The China-Taiwan Conflict
The price of gold could erupt in step with the crisis between China and Taiwan. Gold demand is already swelling as an inflation hedge and on central bank buying. But it may rise further as tensions increase. The status of Taiwan is kept intentionally hazy under the ‘one China policy.’ China sees Taiwan as a breakaway province of China. Taiwan sees themselves as an independent nation. An independent nation whose security is backed by the United States. The conflict would have epic global ramifications.
Xi Jinping is the President of the Republic of China. He reaffirmed the plan to reunify Taiwan with China by 2027. He issued an ominous warning. He said, “We must therefore be more mindful of potential dangers…be prepared to deal with worst-case scenarios, and be ready to withstand high winds, choppy waters, and even dangerous storms.” He continued, “The wheels of history are rolling on toward China’s reunification and the rejuvenation of the Chinese nation. Complete reunification of our country must be realized, and it can, without doubt, be realized!”1
China is preparing for war. They have dramatically increased flights and military drills around Taiwan. China signed agreements with Iran and Russia for energy supplies in case it is embargoed by the West. In addition, they have been rapidly modernizing and expanding its military, including its nuclear arsenal. They were able to accelerate their build up using stolen advanced US technology thanks to aggressive espionage and intellectual theft.
Military experts think an invasion will happen sooner than 2027. Taiwan’s defense ministry is preparing for an attack any day now. The US Navy’s top admiral said, “When we talk about the 2027 window, in my mind, that has to be potentially a 2023 window.”2
Secretary of State Antony Blinken indicated something similar when he said that China will aim to seize Taiwan on a “much faster timeline” than previously thought.3
Impact of China-Taiwan Conflict
If China invaded Taiwan, a market crash would almost certainly follow for numerous reasons. First, the United States would be dragged into direct military conflict. Markets hate uncertainty, and nothing would cause more disruption and uncertainty than a fight between the world’s two largest economies. An estimated $2.6 trillion could be wiped out from the global economy in the immediate aftermath of a war over Taiwan. The global economy would crash into a depression. Simply the loss of Taiwan semiconductors would cause a severe recession in the US.
The Rand Corporation’s suggests that US GDP would decline by 5%. That is almost twice as much as the decline experienced in the wake of the 2008 financial crisis. Many U.S. mega cap companies (such as Apple and Tesla) are tied into the Chinese economy. They would suffer immense hits to their business.
A conflict between China and Taiwan, and thus the US, would result in global chaos. Experts predict massive cyber and infrastructure attacks to the US. The market disruptions could collapse stock prices and earnings. If the US doesn’t quickly prevail, its role as the dominant global superpower could evaporate. The US dollar’s status as the global reserve currency would be in jeopardy.
Gold Prices
A military crisis between China and Taiwan could send gold soaring. Investors turn to gold in the face of global turmoil. In addition, the breaking of supply chains would most likely send inflation skyrocketing again. And when inflation rises, so does the demand for gold as a hedge against it. In the worst-case scenario, where the conflict results in total market disruption, precious metals will continue to hold their value as the value of securities drop to nil.
Gold has shot up during previous China tensions. It jumped $55 an oz when China escalated military drills after Nancy Pelosi visited Taiwan. It went up even higher after Japan said China fired five missiles into their economic zone.
As tensions quickly escalate, now is the time to consider moving some portfolio assets into precious metals. Gold and silver can protect the value of retirement funds as the negative effects of the conflict worsen. Speak with us today to learn how a Gold IRA might be right for you.
