As global powers clash, commodity prices are set to soar

As global powers clash, commodity prices are set to soar
As global powers clash, commodity prices are set to soar

During a Zoom call earlier in the week, I overheard people discussing the “Russian Davos” they attended in June.

I didn’t even know such a thing existed, such is my Western, Ptolemaic view of the world. (Ptolemaic, by the way, to save you the trouble of searching, means you think you’re at the center of the universe, and everything revolves around you).

Thus, the Russian Davos, or as it is properly called, the St. Petersburg International Economic Forum, held in June, is an annual event that began in 1995 to signal the (then) new Russia. It would attract global political leaders, business titans, financial bigwigs and all the usual shizzle. As expected, commodity prices were a key talking point at the event.

The event took place this year. For obvious reasons, the VIP workforce was significantly lower than in previous years.

But it also means that non-Western nations that have not imposed sanctions would have greater prominence. Gone are (formerly) German Chancellor Angela Merkel, ECB Director Christine Lagarde, Lloyd Blankfein of Goldman Sachs, Vikram Pandit of Citi and Rex Tillerson of ExxonMobil. Instead, the headliner went to the presidents of Egypt (via video link), Kazakhstan, Armenia and other allied states.

There were representatives from countries like China, India, Iran, Serbia, Turkey, Venezuela, Egypt, Belarus, Central African Republic, Nicaragua and the United Arab Emirates. A whole collection.

The Western economy has been shaped by low commodity prices

The official title of the forum was “New Opportunities in a New World,” and the recurring theme was how to improve trade between non-Western powers in a world of sanctions controlled by the US dollar.

“A new form of international cooperation: how will payments be made? was the title of one of these speeches. Time and again, the conversation returned to a new non-Western international currency.

Which brings me to the second line of thought that makes up today’s Money Morning: the latest contribution from Credit Suisse analyst Zoltan Pozsar.

Pozsar has long maintained that Bretton Woods III, a new world monetary order, is unfolding before our eyes and that the new monetary systems in Eastern Europe will be based on commodity-based currencies.

In his latest, War and Industrial Policy, Pozsar, of whom I am quickly becoming a fan, argues that there were three forces that shaped the Western economy before Covid – cheap immigrant labor, cheap Chinese goods and cheap gasoline.

Such a trinity is no longer possible in a world where international trust is rapidly evaporating. “Chimerism doesn’t work anymore and Erussia doesn’t work either,” he says.

“The ‘cartoon’ version goes like this: China got really rich making cheap stuff, then wanted to build 5G networks globally and make cutting-edge chips with cutting-edge lithography machines. , but the United States said “no way”. As a result, Chimerica is going through a messy divorce. The two parties no longer speak to each other.

Meanwhile, “Russia got very rich selling cheap gas to Europe, and Germany got very rich selling expensive products produced with cheap gas.” These two sides don’t talk to each other anymore either.

And now, in the divorce, it seems that Russia and China “get along”. Meanwhile, in the West, QE and zero interest rate policies are no longer possible in a world without cheap Chinese and Russian exports.

Countries rush to take control of key resources and technologies

There is now a rush to regain control of key technologies, especially microchips, and key commodities, especially oil and gas (and soon, in my view, metals and grains). Pozsar adds straits to the key list – the Taiwan Strait, the Strait of Hormuz and the Bosphorus Strait.

“I think four themes (rearming, relocating, resupplying and rewiring the power grid) will be the defining objectives of industrial policy over the next five years…the world order is at stake.”

Inflation or not, high rates or not, there is a commodity-intensive demand shock that “could easily lead to another commodity super-cycle.”

So on the third strand. We have a former Kremlin adviser, now Minister for Integration and Macroeconomics of the Eurasian Economic Union (EAEU), and an influential economist, Sergey Glazyev. According to some reports, he is overseeing the adoption of a new monetary system for the UEE and China. “The new global monetary system, backed by a digital currency, will be backed by a basket of new foreign currencies and natural resources.”

“A currency like this can be issued by a pool of foreign exchange reserves of the BRICS countries, which all interested countries can join. The weight of each currency in the basket could be proportional to each country’s GDP (based on purchasing power parity, for example), its share in international trade, as well as the size of the population. and territory of the participating countries.

In addition, the basket could contain an index of the prices of the main commodities traded on the exchange: gold and other precious metals, the main industrial metals, hydrocarbons, cereals, sugar, as well as water and other natural resources. »

It’s much easier said than done. But you can bet your bottom dollar that many of the brightest minds in China and Eurasia are preparing such a system.

The bullish backdrop for commodity prices

It would be much easier to use an international currency backed by gold. Well, gold. Russia and China have plenty – we have long argued that China’s gold reserves are ten times what they claim to be.

But governments everywhere, whether controlled by tyrants or technocrats, will always want to retain the ability to print, debase and manipulate, so gold alone is unlikely. But you never know.

Yet, in this very bullish backdrop for commodities, we have a situation here in the west that looks like stocks’ dead cat bounce is ending, and the bear is gnashing its teeth again.

This gnashing of teeth has extended to raw materials, be it metals, fuel or grain, and now, once again, there is a rush out. The main priority is to preserve capital, not positions. The price action – certainly in metals, less so in oil and gas – has the characteristics of a bear market, not a supercycle.

I keep saying these markets are tough. But they are. Although there is a shortage of cash, all bets are off. But at some point, at least to me, it looks like commodity prices are going to skyrocket. If only I knew when.

Dominic will present his talk with fun tunes, How heavy is it?on the history of weights and measures at the Museum of Comedy in London on September 28 and 29. You can buy tickets here.

. So the world powers clash the prices of the raw materials should rise arrow

. global powers clash commodity prices set soar

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