Four Geopolitical issues that could drive the gold and silver prices higher this year.
There are four geopolitical factors that are brewing that could drive gold and silver prices higher in 2022.
The First Geopolitical Factor is the US-China Relations
This very turbulent relationship has many issues that have been simmering for a number of years. Topping this list of turbulent relationship items are trade issues.
Both the Chinese and US government have already started prioritizing domestic policies. They have also started creating an agenda for increased ‘made at home’ protectionism policies.
The latest US infrastructure bill has ‘buy American’ provisions throughout it. And this follows the “Made in America Act of 2021” bill introduced in the Senate in April 2021 which would require all materials used in carrying out federal infrastructure programs to be produced in the United States (with some exceptions).
Although the US leads the way in new protectionism policies it is not the only country introducing protectionist policies. According to the World Law Group, the number of protectionist policies adopted by countries has tripled since 2018.
Most significantly, the US has adopted over three times as many restrictive measures over liberalising policies in the past three years as it had between 2009 and 2017 – when Gowling WLG launched its inaugural report, ‘Protectionism: are you leaving yourself open?’
China is the most affected by restrictive measures due to its trade war with the US, while the US is the second major economy most affected.
Only Brazil and Argentina have significantly implemented liberalising measures. With the trade war between China and the US seeing China’s prior move towards trade liberalisation largely reversed.
The 2020 global pandemic ongoing in the wake of the continued fallout of major political events since 2017 and the resulting fragile economic landscape, has negatively affected trade flows. This is especially within Europe, and to and from the powerhouses of the US and China.
China’s government has always been fearful of unemployment amongst its people because joblessness leads to resentment.
Resentment can lead to political change which is the one thing China’s government will not tolerate. So, a trade war that slows employment is an indirect existential threat to Chinese leaders far more than in Europe or America.
But trade is only one of the issues – the US/China conflict over Taiwan could be a game-changer.
The Second Geopolitical Factor is Conflict with Russia on Borders of the EU and its Eastern Neighbours
The buildup of Russian troops on the Ukraine border had many western countries on high alert.
Although as of December 27 Putin had ordered a withdrawal of 10,000 troops ahead of talks with Germany this issue remains on red alert in 2022.
According to news reports the number of troops on the border ranges from 60,000 to 90,000. However, a US intelligence document suggests that the number could be as high as 175,000 troops. And satellite images suggest that Russia has also continued to build up forces near Crimea.
War is always a bad thing.
Eventually, war usually turns out good for gold and silver prices because governments who fight wars borrow money that never gets repaid.
In fact, the January 1980 high gold price of US$850 came shortly after Russia invaded Afghanistan, investors surmised that both Russia and American would fight the war [America via proxy] with money borrowed instead of money already saved.
The Third Factor is Growing Unrest in Middle East Region
In December negotiators from Iran and five world powers resumed negotiations on restoring Tehran’s tattered 2015 nuclear deal. Iran insisted that the United States and its allies promise to allow it to export its crude oil.
The New York Times reported on December 10 that Long-running differences over how to deal with Iran’s nuclear program have erupted into new tensions between the Biden administration and Israel, with two senior Israeli officials leaving Washington in December concerned that the Americans’ commitment to restoring the 2015 nuclear deal will lead to a flawed agreement allowing Tehran to speed ahead with its nuclear enrichment program.
The Fourth Geopolitical Factor is the Global Migration Crisis
According to the UN Refugee Agency, there were 82 million forcibly displaced people around the world at the end of 2020, and this number continued to rise in 2021.
The Agency noted that this is the most at any time in modern history.
The displaced are people who have fled extreme dangers, whether to escape the relentless bombing, an invading army, gang violence, or other life-threatening circumstances.
This massive migration crisis comes at a time of increased negative sentiment and countries closing their borders to the migrants.
The climate changes will only make the global migration crisis worse as more regions become unsustainable.
People from all over are already being forced to move due to the climate crisis. Also, the World Bank estimates that 216 million people across all regions could be displaced by 2050 due to climate.
Changes in climate, increased flooding, fires, and other natural disasters will only increasingly weigh on already stretched government finances.
Just like government spending on war, new money created and spent on disaster or migration relief is money that eventually reduces the purchasing power of money already in circulation.
Concluding thoughts
In every year before 2022 silver and gold prices trended higher because government spending outstrips the ability to pay for government spending.
Nothing changed on January 1st; the world continues to forget that fiat money is weaker than physical metals.
Our view is that gold and silver prices will be higher twelve months from today and geopolitical issues will be one of the contributing factors.
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