One of the greats in the business just told King World News that one of the wildest and most shocking bull markets in history is about to unfold.
The World Is Headed For Radical Change
Stephen Leeb: “Old-timers (like me) may remember that back in the middle of the 20th century, there was something dubbed “the General Motors indicator.” In that era, autos made up one of the economy’s largest sectors, and General Motors was far and away the dominant auto manufacturer. The theory was that if General Motors shares rose, it pointed to higher car sales and a peppier economy, in turn suggesting the stock market as a whole was likely headed up. The indicator had a pretty good batting average, especially when it came to predicting the economy…
The Leading Indicator In The World Is Now The Price Of Gold
Today if you want to know where the financial markets are headed, there’s no comparable stock that represents the U.S. economy. Moreover, even if there were, it wouldn’t really matter because today the U.S. economy no longer is the most important economy to watch. That honor has shifted to China, whose impact on global growth has overtaken America’s. And the best leading indicator – if by no means a flawless one – for predicting the Chinese economy isn’t an individual stock. Rather, it’s gold, with silver following right on its heels.
Over the past decade or longer, any sign of trouble in China has set the financial markets on edge. In early 2016, China’s currency and stock market were in near free fall, and U.S. markets had the worst January on record. But when gold started to advance sharply prior to any other evidence that China was out of the woods, it was a sign that China would right itself. It also undercut the vaunted “January effect” indicator, which says that as January goes, so goes the rest of the year.
More recently, following the surprise election of Trump, U.S. stocks soared while gold tanked. In this case the gold market took Trump too much at his word and assumed China was vulnerable to being branded as a currency manipulator, with high tariffs slapped on many of its exports. Anticipating the potential damage, gold fell about 15 percent in six weeks. It’s revealing that much of that drop came right after Trump spoke on the phone with Taiwan’s president. If such a conversation had occurred, say, in the 1990s or earlier, gold likely would have rallied because it would have been seen as a safe haven protecting investors against any repercussions from the roiling of relations between two major powers.
But in today’s world, gold’s moves, rather than mainly reflecting need for a safe haven, primarily reflect the outlook for China. Further evidence of that shift is the rally in stocks and gold that ensued right after the conversation between President Xi and President Trump in which Trump affirmed a commitment to a one-China policy. So why are gold and China so tightly tethered? It’s not by way of any connection between the two economic conditions that have long been gold’s best friends: inflation on the one hand and deflation on the other. After all, a strong China hasn’t led to inflation. At this century’s start we did have a big run in commodities, and while you can argue that gold correlates with commodities, at the end of the day we’ve had 15 years of very little inflation and a gold price that has moved up 250 percent. Nor have we had deflation; we’ve come close, but still, apart from Japan, every major economy has pretty comfortably avoided negative price changes.
China: In Gold We Trust
Rather, the China-gold dynamic stems from what I’ve said before: China does not believe in fiat currency and it especially doesn’t trust the dollar as the basis for a monetary system. It does trust gold, which is a major threat to the dollar. In an interview some time ago, I raised this issue of the conflict between the dollar and gold when I pointed out that the Bank for International Settlements (BIS), an institution loyal to the West, was behind the big correction in gold in 2013. That was the year the BIS, which is the central bank for central banks, excluded gold as an asset that banks could count towards making up part of their required liquidity buffer – a decision of unprecedented guile given that gold had so vastly outperformed assets that BIS deemed to be sufficiently liquid. That was followed by a further downgrading of gold when Cyprus banks ran into trouble and were instructed to raise paper money by selling off their gold. The effect was to relegate gold to a second-rate currency that, temporarily, was rendered unable to compete with the dollar.
One Of The Wildest Bull Markets In History Is About To Unfold
But China has come to gold’s rescue. While China no longer is growing at double digits, it’s still growing far faster than any other major economy. More important, it is the economic hub of the East, which, as I pointed out last time, encompasses Eurasia and more. As long as China stays on course, gold is destined to become the center of a new monetary system, and as a consequence will follow a steeper and more protracted upward path than almost anything we’ve seen before for any financial asset.
Since late 2001, the world’s best performing economy by a wide margin has been China, and the best performing asset has been gold. Just look at our chart: as it shows, during the past 15 years, stocks have doubled while gold has climbed more than 3-1/2 fold (see below).
So yes, gold is the General Motors of today and much more. Gold is an indicator of the kind of economy the world will follow and of the sustainability of China’s extraordinary gains. If you believe, as I do, that China will continue to leave the West in its wake, you should own gold (and/or silver) big time. But here is a major bonus: even if you think China is going down in flames, you should still own gold. A crumbling China will likely be one of the most deflationary events in world history, and the history books are exceeding clear that gold and deflation are exceptionally close bedfellows…KWN has now released the remarkable audio interview with London whistleblower and metals trader Andrew Maguire and you can listen to it by CLICKING HERE.