What Are The Best Investments For 2022?
ERIC KING:
People around the world are frustrated with this 1970s style stagflation, but on steroids. It’s like a ’70’s style Frankenstein version of what happened back then. Looking at the price of gold and how it’s performing- it just doesn’t make any sense! Can you give us your take on what’s happening?
DR. STEPHEN LEEB:
When the world (and the West in particular) becomes utterly irrational, all bets are off. None of the usual relationships and alliances are going to hold- and you’re already seeing this happen across the globe.
The only era that remotely resembles the current one is the 1970s. We know how gold performed during the ’70s… It went from a fixed price of approximately $30 and ended up at a high of $800. That’s certainly not what is taking place now.
On the semi-bright side, if you’ve been holding gold up to date (this year during a bear market for stocks) you’re down about 7% in physical gold.
Most of the gold stocks, the big ones like Franco Nevada and Newmont Mining, have all outperformed the S&P 500. Now that’s small consolation compared to what we saw in the 1970s when gold and gold stocks had annualized gains during that 10 year period of 30%.
So, what in the world is going on today when you see oil trading at $100? The last time we were in any kind of recession, oil was trading at $30. We are seeing food scarcity and commodity inflation…
But what is really going on? The world has become increasingly irrational and desperate- which makes for a combination in which ‘anything goes’.
Among those things in the ‘anything goes’ package is Europe.
Europe is literally and figuratively going… There’s not a major European country which has a solid government today.
The G7 Tailspin Is Out Of Control
The G7 is an informal bloc of industrialized democracies—the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom. Once world leaders in technology and industry are headed for serious economic downfalls.
In France, Macron lost the majority vote in parliamentary elections – big time! He’s become a de facto spokesman but doesn’t have anything resembling a majority to get something passed through his parliament.
Scholz in Germany, he’s basically hosting a Ukrainian Ambassador who’s saying that Nazi collaborators were ‘freedom’ fighters. With that said, he may be on his way out!
Italy is on the verge of a crisis. The industrial part of Europe: Germany and Italy are really breaking down. At the same time this is happening, Great Britain’s Boris Johnson had to step down.
Plain and simple, no one is helping Europe.
The Canadians withheld a necessary part to repair the pipeline that brings natural gas into Germany. The repairs needed to take place in Canada and due to sanctions, refused to help.
Dollar Hegemony
The bottom line here is that the U.S. dollar is going up- it’s risen nearly 13% year to date. The dollar is acting like a stock! This is an unprecedented kind of move. However it’s not so much a move in the dollar as it’s a move in other currencies- which is how the dollar is measured.
When you talk about dollar strength– you aren’t talking about dollar strength against inflation or the Chinese yuan or Russian ruble. You’re talking about dollar strength versus Japan and Europe.
Incidentally, Japan is totally crippled because they have very little food production and virtually no independent energy supply other than nuclear power. Japan and Europe are both suffering from what is happening geopolitically.
All of the countries that the United States measures our currency against are weak, falling and may be on the verge of collapse in some cases. It’s been said that Germany is on the verge of deindustrialization.
People reflexively respond to how the dollar is performing. They don’t stop and ask themselves:
“How is the dollar performing versus the ruble?”
The West is fighting an economic war against Russia. And if you’re curious who is winning, maybe this will give you a hint: the ruble is up 50% against the dollar.
The fact that the dollar is being measured by the currencies of countries that have been greatly impacted by the war in Ukraine (some of which are on the verge of collapse) combined with the fact that the dollar is so strong against these currencies- reflexively sets off a mood of ‘anti’ gold.
The dollar and gold are the true rival currencies in the world.
Let’s face it- there’s a reason why gold is so important. It’s the most viable currency on the planet. Paradoxically- it’s also the most viable challenger to the dollar.
As I’ve been saying all along… There will be some kind of global monetary system backed by gold.
GOLD IS STILL GOLD.
The greatest economies the United States has ever experienced have been under a gold standard. Despite what anyone might say about gold as merely a relic… It’s nonsense.
After the Civil War and after WW2- these were the greatest economies we’ve ever had in the U.S. Everybody participated, there was equality, there was freedom… All these sacred beliefs that our founding fathers put in the United States constitution were most visible during the time when America was operating on a gold standard.
After we left the gold standard in 1971… Everything went downhill and it’s only been accelerating. However we have finally reached a point that this must stop.
Hopefully with some luck, this out-of-control monetary policy will stop in a cooperative settlement amongst the East and the West. The Eastern Hemisphere has a majority of the resources- and the Western Hemisphere needs these resources. Thankfully, the United States can be self-sufficient in both food and energy. Although, there are critical imports that we need for technology and manufacturing that we could be quite hindered without.
Although, this is not the case for Europe. Unfortunately, Europeans could be facing a crisis this coming winter that could take them down to Third World status. Likewise, there’s talk about Germany having lost its industrial base because you cannot produce steel (for example) without a lot of energy. To say the least, Germany can no longer be considered a vertically integrated country.
On the contrary, Russia is vertically integrated… And that’s one of the consequences of the Ukraine war. It’s also the reason why the Russian ruble has skyrocketed. Ironically, Russia has been attempting to suppress the value of the ruble for reasons of exportation and trade because the currency is simply valued too high.
The U.S. can’t export anything- all we can do is import due to the high valuation of the dollar.
This entire scenario is certainly an outcome of the Ukraine War: A crippling of Europe relative to the United States, hence you see weakness in the price of gold. This is not a profound observation.
The Performance Of Gold Over The Past 20 Years
If you look at the beginning of the century to date, gold has been the strongest performing asset in the world. And I will say financial asset because gold is more of a currency than a commodity.
Gold has outperformed the S&P 500, total return (dividends invested) by 200 percentage points.
Just to put things in perspective… Investors who are really worried about owning gold or investing in gold… This year it has solidly outperformed the S&P 500. By and large, you would be losing much less than if you owned an index in the S&P 500.
In fact, the only other things outperforming gold are other commodities. For example, if you look at the best commodity ETFs (that I know) which represent a collection of commodities including gold, oil, food, ect. The major commodities are included in these ETFs, the actual futures that are traded are included. The tickers go by DBC and PDBC.
Look at the performance of these ETFs year to date- and you will discover they’re up by roughly 20%. This is what commodities are doing- this is where the gains have been made.
Eventually, gold will take its place as the star. However right now, because gold has such a special position as a commodity, foremost currency and rival to the dollar- you can bet when you start seeing the end of dollar hegemony- we are pulling out all the stops.
Every stop in the book that you can imagine is being used to suppress gold- it’s natural.
That’s the only thing that’s not irrational about what is happening right now.
The aftermath of trying to suppress gold will be a bull market that really defines what ‘off the charts’ means. This is the last dash, irrational effort that the West is trying and it just won’t work.
Be patient, gold may still go down a little bit further but this is the best, greatest gift investors have ever had at any time. So with that said, don’t give up on gold.
