Geopolitical Update : Chile shifts right – A different view on USD, China, GOLD & OIL

By Christian Takushi, Macro Economist, Switzerland – 9 May 2023 (Public release truncated and adapted)

Dear reader

This geopolitical research note concerns Copper, the USD, GOLD and OIL – especially why China wants a depressed Gold price.

I was up late last night analysing the results of the constitutional elections in Chile and the response of markets. Markets and consensus are missing valuable developments and insights .. on Latin America, but also on the USD, GOLD and OIL.

Chile’s surprise could strengthen Latin America  & stabilize Copper markets 

The overwhelming victory of conservative parties controlling roughly 2/3 of the Assembly that will draft the New Constitution is a geopolitical and political shocker.

Over the past two years analysts have been saying Chile’s radical shift to the Left might seal the future of the continent. Peru and Chile elected leftist presidents over the past two years that promised new outright Socialist Constitutions. While our press blamed this squarely on social inequality, our view has been that this was mainly a reaction to the COVID crisis and the refusal of leading pro-market LatAm governments to follow the G7 in printing money to give massive handouts to their citizens. Thus, this might be a temporary phenomenon and with time politics may shift back from far left to the center or right again.

As the most advanced Latin American Emerging Market .. what happens in Chile has great significance for the region and the Emerging World as a whole. Less than two years after shifting hard left, Chile has made a significant correction of historic proportions.

Nevertheless, LatAm cannot not escape the agitated divisiveness and polarisation that characterises the Political Process in so many nations, especially the West. To their credit the market-oriented nations of LatAm (Chile, Peru, Colombia, Mexico, Uruguay and in part Brazil) are showing that despite the typical LatAm instability they are NOT what they were 30 years ago. They have somewhat matured economically and politically. In all these nations the market economy framework has ‘as a whole’ been kept over the past two decades despite changing governments .. thanks to the rise of institutions, the division of power and – who would have guessed – the stabilising role of the military.

But, geography, the inability to build manufacturing capabilities, the reliance on resources exploitation and the lack of geopolitical foresight means the continent will be buffeted by the coming crises (rather than benefit from them) and stay beyond its potential. Few countries will be ready to receive the exodus of capital and skilled labor from the Northern hemisphere.

Caught in the struggle between West and East

While COVID threw millions in Latin America back into poverty, the war in Ukraine and the Western sanctions have further increased China’s influence in Latin America. This has sounded alarm bells in Washington. Although President Biden reacted somewhat harshly, most LatAm nations don’t want to be exclusively aligned with China in a Multi-Polar World. Following India’s example, all major emerging nations and groups like the Pacific Alliance (Mexico, Chile, Colombia an Peru) want to be multi-aligned. That means, they want to have good working relations with all world powers.

Chile buys important military equipment from the USA and is for over a century a close UK ally. The stabilisation or containment of the political process in Chile will be good news for London and by default Washington. Just last year it seemed that the West had practically lost all influence over South America and that all that was left was small countries like Uruguay or Ecuador. Other countries had moved hard left and their new leaders wanted to embrace China by default of their defiant stance towards the USA.

But this year the “corrections” in Chile and Peru have given Washington again a respite in South America; at least in Peru and Chile not all is lost is the present mood in Washington.

Some room for the USD, but role of the Yuan to increase

 … While the Yuan and Gold are likely to benefit, many forget that key LatAm nations want to keep good relations with the USA to counter-balance their huge dependence on China, thus – LatAm is likely to say: YES to de-risking and diversifying, but NO to decoupling from the USD

Three further subtitles:

–  Understanding Multi-Aligned Emerging Markets is key to predict the outcome of war on USD

– Impact on markets? China wants a depressed GOLD price

– Who/What could benefit from this situation? OIL

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By Christian Takushi MA UZH, Independent Macro Economist and Geopolitical Strategist. Switzerland – Tue 9 May 2023. (Public release truncated and adapted)

Geopolitical and economic conditions need close monitoring, because they can change suddenly. 

No part of this analysis should be taken or construed as an investment recommendation. 

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