What Does the Rise of China Mean for Precious Metals?

Unsurprisingly, businesses in the United States dominated, accounting for about one-fourth of all global output.  Businesses in Japan were also much more important back then, estimated to account for about 9% of global GDP.  In addition to US/Japanese importance, businesses in western European countries were also massively important, with German businesses accounting for about 7% of global output, Italian and French businesses each at about 5%, and the UK at about 4%.  Economic activity within these six countries amounted to about 55% of global output in 1980. 

By 1990, countries now considered powerhouses including China, India, Brazil, Russia, and Mexico were still missing from the group of globally important nations.

  

Here is what the share of global GDP looked like ten years later (1990).

  

Overall the global GDP picture looked mostly the same, with the exception of businessesand individuals gaining marginally more attraction.    

Between 1990 and 2000 economic conditions and the global competitiveness of Chinesebusinesses blossomed.  In 2000, Chinese businesses and individuals accounted for about 7.0% of all measured global output, almost doubling where it stood in 1990. 

  

The expansion of Chinese importance came at the expense of US, Japanese, and western European dominance.

Now let's look at the picture in 2014. 

  

It is readily apparent how massively important Chinese and Indian businesses have become.  The IMF currently estimates that 16.1% of global output will come from China and 6.0% from India.

  

Unsurprisingly, from 1980 to 2014, the US' share of global output declined from about 25% to about 19%, while Japan's declined from 9% to 5%, Germany's from 7% to 4%, 

  

France from 5% to 3%, Italy from 5% to 2%, and the UK from 4% to 3%. 

Finally, here is a look at the IMF's projections for the next five years. 

 

Given that IMF economists simply apply historical trends to projections, the top spot for global GDP is expected to be China at about 18.5%, which surpasses the US at 18.2%.  

What does the rise of businesses in China and India mean for the outlook for precious metals? 

 

Well, here is what the price of the four major precious metals have done over the same period. 

 

As is represented, all four - gold, silver, platinum, and palladium - have grown dramatically, especially since 2000 when the weight of the world's economic output rapidly shifted east. 

What does this mean for the precious metals markets? 

 

It likely means something very positive if one is a holder of precious metals assets. 

Why?

 

The simple answer is that, with the rise of a non-dollar denominated world, individuals are searching for a better asset to hold value against the uncertainty of currency movements. 

 

Where do people turn to when there is no single global master? Precious metals. 

 

Whether Americans and Europeans want to believe it, the rise in the price of precious metals and the importance of eastern countries, largely means an end of the dominance by western currencies, which presents a real opportunity for the reemergence of a precious metals-based currency (most likely gold).