Today one of the top money managers in the world stated gold will dramatically outperform financial assets, war in Ukraine or not.
Gold Will Dramatically Outperform Financial Assets
March 13 (King World News) – Dr. Stephen Leeb: The war in Ukraine is horrifying, but it’s also testament to a phenomenon I’ve long been warning about: growing resource scarcities. That’s because I don’t believe Putin would have launched the war if not for growing pressures on resources, especially energy.
And as the fighting intensifies, resources desperately needed to build a better world, a world fueled by sustainable energies, increasingly are being devoted to mass destruction. It’s one more tragedy on top of the enormous damage being inflicted on Ukraine and the loss of innocent life.
The likelihood of a vicious circle involving resources is growing ever greater. So far, the West, despite the most draconian financial sanctions ever imposed, hasn’t stopped Russia. One thing I find significant is that while much of the coverage of the war has focused on greater unity in the West, the crisis also has made apparent the loss of U.S. influence in the all-important developing world, which contains about 85% of the globe’s population. The countries that failed to support the U.S. in its U.N. resolution against Russian’s invasion represent more than half the world’s population.
That’s worrisome, because cooperation between the West and the developing world in surmounting resource scarcities is essential for the world’s common future. One concern, especially among developing countries, is that even if the sanctions are lifted, Russia would continue to suffer from lack of investment in its oil industry. It’s not hyperbole to say that if the current situation isn’t a wake-up call, it could be a possible death knell for humanity.
There are a lot of uncertainties. But switching for a moment to an investment perspective, one thing I feel certain about is that gold – the assured successor currency to the dollar – will, along with virtually all commodities, dramatically outperform financial assets…
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But nothing new is Putin’s desire for Russia to regain territory lost after the Cold War, which has long been known. The question is why he waited until now to act.
Some argue that when U.S. intelligence showed Russia preparing to invade the Ukraine, the U.S. should have offered to permanently exclude Ukraine from NATO. But not only would that not fly morally, i.e., giving in to blackmail. Putin would have seen it as a sign of weakness and been emboldened to attack that much harder. Moreover, Russia’s attacks on Georgia in 2008 and Ukraine in 2014, when it annexed Crimea, had dramatically lessened the odds of either of those former members of the USSR ever joining NATO. An article in euronews several weeks before the invasion noted:
“Rafael Loss at the European Council on Foreign Relations says that Ukraine doesn’t really satisfy the criteria for becoming a member. On the political side, members need to implement reforms under the membership plan and on the military side, they’re meant to be ‘adding to the security of the alliance and not detracting from it,’ Loss said. That means that Putin’s actions in 2014 have made it much less likely that Ukraine would ever become a member due to the territorial dispute over Crimea, he says. ‘By invading Ukraine in 2014 and by invading Georgia in 2008, Russia has effectively established a veto over those two countries’ membership,’ Loss said.”
What seems evident is that Putin acted now because he felt that Russia’s oil and mineral wealth gave it more leverage than in the past, with the world now facing a worsening resource crisis that Putin assumed would hamper the West’s ability to respond. Remember, on the eve of Russia’s invasion, oil was trading north of $90 and was in a powerful uptrend thanks to large increases in demand and OPEC’s difficulty in meeting its plan for measured increases in supply.
OPEC’s troubles were hardly a secret to Russia, which for some time has been part of OPEC and, indeed, along with Saudi Arabia, a leader of the oligopoly. Russia also knew that its role in the original Iran nuclear accord meant it could prevent us from striking a new deal with Iran, one that at least temporarily could have compensated for any blockade on Russian energy and commodities. Remember, too, that the latest CPI numbers – just shy of 8% year-over-year, a 40-year high – reflected data from well before the Ukrainian invasion.
The worsening resource scarcities that enabled and underlay Putin’s invasion in Ukraine similarly could embolden any autocrat to feel comfortable flouting the West. For example, it has been widely reported that both Saudi Arabia and the UAE refused to take a phone call from Biden concerning temporarily increasing oil supplies.
Even India, the world’s biggest democracy and a country with important ties to the West, didn’t support the U.S. in the U.N. vote. India is part of an Indo-Pacific security pact that also includes Japan and Australia and that is aimed primarily at countering China. According to Media Bias/Fact Check, WION is the least biased English-language news source. It has more than 5 million subscribers on YouTube, and I was interested to hear how it was covering the Ukraine invasion. While I would not characterize them as Russian apologists, they do spend a lot more time criticizing the West than condemning atrocities committed by Russia.
And from The Times of India, which has been voted the most trusted newspaper available in English, the following quote from a recent editorial blog speaks for itself:
“But if the West is serious about delivering Ukrainians from permanent servitude to eternal victimization it must immediately undo the myths it has perpetuated over the ongoing war.
One theory being amplified by the West is that this is Putin’s war. That the Russian President is looking to restore Russia to the glory days of Soviet dominance. Calls are being issued to assassinate Putin in the hope that this will fix the problem.”
The most likely reason for India’s reluctance to criticize Russia is that India, while in general resource-rich, imports more than 80% of its oil. Any action that raises the price of oil, not to mention food, would strongly affect India’s growth just as the country is starting to break free of widespread poverty. India’s stance on the war initially surprised, and dismayed, me. But it seems clear that the basic needs of a country’s population will trump its moral stance no matter how clear it is which side is right.
As I’ve repeatedly stressed, in today’s world, roughly 15% are “haves” and 85% are “have-nots.” Though the “haves’ consume far more resources per capita than do the “have-nots”, that has led to their using up far more of their resource endowment. The fact that the poorer part of the world is now growing considerably faster than the richer part is a potential source of conflict that could determine whether the human race will be able to continue sharing this planet.
The only answer is cooperation. And the key to that cooperation, inescapably, has to be China. I’m not a China apologist. I simply believe that unless we find a way to work with China on global problems, we’re all likely doomed. A short-term benefit would be that China is the one country that could restrain Russia. But the benefits to cooperation extend far beyond that.
One critical area of cooperation would be in developing technologies that refine and enhance the way existing resources are used. To give just one example, the end game to a sustainable world could involve fusion. Fusion may require a lot of helium 3, found on the moon. Making that work would be difficult if not impossible to achieve on our own. And there are many other potentially game-changing advances. The payoff would be massive.
You Must Own Gold
As a human being and citizen of the world, I desperately hope that even as the horrors of the moment are in the forefront of our minds, the world will find a path to cooperation. From an investment perspective, however, cooperate or not, everything points to gold. In the 22-plus years since growth in the developing world began accelerating, the S&P 500 with dividends reinvested advanced by about 4-1/2-fold – compared to a nearly 7-fold gain for gold. That big edge for gold will become even more pronounced in coming years, because whether the world comes together or not, resources scarcities will persist for decades. Moreover, as I’ve discussed often before, I see no way of allocating diminishing resources among users without a gold-backed monetary system. For these reasons, gold’s edge over financial assets will expand, and expand dramatically, though no doubt in fits and starts. That makes gold the most critical investment you can own for as far as the eye can see.
To listen to Egon von Greyerz discuss what investors should expect in a world gone mad CLICK HERE OR ON THE IMAGE BELOW.
To listen to Alasdair Macleod discuss what investors should expect in a world gone mad CLICK HERE OR ON THE IMAGE BELOW.
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