Gold is Your Friend!
As the U.S. election fast approaches, the news services—both mainstream and on social media channels—continue to funnel information intended to inform and skew voters’ opinions. Even outside the United States, much of the news is dominated by election coverage. For whatever reason, we are fascinated with the political coverage and the personalities running for office (if you know what I mean)! The truth is that, as foreigners, we should be concerned because of the dominance that the U.S. plays globally. Below are a few statistics that may make your head spin or not, but they are important.
Starting with the economic size of the U.S.: in 1990, the U.S. economy made up just under 1/3 of the total G7 GDP; today, it constitutes 50%. Growth in the U.S. is predicted to be 2.1% for 2024, the leader among the G7, while Germany ranks last with only 0.5% growth. California alone is the world’s fifth-largest economy. Additionally, the U.S. is now the world’s largest producer of oil and gas. Energy independence has given the U.S. enormous leverage when negotiating trade and other deals with foreign countries. In the past, the U.S. depended on foreign oil to power its economic engine, but that is not the case today. In fact, the U.S. is now the world’s largest exporter of LNG, followed by Australia, Qatar, Russia, and Malaysia. Remember that in 2016, the U.S. did not export any LNG at all!
As we all know, the U.S. military is powerful, but how does it compare to other countries, especially China, Russia, Iran, and North Korea? In terms of active and reserve military personnel, China is much larger than the U.S.—with over 3 million compared to 2 million in the U.S. Oddly, India has over 4 million when parliamentary military are included. Russia’s military is equal in size to that of the U.S. when its parliamentary military is accounted for. From a weaponry standpoint, the U.S. ranks near the top for nuclear weapons, just a few hundred behind Russia (thank goodness), and has a much larger Air Force and Navy than either Russia or China. The one area in which Russia dominates is tanks; they have well over 13,000 tanks compared to the U.S., which has fewer than 5,000.
There is a Global Militarization Index (GMI), created by the Bonn International Centre for Conflict Studies, that tracks military expenditures versus health expenditures country by country. The GMI is divided into three categories: expenditures, personnel, and heavy weapons. As of 2022, the U.S. ranked only 25th in the world. This is not a negative ranking because it is relative to other spending on various parts of the economy, such as healthcare and doctors, for example. Not surprisingly, Ukraine ranked number one, followed by Israel. Russia ranked 10th, China was 103rd, Iran was 28th, and North Korea was 15th.
Finally, debt in the U.S. has become a major issue—I mean government debt. After World War II, while the world was rebuilding and retooling, debt was used to help build roads, bridges, hospitals, and other infrastructure. In 1952, for every $1 spent through government funding (debt), the U.S. GDP increased by $8. Today, that same $1 only generates 58 cents of new GDP growth. With U.S. debt soaring above $35 trillion—representing $106,151 per every U.S. citizen—debt management, government spending, and the strength of the U.S. dollar are increasingly in focus. This amount is almost 123% of the U.S. GDP. In Canada, our government debt is at 106% of our GDP. The largest debt-to-GDP ratio is Japan, at 254%—wow. With all this accumulated debt, especially in the U.S. as it is the largest economy in the world and the U.S. dollar is the standard against which we compare all other countries' economies, a stable economic outlook and a strong U.S. dollar are extremely important for the health of the global economy. Just a short side note: I mentioned that Germany has the slowest economic growth among the G7 countries; they also have the lowest debt level, with only a 63% debt-to-GDP ratio. Think of it like a salary cap in hockey: Germany has room to get aggressive, while almost all other G7 countries are tapped out unless they want to weaken their currencies through the issuance of more debt.
It is predicted that whoever gets elected in the U.S, government debt will continue to grow by another $2.5 trillion to $7.5 trillion over the next decade. This may explain why gold has risen over 30% in the last year alone. Let’s look at a short period in history: dating back to 1970, central bank reserves accounted for 40% of total world gold reserves. As the late 1990s progressed, that number shrank to 6% just before the credit crisis in 2008. Since then, central banks have begun to purchase gold more heavily. Today, the percentage of ownership by central banks is back over 11%. As debt accumulates, world growth slows, and fears of military action grow, I expect that central bank hedging will continue through gold accumulation. There are various methods to invest in gold—either through direct purchases, gold ETFs, or gold-listed companies. Currently, the discount from gold companies versus the gold price is exceptionally wide, making ownership in these companies attractive.
