Belt & Road and Precious Metals - Jeff Nielson

by Jeff Nielson, Sprott Money:

China’s “Belt and Road Initiative” is the transformational economic strategy of the 21 st century. PricewaterhouseCoopers summarized the plan in February 2016:

The geographical area that is potentially covered by the B&R initiative is vast. In its current shape, the initiative has close to 65 countries somehow connected, covering more than half of the world’s population (c. 4.4 billion), around 30% of the global economy and a total infrastructure investment need of around US$5 trillion. 

Some commentators have coined the term ‘Chinese Marshall Plan’ to describe the B&R initiative, a reference to the Marshall Recovery Programme which focused on revitalising Western Europe after the end of the Second World War with the leadership and funding of the US. However, the comparison is not an accurate one, in the sense that China is putting a very clear emphasis on the inclusiveness and ‘win-win’ character of its B&R initiative. Where the original Marshall plan deliberately excluded some countries from participation and put hefty conditions on others, China is making clear that all countries along the way are welcomed to join, without B&R attaching additional conditions.

 

In economic terms; the BRI will help to re-energize economies representing more than half of the world’s population – with virtually none of that total coming from the Western bloc. In recent years, the economies of the Rest of the World have been struggling to equal their rate of growth from the previous decade.

Much of the reason for this malaise has been dealt with in previous commentaries: Western economic terrorism . To be more specific it has been the currency manipulation of the financial crime syndicate known as the One Bank.

The Big Bank tentacles of the One Bank have been caught (and convicted) of manipulating all of the world’s currencies . Western currencies are manipulated higher (especially the USD), all other currencies are manipulated lower.

A weakened currency is like a tax on the entire economy: every unit of currency provides steadily diminishing purchasing power, just like increasing taxes. A severely weakened currency can result in economic devastation, as was seen with Russia during the two years where it was the primary target of such terrorism.

For this reason, the geopolitical consequences of the BRI are equally important. The plan represents the final plank in China’s strategy to free itself (and many of its friends/neighbours) from Western economic hegemony.

China’s currency, the renminbi, has already been positioned to replace the USD was reserve currency, although China insists it envisions a world with no (single) reserve currency. Parallel to this, its own economy is rapidly replacing the U.S. as the world’s dominant economy.

However, facing Western animosity and economic harassment, China still didn’t see itself and the Rest of the World as being strong enough to cast off their Western shackles. The BRI is the engine which will provide the economic clout as well as the political and economic unity necessary to free the world from the West’s chokehold.

What does any of this have to do with precious metals? Supply and demand.

On numerous occasions, readers have been presented with the economic fundamentals which favor gold and silver as asset classes. Both sectors have had long-term supply deficits and are currently priced well below what is necessary to sustain the sector over the long term.

Indeed, even when the price of silver briefly soared above $40/oz USD, the silver mining sector was just beginning to regain a semblance of health. Regular readers know that the price of silver was driven to a 600-year low ( in real dollars ) during the 1990’s, bottoming below $4/oz USD. More than 90% of the world’s silver mines were bankrupted and the industry has never recovered.

Readers are also familiar with the monetary fundamentals of precious metals. With most of the world’s fiat currencies debauched to near(?) worthlessness, monetary fundamentals alone dictate that gold and silver prices should be many multiples of current levels.

But readers have seen these fundamentals recited for years – during which time the One Bank has maintained an absolute chokehold over gold and silver prices. That chokehold has been maintained even as the supply deficit in the two markets has persisted.

Clearly monetary fundamentals and mining fundamentals alone have not been sufficient to break that chokehold. The only factor that can (and will) guarantee the shattering of the criminal manipulation is demand for physical metal on a level necessary to induce inventory default.

The “breaking” of the bankers’ fraudulent paper markets for gold and silver equates to an end to this crime syndicate’s manipulation. When (finally) stockpiles are exhausted, physical demand will dictate prices . This is where the BRI has relevance to precious metals markets.

Western populations have been brainwashed to the point where the vast majority of these populations no longer comprehend precious metal’s value as a “hedge against inflation” (serial banking crime) and a general safe haven. Simultaneously, Western economies have been gutted by the economic crimes of the One Bank and the mismanagement of our puppet governments.

We cannot count on any strength in demand for gold and silver originating out of the West, even when these economies begin their (imminent) final Death Spiral. Even with the anemic level of current mine supply, the level of demand necessary to put an end to the bankers’ chokehold on these markets must originate in the Rest of the World.

The BRI is the economic vehicle which ensures a long-term level of economic growth & demand necessary to ensure that the supply deficits in gold and silver markets remain in place. Very likely those deficits will widen further. Eastern populations have not been brainwashed away from humanity’s natural affinity for precious metals.

China and India are the twin pillars of precious metals demand, with Russia exerting secondary importance with respect to its own, voracious demand for gold. It is vital that these nations retain the economic vitality to maintain that demand. It is also necessary for other nations to supplement that demand with robust buying within their own populations.

Belt & Road.

Putting aside the economic activity generated by the $5 trillion in infrastructure investment, that infrastructure represents economic independence from the West. China (and to a lesser extent, Russia) have created parallel financial and administrative institutions to replace the financial hegemony of the IMF and World Bank.

The BRI creates the physical infrastructure to compliment this financial infrastructure. Together, it represents a liberation strategy. Not only do China and the Rest of the World no longer need the West, with the economic bloc being created they can simply exclude the West – if these puppet governments (and the One Bank itself) refuse to “play nice”.

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