(Kitco News) - Geopolitical uncertainty, which has fueled the de-dollarization trend and fragmentation in the global economy, has been a significant factor in gold’s unprecedented run to record highs above $2,450 this year.
According to industry and government experts at the 30th annual Conference of Montreal by the International Economic Forum of the Americas, this trend remains firmly in place, which should continue to support the precious metal’s uptrend.
The deglobalization trend has been a key theme in many of the panel discussions organized during the three-day conference.
“It’s extraordinary to me to see how rapidly we've moved from a situation where globalization seemed inevitable to where today it increasingly seems impossible,” said Perrin Beatty, a former Progressive Conservative Cabinet Minister and President and CEO of the Canadian Chamber of Commerce.
Beatty narrated a discussion on the rise of economic nationalism, with the panelists noting that broad international trade agreements are being replaced with narrower agreements.
The panelists noted that the evolving trend of economic nationalism is increasing costs for businesses around the world, contributing to elevated inflation pressures.
“We are all disadvantaged by this trend. Every businessperson in the room knows how much more expensive it is, and it's only going to get more expensive,” said Jeff Nankivell, President and CEO of the Asia Pacific Foundation of Canada.
However, Nankivell noted that Canada’s pursuit of individual agreements is better than having no agreements.
“We have all these different trade agreements, but they all have different conditions attached to them. Many of them have side agreements that are trading rules you have to follow if you're going to benefit from the agreement. It’s really far from optimal, but we have to do our best,” Nankivell said.
Ali Borhani, Managing Director of 3Sixty Strategic Advisors Ltd and co-founder and host of the BRI Dialogues, discussed the role of Canada and Europe in the global economy as the two are stuck between the American Eagle and the Chinese Dragon. He said that it is important to recognize that the world is changing and to acknowledge the reasons for this change. He explained that there is a collective feeling of disillusion among the Global South towards developed nations in the Northern Hemisphere.
He pointed out that the expansion of BRICS (Brazil, Russia, India, China, and South Africa) is an indication that a new multi-polar world has been established.
“Half of the world population is in BRICS+. Two-thirds of world trade happens in BRICS+. BRICS are adding 74 million consumers a year. That is two times Canada out of these markets,” Borhani said. “The largest buyers of energy and the largest sellers of energy happen to be in the Global South and among BRICS. So we're looking at the rewiring of energy, finance, supply chain, and tech.”
He said that developing nations in the South are seeing growing double standards as richer nations impose their rules and agendas, such as the green energy transition. He added that the U.S. weaponization of the dollar against Russia for its war against Ukraine is also seen as a threat.
“The Global South is confused because the Global South hears, ‘everything net-zero, don't drill,’ and the Norwegian Sovereign Wealth Fund now is digging at the bottom of the ocean. But no more oil for you in the Global South,” he said.
As emerging markets have become more disappointed with Western policies, China has been able to grow its influence. Borhani used a famous quote from Larry Summers, the US Secretary of the Treasury, to highlight this shift in influence in the developing world. “Every time you guys come here, Europeans and Americans, you give us a lecture. Every time the Chinese come, they give us an airport, a hospital,” he said.
Carlos Díaz-Rosillo, Founding Director of the Adam Smith Center for Economic Freedom at Florida International University, agreed with Borhani in the discussion, noting that Western nations have never shown up to help build the needed infrastructure in emerging markets.
“The United States has gone around the world, telling countries to choose. And I think one of the biggest failures of American foreign policy, and this is a bipartisan failure, is not providing an alternative [to China],” Díaz-Rosillo said. “We have to have a restructuring of foreign policy so that we work hand in hand with the private sector, so that those services and those projects that are badly needed have an American presence, have a European presence. We make the choice much easier for these countries to choose, to choose America, to choose Europe instead of China.”
However, it is not just the growing divide between developed nations and emerging market countries. Bernard Spitz, CEO and Founder of BS CONSEIL, said that there is significant fragmentation in Europe.
“We have had the [European] election just two days ago and we can see that Europeans are not aligned. So when we are talking about trade issues, if we are not aligned, it means that we are on a dangerous path,” he said. “If you have the addition of the French vision, the German vision, the Italian vision, etc., it's not a European policy. It's chaos.”
Climate change adds to economic uncertainty
Although some emerging markets have felt targeted by the West’s focus on the green energy transition, many executives at the conference said climate change is a threat that must be addressed.
In a discussion about the costs of decarbonization, panelists noted that emissions don’t acknowledge any borders and that emerging market economies are experiencing the greatest impact of climate change as volatile weather wreaks havoc, from destructive storms to devastating droughts worldwide.
An annual global investment of $5 trillion in energy transition technologies is necessary to combat the effects of climate change, the panelists said.
“Right now, it costs about $3 trillion to $6 trillion because we've delayed, really, for now about seven, eight years,” said Margaret Franklin, President and CEO of CFA Institute. “It's going to cost more every year that we don't invest and we don't address it.”
Franklin added that despite the high price tag, a cost-benefit analysis shows a break-even point on the investment.
“It's estimated by 2050, the impact of climate change on infrastructure, agriculture, healthcare, you name it, will cost us $38 trillion per annum,” she said.
Nicolás Albertoni, Uruguay’s Deputy Minister of Foreign Affairs, suggested that addressing climate change is a way to combat economic nationalism.
“If we want to be part of this global value chain, we have to be sustainable. We have to be the country in Latin America that is not just promoting a port, a platform, but also a sustainable perspective of development,” he said.
Solutions to address the growing geopolitical divide
Paul Slaby, Managing Director of Canada’s Semiconductor Council, suggested that technology could help promote a new type of globalism as economies rely heavily on microchips.
Slaby said that it will be impossible for one nation to control the global chip supply chain, but that there are opportunities for nations like Canada to build a niche integral space within the supply chain.
John Gallagher, Managing Director at Cerberus Capital Management’s Supply Chain and Strategic Opportunities team, told the conference that a strong supply of critical metals in North America could help establish stability in the global economy, reducing China’s influence in the marketplace.
Cerberus Capital Management is currently investing $50 million in Torngat Metals, which is developing its Strange Lake Rare Earth Project in Nunavik in Northern Quebec. Strange Lake is considered the largest critical metals deposit outside of China.
“A secure and resilient supply chain is nothing short of the center of gravity of modern national and economic security,” he said.
