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Global Instability And Its Effects On Gold And Silver

Many people – investors, consumers, business executives, entrepreneurs, financial promoters – start with a fatal mistake. They plan for what they would like or hope to see, instead of planning for how to prosper in an environment that is more likely to emerge in the future. An old saying goes “hope for the best, but prepare for the worst.” Successful people plan for how to act and react in a world in which they are likely to find themselves, often thinking about how they may invest, and everything else, under a range of likely scenarios.

This report explores probable outcomes across a range of sectors of the human condition, and how investors may use gold and silver to help them survive and prosper during what may become the most hostile global economic and political environment since the Great Depression and World War Two.

The Issues Are Wide

Heightened domestic and international political divisions, strains, and tensions.
Economic trends including inflation, growth, trade, employment, housing.
Financial trends including massive global debt.
Financial market technologies upsetting centuries-long patterns of capital formation and investment.
Divisive social trends.

Many of these trends and conditions have been with us for years and decades. Some have grown progressively more treacherous. Some are newer, more recently emergent. All are seeming to be getting to a point where some resolution is needed, sooner rather than later.

Facing such challenges, there are two sets of actions to develop. One is how individuals should modify their investments and lives to protect against each, any, and all of the developing storms. The second is how individuals may adjust their investments and lives to profit from future bad social, political, economic, and financial trends and developments.

The answers, the plans, for both include gold and silver. Diversifying one’s wealth to include healthy and reasonable percents held in physical gold and silver is one of the key ingredients for any plan to protect one’s family from broader (and personal) crises, as well as to allow for one to profit as those broader societal crises lead other investors to the safety and diversification of gold and silver.

Some observers take a quasi-Puritanical view that ‘these things can only be resolved by fire.’ The global political tensions must lead to World War Three, the domestic political and social partisanship must end in Civil War or insurrection, the economic and financial issues inevitably will cause a new Great Depression, the collapse of the U.S. Treasury, massive bank failures, the collapse of the U.S. dollar as the de facto reserve currency denominating 80% of private financial wealth worldwide and 60% of government treasuries.

CPM does not agree with this view. We view the world through an array of possible scenarios, and we do not see these catastrophic visions as the ultimate future resolution. In fact, our main scenario for the future does not involve the word ‘resolution.’ Our main view is that these conditions can and most likely will continue. Things will get worse, and then they will get somewhat better, and then they will get worse again. CPM sees this as the most likely future for many reasons, but perhaps the biggest reason is that this is the way the world has operated, not for years but for centuries.

We continually monitor the economy and markets, and develop new scenarios to project what they might do to gold and silver prices. One of them has global political and economic conditions improving. It has a lower probability than our main scenario because it is predicated on honest, intelligent, and public-serving political leaders who have the political will to do the right things to reverse these trends, and voting populations with the political will to elect such leaders. We do not see voters or politicians developing the necessary political will to do the right thing for at least a few years to come. So, our main expectation is for all of the economic, financial, political, and social storms we see brewing overhead to continue for years to come.

This Is Why CPM Advises Investors Always To Own Gold And Silver

This report does not attempt to delve in depth into all of these topics. It touches on the most salient aspects of each. Rest assured that there has been massive amounts of research into each of them, not only in the recent period but for decades.

CPM prides itself on a decades long history of sober analyses of global economic, financial, and political trends as well as fundamental developments in the gold, silver, platinum group metals, and other commodities markets: economic growth and inflation; the effects of the opening of China and the collapse of the Soviet Union; and trends in precious metals supply, demand, and prices. We have successfully steered our clients through the ups and downs of gold, silver, and other commodities price cycles, and have protected them from falling prey to overly exuberant and overly dire prognostications circulating the markets that have led many investors astray. This report rests on the results of our research that began in 1975.

The Conclusions: Crises, Not Necessarily Catastrophes

If this report succeeds it will leave readers with a clear message:

Political, economic, and financial conditions are bad, at crises levels.
That does not mean that things are catastrophic.
The future may present investors with the worst crises since World War Two and the Great Depression.
1. While they may be the worst since World War Two and the Great Depression, that does not mean that developments necessarily will be anywhere nearly as bad as in the 1930s and 1940s.
All is not lost. Crises ebb and flow. Recessions start and end.
CPM foresees an extended period of several years as the negative trends that have been emerging for decades become critical and demand attention.
These dangerous conditions can be effectively managed. In fact, some of them lend themselves to relatively easy, straight-forward, and relatively painless solutions. They do not need to be ‘resolved by fire.’

And the single most important conclusion:

You are on your own.
- Do not expect others, the government, or anyone else, to protect you from the vagaries of society and life.
- Prepare yourself.
- Preparations should include having an adequate percentage of your wealth in gold and silver, discussed at the end of this report.

Political

Over the past couple of years political issues in individual nations and internationally have become more urgent in the minds of gold investors.

On an international basis there is a breaking down of intergovernmental cooperation. Countries used to try to get along, more or less. In the 1970s the U.S. government made a dramatic change of course, reaching out to the Soviet Union with detente and the People’s Republic of China through rapprochement, seeking to increase cooperation and reduce political and military tensions and risks. In many ways these policies worked, leading to more than a quarter century of increased international trade and cooperation, and reduced major-power confrontations.

In 2001 the U.S. government changed its policies toward Russia. From the time of the dissolution of the Soviet Union in 1991 and the collapse of the Iron Curtain 1989 until 2001 the U.S. government had encouraged democratic forces within Russia and Eastern European countries. Starting in 2001 the U.S. government adopted a more hostile approach toward the newly emerging Russian government. The new president of Russia, Vladimir Putin, reciprocated. Relations have deteriorated dramatically since then.

In 2005 the U.S. government decided and publicly announced that it viewed China more as a competitor than a cooperative partner, and began hardening relations with the Chinese government. For a variety of reasons the Chinese Communist Party pivoted toward more rigid and authoritarian leaders, appointing Xi Jinping President to counter the United States. Relations between China on one side and a host of countries on the other side have gone from bad to worse. It is not just China versus the United States. China’s international relations have hardened with most of its East and Southeast Asian neighbors as well as with Europe, Canada, Australia, and some African nations.

The consequent reduced international political cooperation has reduced economic cooperation. Trade has declined and governments worldwide have made decisions that were economically costly to their nations and citizens. These trends continue to worsen.

In this environment, investors around the world have bought more gold and silver at higher prices for a longer time than ever before. This trend also shows no sign of reversing.

Domestic Politics, Too

Political scientists say that foreign policy typically is an extension of domestic politics. The current deterioration of international cooperation sure appears to be an extension of growing domestic political and social animosity in the United States and other countries. The rise of demagogic and authoritarian-leaning politicians is global at this point, from the United States to various European nations, Russia, China, India, and other nations across Latin America, the Middle East, Asia, and Africa.

Migration patterns are compounding these domestic pressures, not only in the United States but also in Europe, Australia, and other countries. The flood of people seeking “asylum” from economic, political, ethnic, religious, and other oppression and danger is enormous

While the U.S. press focuses on the economic and social ramifications of these immigration flows on the United States, little attention here is paid to the deployable conditions in Africa, the Middle East, and Latin America that are driving these desperate moves.

It is difficult to imagine how these domestic and international tensions and hostilities may be defused, especially as so many political leaders seem to be feeding on them rather than developing potentially effective solutions.

There are many other political issues adding to the ill ease of investors. One set of factors relate to the negative economic and social effects of both climate change and the regulations being promulgated to combat global warming. That the world is growing hotter and climatic conditions are growing more destructive are quantifiable facts. One might point out the ebb and flow of global temperatures for many geological eras, and argue the effects of human activities in contributing to the current rise in temperatures, but that is not necessarily the best way to think about these issues.

What is important is that climate change is happening (as it has for many thousands of years at least). Many climate scientists have been warning for many years that global temperatures will rise with destructive consequences, and that efforts to reduce the rise in temperatures by restricting the emissions of greenhouse gases are likely to fail for several years. These climate scientists have urged that investments be focused more on preparing human cities and settlements to cope with changes in the climate than in reversing global climatic trends that are beyond the scope of humanity to change. Meanwhile regulations aimed at reducing greenhouse gases are contributing to misallocation of private and government investment funds, adding to the negative consequences for countries, economies, and individuals of all of this.

Perhaps even more crucial than the global political challenges and risks, the domestic divisions within nations, including the United States, are leading investors to increase their gold and silver holdings as a way of preparing to protect their wealth and well-being, as well as position their investment portfolios to benefit from higher gold and silver prices as domestic politic disarray grows worse.

Economic

Economic well being also has grown worse in many countries.

We tend to focus on the United States economy, on massive government and private deficit spending and debt and growing economic imbalances. In fact, the United States is better off than most countries around the world.

The U.S. Federal debt now is around $34 trillion, more than 120% of annual gross domestic output. That is as high as it was in 1947 after World War Two. Federal spending and deficits also have grown ever more outrageous, starting in the 1970s, accelerating in the 1980s, then exploding since the turn of the century. Excessive fiscal deficit spending is real problem that need to be addressed. As problematic as the Federal debt is, it is a symptom, a consequence, of excessive fiscal spending.

As bad as economic and financial conditions are in the United States, but the U.S. economy is in better position to deal with these problems than almost any other country. On a global level, total debt from governments and private businesses and people combined, is more than three times global economic output, global GDP.

Investors and others are frightened by the enormity of the public and private borrowing, the deficits, and the debt. The scale seems overwhelming. The problems are daunting, and they seem likely to continue to get worse over the coming decade and beyond. The non-partisan Congressional Budget Office projects that deficit spending will exceed $1.5 trillion dollars per year for the next decade.

Currency markets also are up for revision. The dollar will not collapse, but in the very long run it will lose status as the reserve currency of choice. Current proclamations that central banks, foreign investors, and others are ‘dumping’ the dollar and U.S. Treasuries are not true. In fact, the overseas holdings of U.S. Treasuries rose 10.5% in 2023 to a record $8 trillion. The dollar has been stable around 58% – 62% of central banks’ foreign exchange reserves for decades, and has grown as a share of private financial wealth. Estimates are that between 70% and 80% of private financial wealth worldwide is denominated in dollars.

Meanwhile, economic conditions will wax and wane. There will be recessions and then recoveries and economic expansions, followed by future recessions and recoveries. Some recessions will be worse than others, but they will end.

Some investors worry about a new Great Depression, but the economy and financial system, and government support programs have developed in ways that most likely preclude such a catastrophic economic period.
Others worry about a return to ‘stagflation’ similar to what occurred in the 1970s. That, too, is unlikely, given that fiscal and monetary policy makers have learned much about how to avoid such an extended period of low growth, more frequent recessions, and simultaneously high price inflation since then. Furthermore, economic systems have evolved to sharply reduce the likelihood of such developments in the future.

People point out that during the 1970s’ stagflationary period gold and silver prices rose sharply, suggesting that a new bout of stagflation might send gold and silver prices higher. A round of stagflation might send gold and silver prices higher, but CPM expects gold and silver prices to rise further based on more likely economic and political problems emerging. Additionally, a large portion of the rise in gold and silver prices in the 1970s, and indeed higher prices for oil, copper, food, and a range of other goods and services, reflected prices adjusting after the removal of decades of government controlled and fixed prices on gold, silver, oil, and many other things. Prices adjusted after price controls and fixed prices were removed: These price increases caused the inflation in stagflation, and the higher cost of buying and building things constrained economic activity, causing the stagnant growth. Higher prices were the thing that caused stagflation, and not the other way around.

At present, and for the foreseeable future, when economic, financial, and political conditions grow more hostile, investors and central banks turn to gold, silver, the U.S. dollar, and U.S. Treasuries. These are perceived as the least risky assets in which to store one’s wealth.

It Is Not A Matter Of Collapse And Catastrophe.

Considering all of these economic, financial, and political issues facing the United States, other countries, and the world, it is easy to succumb to the doomsayers predicting the end of the United States as a democracy, the dollar, the global economy, the financial system, and more. That may be too histrionic, however.

More likely it will be a matter of a long period of hostile economic, financial, political, and social conditions that present severe constraints to each of us as we pursue free, prosperous, and happy lives.

Each of us needs to strive to find the reasonable ground between being a Cassandra and a Pollyanna.

Each of us need to come to terms with what may be most likely to happen, as opposed to what we most fear or most hope for.

It is hard to imagine how things might improve in the absence of some catastrophic cathartic reckoning, but the idea of some “backing off” statistically is the most likely and best outcome.

The worst case scenarios: World war, civil war, government financial default could happen, but they probably will not.

Yes, another world war is possible, but a more likely future is an extension of the present. Since World War Two the world has seen continual wars, terrorism, and political struggles and disasters. These are lower level than a World War, but they lead people to seek safety in gold and silver.

The fates and fortunes of politicians and government leaders are tied to such “perpetual wars,” but they also want to avoid any destruction of their wealth similar to what happened in World War One, World War Two, and the Napoleonic Wars.

Similarly, the idea of another Great Depression cannot be ruled out, but again the more likely future will be ongoing financial constraints to the wellbeing of most people in the world.

The Great Depression, and the three depressions that wracked the United States in the 1870s, 1880s, and 1890s, occurred before (and led to) the creation of unemployment insurance, social security, a national banking system with regulatory oversight of bank reserve management and lending practices, and a far better understanding by governments about how to use fiscal and monetary policies and tools to ameliorate the pain and suffering of the inevitable periods of economic constraints, contractions, and recessions.

The Next Recession

CPM is projecting the next recession to start perhaps as early as the second half of 2024, or early 2025. Already in the first half of 2024 there are signs of slowing economic activities, growing supply constraints on goods and services, deteriorating financial balance sheets on governments, households, and many small and medium-sized businesses. These may be the canaries in the coal mine signaling imminent economic contractions.

Some of the political issues discussed above may be part of the triggers for such a recession. So, too, the fiscal constraints on governments that have been excessively effusive with borrowing and spending.

Such a recession could be relatively severe. CPM does not expect it to be as long or deep as the 2007 – 2009 recession, but more painful than those of 1991, 2001, and 2020.

When the recession ends, the fiscal constraints on government spending, the massive amount of private and public debt, the reduced international trade, and other factors are projected by CPM to limit the strength of economic growth in the subsequent recovery and expansions.

People ask what will cause the next recession, expecting a single event answer. The reality is that recessions are caused by a confluence of events, problems, coming at the same time, often in unforeseen ways and combinations. A list of possible contributing causes can be anticipated and itemized, as we have in this report.

Since 1982 there have been fewer recessions than there were prior to that year. The recessions in 1991 and 2001 were notably shorter and shallower than earlier ones. The periods of economic growth between them were longer. The 2007 – 2009 recession was longer and more severe. Since 1982 monetary authorities have become much more adept at taking steps to remediate recessions, shorten them, make them shallower, ameliorate their effects on people, companies and nations, and even avoid them.

What It All Means For Gold And Silver

So what does all of this have to do with gold and silver? Everything! The very reason investors buy and hold gold and silver is to protect themselves and their wealth from an enormous range of potentially negative personal and public bad developments.

Investors buy and hold gold and silver because there always are uncertainties about the current state of and future trends in the political and economic environment. They buy and hold gold and silver because negative developments can reduce the value of their other investments, in stocks, bonds, currencies, and real estate. It is that uncertainty that makes it smart to have some of your wealth in gold and silver.

Some investors, including some prominent billionaires known to have large gold positions, think of gold and silver in monochromatic terms. More than one says that gold only trades against the dollar and that the only reason to own gold is because the dollar is going to collapse… someday. Never mind the quantitative and qualitative proof that this is an incomplete view of gold’s value to investors. Others say gold only is important as an inflation hedge. This, too, misses the point of gold and silver.

The essence of gold and silver as investments is that they are protection, insurance, against a wide range of economic and political issues, problems, crises, even catastrophes that can devastate individuals’ wealth and well being. These crises can be personal, such as a health problem, accident, or natural disaster. Other crises are general to the public. In each instance, having some gold and silver helps families survive.

The chart below illustrates the optimal amount of one’s financial wealth that one should have had in gold on average over the past 55 years, since gold prices were freed from being fixed at $35 per ounce. Owning gold helped smooth out the volatility of one’s portfolio as well as offering greater increases in the value of one’s holdings. This is the essence of an ideal investment: Gold and silver provide both wealth preservation and capital appreciation.

In the past half century, the best return of a portfolio including stocks, bonds, and gold was for portfolios that had around 25% – 30% of their value in gold. That’s a lot, and it is much greater than the 5% – 10% often mentioned. (That 5% – 10% optimal holding was calculated in the early 1980s using the experiences from 1968 through 1980. Using the same calculations but extending the period under study through last year, 2023, the optimal allocation is 25% – 30%.)

A similar although slightly different risk-reward curve exists for silver.

Putting this all together, the conclusion is simple: Investors are facing enormous uncertainties spread across the economy, politics, financial market stability, currency markets, social unrest, and exposure to personal crises. Each individual is responsible for her or his personal safety, for securing insurance and protection against the risks we each face in life.

Gold and silver are excellent forms of insurance.

A brief word should be added about platinum and palladium. These are precious metals like gold and silver, but they have radically different supply and demand fundamentals. They also do not have six millennia of history as serving as money, as a unit of exchange, a store of value, and a measure of value the way gold and silver do. That does not mean that they should not be considered as part of investors’ portfolios, but it does mean that when major crises hit platinum and palladium typically rise with gold and silver, but then diverge because they are most industrially oriented metals.

Call Monex today (800) 453-2924 or visit them online at www.Monex.com and learn why they have been a trusted name in precious metals investing for over 50 years.