One Belt, One Road, One Direction for Precious Metals

By David Smith, Originally Published on Money Metals Exchange

All great events hang by a hair. The man of ability takes advantage of everything and neglects nothing that can give him a chance of success; whilst the less able man sometimes loses everything by neglecting a single one of those chances.

~Napoleon Bonaparte

China’s launch several years ago of the One Belt, One Road Initiative is set to become the biggest commercial linking-system constructing project in world history. In the book David Morgan and I co-authored, Second Chance: How to Make and Keep Big Money from the Coming Gold and Silver Shock-Wave, we discuss the “New Silk Road” this way:

…the plan, described as an “economic partnership map with multiple rings interconnected with one another” envisions an economic land belt and a maritime road linking Beijing through Europe to the Mediterranean. This modern equivalent of the old Silk Road would weave together the economies of over half the world’s population via transit corridors of highways, high-speed rail, fiber-optic cables, pipelines, and air and seaport hubs.

OBOR – also known as the Belt and Road Initiative – is drawing supplies of commodities to it across the board, like iron filings to a magnet. Concrete, iron, zinc, copper… silver and gold. Silver, as a critical ingredient in the electronics and communication build-out; gold (+ silver) because of rising incomes for China’s middle class – larger than the population of the U.S. – which will continue the historical habit adding to its precious metal holdings.

An excellent interactive map showing the primary pathways and effects of this mammoth construction project can be found at the South China Morning Post. Elements:

• During a recent two-day visit to Beijing by U.K. Chancellor Philip Hammond, it was announced that former Prime Minister David Cameron would be taking a lead role in a US$1 billion private equity infrastructure fund directly investing in the One Belt One Road (OBOR) initiative. ~Tama Churchouse

• HSBC has estimated that the expansive Belt and Road program will generate no less than an additional, game-changing US$2.5 trillion worth of new trade a year.

• It is important to remember that the “belt” in BRI is a series of corridors connecting Eastern China with oil-gas rich regions in Central Asia and the Middle East. The high-speed rail networks, or new “Silk Roads”, will simply traverse regions filled with, what else, un-mined gold. ~Pepe Escobar

• An almost unnoticed (when in the West, made light of) corollary is China’s proposed “Latin Belt and Road” program, involving Brazil, Argentina and Chile. China’s Foreign Minister says, “It follows the principle of achieving shared growth through discussion and collaboration. It is nothing like a zero-sum game.”  ~Asia Times

The meaning for gold and silver?

When most Western analysts tout the virtues of precious metals’ ownership, they focus on what Frank Holmes refers to as the “Fear Trade.” They say you should (and we agree) own gold and silver as “insurance” against rising inflation, which by the year (daily in Venezuela and Zimbabwe) reduces the purchasing power of David Morgan’s famously termed “paper promises.” These highly-liquid metals can be turned into fiat paper virtually anywhere in the world.

Holmes also refers to the “Love Trade”, a demand factor just as important and enduring. When people’s disposable income rises, they purchase discretionary items – things not otherwise critical beyond the basics of food and shelter. This behavior, especially by Indians and Chinese (“Chindians”) has historically been a habit; almost an obsession. Graceland Updates Editor, Stewart Thomson describes the OBOR context, saying:

Gold is headed back towards slow, relentless appreciation against fiat, but it won’t be as slow as you might think… because of the exponential mathematical relationship between Indian wage increases and gold demand. The road to $15,000 will be built with one belt, one road, one price-advance brick at a time.

As citizens industrialize, they play catch up with everyone else. Because there are almost 8 times more Chindians than Americans, it’s a super-sized version of what took place in the 1880s in America. (Given) that the Chinese are the world’s biggest gamblers, and Indians are maniacally obsessed with owning all the gold there ever was, is, and will be, the bull era promises to be incredibly exciting.

“Technical proof”?

One of most overlooked tools in a technical traders trading box is the relationship between gold and global currencies. On major exchanges it’s most frequently quoted in U.S. dollars, but in a given country, gold demand is expressed in local money. When we see gold advancing in dollars, that’s important. When making new highs in other currencies, it becomes a bell-weather signal in its own right.

Gold vs. Emerging Market Currencies, courtesy allstarcharts.com

The blockchain-gold-silver nexus – another element to the equation.

Over the last year, I have written in this space – as well as in 2018 issues of The Prospector News and The Morgan Report – how the blockchain revolution will affect precious metals’ demand and ownership. Kevin Vecmanis, in an essay titled “Gold and Blockchain”, ties these golden threads together, commenting:

…Gold has found itself in the blind spot of investors almost seven years after making a nominal all-time high. Quietly, beneath everyone’s nose, gold is undergoing a tectonic shift. On every time frame – weekly, monthly, quarterly, and yearly – the trend in gold has shifted upwards. Gold smashed historical quarterly volumes the last two quarters in a row by a significant margin.

While western investors are enamored with the stock markets, there are two billion people in the east that view gold differently and are gladly taking it off our hands at lower prices. Their economic influence is rising. Their economies are in desperate need of transactional efficiencies that the blockchain offers. A rising standard of living in the east directly equates to a rising base demand level for gold.

This year right out of the box, precious and base metals, as well as shares of the better miners who produce them have been strong, a trend set to continue. Information Risk is being replaced by Price Risk.

Don’t become a Lookie Lou who wonders later this year why you didn’t act while metals were “affordable” and available. Don’t become “the man (or woman) of ability” Napoleon describes, who misses “a chance of success” by neglecting to act on the bullish metals’ signals Mr. Market is sending your way.

David Smith is Senior Analyst for TheMorganReport.com and a regular contributor to MoneyMetals.com. For the past 15 years, he has investigated precious metals’ mines and exploration sites in Argentina, Chile, Mexico, Bolivia, China, Canada, and the U.S. He shares his resource sector findings with readers, the media, and North American investment conference attendees.