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Globalization is dead and that will lead to higher gold prices - abrdn's Minter

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(Kitco News) - Russia's war in Ukraine has fundamentally changed the geopolitical landscape. According to one market analyst, globalization is dead and that will create a positive environment for gold.

In a recent telephone interview with Kitco News, Robert Minter, director of ETF Investment Strategy at abrdn, said even if Russia stops its invasion of Ukraine, it is unlikely that globalization trends will go back to peak levels seen just a few years ago. Domestic supply chains will lead to higher prices for finished goods, keeping inflation pressure elevated for the foreseeable future, he said.

Gold can only go higher as inflation threatens to become a permanent fixture in the global economy, Minter said. The comments come as gold prices struggle in a new consolidation channel with support at $1,900 an ounce and resistance around $1,950 an ounce.

Although globalization peaked several years ago, Minter said that the conflict in Eastern Europe has drawn clear lines between allies and opponents and nations are now working as fast as possible to develop their own domestic supply chains and access to raw materials.

Last week, U.S. President Joe Biden signed an executive order using the cold-war era Defense Production Act to increase the supply of critical metals, including battery metals.

Biden also announced that he would release 1 million barrels of oil from the nation's strategic reserves for the next six months to help reduce gasoline prices as domestic production picks up.

Minter added that nations worldwide are raising domestic production of raw materials to isolate themselves from a potential weaponized commodity market.

"We are now in an era where everyone wants to almost nationalize their raw materials," Minter said. "China has always locked in their supply lines. But you can see Europe and the U.S. are doing it now, too, for key technologies, batteries and renewables. They're trying to lock down the supply of these critical materials because they know there is not enough to go around."

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Minter added that it would take years to bring new mine supplies online.

Looking at the energy market, Minter said that Biden's plan to release up to 180 million barrels of oil would relieve some pressure at the pump; however, the sector still faces fundamental systemic issues. He added that bringing production back online isn't as easy as flipping a switch.

"The end of globalization won't be cheap. Bringing new supply online is not going to be cheap," he said.

In this environment, Minter said that commodity prices will have to rise, which will push consumer prices higher. He added that there is a risk that rising consumer prices will start to weigh on economic growth.

Minter said there is a growing risk that the U.S. will see stagflation, an environment of slowing growth and rising inflation.

"There is nothing gold loves better than stagflation," he said. "Investors are starting to realize that the traditional 60/40 portfolio doesn't work anymore. If you want some protection, you should have some exposure to commodities, including gold."

Minter said that gold is also an attractive asset as investors protect themselves against the growing risk that the Federal Reserve will make a policy mistake, raising interest rates too fast, heralding a recession and stagflation.

Markets are currently pricing in two 50-basis point moves in the first half of the year and see interest rates pushing to between 2.75% and 3.00% by the end of the year.

Minter said that while the Fed wants to fight inflation, it will be limited in what it can do. However, he added that the rise in bond yields has already done a lot of heavy lifting for the U.S. central bank.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.