norway (major player in electronic manufacturing using silicon) said it couldn’t meet its contractual obligations. This clearly reflects the high silicon prices, which have everything to do with an energy shortage stemming from our undue focus on carbon.
Losing Control Of The Gold Market
This entire economic predicament reeks of bad faith, from the emphasis on the imprudent elimination of carbon to the extraordinary behavior of gold. Right now, the dollar’s biggest rival is gold- an archaic monetary metal. These recent developments and anomalies are by no means innocent. Rather, the Western world or financial sector (including Wall Street and central banks) have been desperate to maintain hegemony of financial assets over the rising Eastern economies. It’s a losing battle- whatever force that’s been suppressing the price of gold has started to lose traction. Though the dollar’s rise has moderated, it’s still rising. Strangely, gold prices have also increased by roughly 3% despite the slight gains in the dollar. This seemingly small anomaly, believe it or not, is a statistical outlier. It’s a strong sign that gold has started to rally.
The West’s desperation has been apparent since the energy crisis started to emerge more than a year ago. I’m not by nature conspiracy-minded, but think about it. Which countries would you expect to be hurt more by drastically restricting carbon? Rich countries that largely depend on intangibles for their wealth or poor countries dependent on tangibles? It’s a rhetorical question.
While I don’t doubt the sincerity of the people who fervently believe climate change is the boldest existential threat the world is facing- I’m starting to have doubts about the source of that view. After all, climate change has been a topic of conversation for over 20 years. However only recently has it been accepted as gospel, with alternate points of view hard pressed to be covered in respected science journals.
The U.S. financial industry’s embrace of Bitcoin sheds light on another facet of their effort to maintain global dominance by promoting an intangible asset (Bitcoin) over a tangible one (gold). Given the enormous amounts of energy that cryptocurrency consumes, the hypocrisy is striking. The financial industry proclaims a ‘clean energy agenda’ but at the same time launched an energy intensive cryptocurrency ETF. This is a total oxymoron… and proves the dirtiest of dirty intangibles has gone mainstream.
This is likely to prove an inadequate attempt to hold back the tide of history. It’s no surprise that China banned cryptocurrency mining due to its enormous energy consumption. Over the past decade, China has harbored approximately 60% of the Bitcoin miners worldwide. In the act of banning crypto mining, they have seemingly given up their leverage over the control of Bitcoin. Although, two things make China’s actions less surprising. One reason is Bitcoin’s vast energy consumption. The second elusive reason- China thinks it still can control Bitcoin and it’s probably right…
Why? A hint comes from Nicolas Chaillan, a chief software officer at the Pentagon. His recent resignation made headlines because he couldn’t stand to watch China usurp the U.S. in cyber security.
“We have no fighting chance against China … it’s already a done deal…good reason to be angry.”
Nicolas Chaillan – cited in the Financial Times
It’s true that China or any elite hacker won’t be able to break the Bitcoin blockchain unless they have a quantum computer. With that said, the best hackers can easily steal Bitcoin from just about anyone. Why solve a complex cryptographic key when instead, they can simply steal the cryptocurrency? Hackers can steal Bitcoin from the most secure wallets- even wallets not connected to the internet. Bitcoin holders wouldn’t even be aware of the theft until after the fact. Recently, an ‘anonymous’ Bitcoin holder lost $24 million in such a theft. Now ask yourself what happens if thousands of thefts all take place in a single day? Bitcoin may not go away anytime soon but to pin hopes on it as an alternative to investing in gold – give me a break!
Short Of Engineering A Depression
We’ve reached a point where the Federal Reserve has become virtually powerless. Short of engineering a Depression, the FED has to let inflation take control. Maybe it is a bit of consolation that inflation will be somewhat self-limiting as it will slow growth a bit.
China To Launch Digital Currency Backed By Gold In February 2022
“We’re four months from China launching a Digital Currency de facto backed by gold”
Whether you interpret all the developments discussed in this article as resulting from unbridled incompetence or something more nefarious gone wildly astray, the end result is the same. Gold can no longer be held back. Once the Chinese launch their digital currency in February, de facto backed by gold, the new monetary system starts to fall into place. While this could be a death knell to many financial assets, real assets will thrive as the poor nations become richer and the rich struggle to hang on.
Let’s hope we make the best of it and opt to cooperate with a rising East as the world shifts to a new monetary system. A global basket of digital currencies that no longer overtly advantages the U.S. and other wealthy countries. If this could come to fruition, it could lead to more productive and harmonious interactions between nations.
As a savvy investor, stay in the game. This isn’t a shake-out in the market, so don’t get spooked. That means load up on gold and other tangible real assets! This will give you and your descendants the power to make a difference when the current turmoil passes.
