Gold ingots and coins
Gold is for War. That is why governments stack it. It’s not because they are going back to bimetallism – it’s because gold is for bullets, tanks and ships when the chips are down. It is the international currency of war. So, it is not a happy moment to watch gold go vertical:
The gold chart is going vertical
It is not fate that gold will reach $5,000, but from the kick in the pants the U.S. just gave Europe and NATO, we appear to have started on a long and unhappy journey of superpower escalation – of, and I quote, “hard power.” Gold is hard power.
So, obviously, we should all be stacking gold, silver and platinum.
BUT!
These are dumb assets. What are the productive investments we can own that will not only support our country’s economic vitality but also generate more profit than unlevered gold?
Here’s what made fortunes the last time around:
Arms and Munition Manufactures
No surprises here. Drones seem like a key area for risk-hungry investors to look at. Then there are manufacturers of pickup trucks with bulletproof sides, bipedal robot, satellite communications providers, rocket makers, tunnel diggers… oh wait a minute.…
Shipping and Logistics
Winning wars is about logistics. This requires big infrastructure, and it needs to be put in place.
Industrial Manufacturers
These days, it’s all about chips, and you can’t rely on your adversary’s country to produce them. I’ve recently written about Intel, the major chip producer in the U.S. and Europe, while many tech darlings get their chips and assembly done in China or neighboring countries. Anyone who took this point seriously is sitting pretty. If the US is really looking to secure the Pacific, as stated this week, it’s going to need to secure its silicon supply. Intel is the play, because fabs can’t be thrown up overnight. What cars and guns were in WWII, onshore tech and general engineering will be vital for WWIII.
Drones and Space
In the past, it was radar and aviation, but now, the high frontier is even higher. Altitude is life. There’s that man again!
Food and Essential Goods
Nothing blows the froth off your cappuccino like conflict. Essentials start to take on a far greater significance and quickly lose their commodity status. Commodities are cheap; essentials are expensive. Slim margins become fat margins.
Finance and Banking
Conflict is the fast lane to bankruptcy. Rushing down it is an expensive business, and finance and banking act as the military of the financial world – where their medals are golden. The profits from war finance are so huge that the booty lasts for generations, while most others who prosper eventually fall by the wayside.
So, like gold, these sectors serve as an overlay to your investing strategy. If a company is already great and well-valued, this new reality may make it even more valuable.
Meanwhile, luxury goods, passenger travel and tourism, sports, fragile leisure industries, import-dependant businesses prone to materials shortages, education, housing construction and – most relevant to us –the stock market itself, could all be marked down if tensions escalate into a vicious cycle.
Relax. This is not fate. It won’t happen overnight. But it is a megatrend, perhaps unfolding over the next five years. You will have to decide for yourself if tensions are increasing or falling.
If you want a reliable indicator, watch the price of gold. Just remember – it reflects what has already happened, not what is going to happen. The gold price will signal human intent. So, I’ll be happy if and when the current trend breaks and gold starts to trend sideways.
It’s not time to buy real estate in New Zealand yet – but when it is, gold will tell you.
