A shopper at a supermarket in Hangzhou city in eastern China's Zhejiang province, October 15, 2020. Photo: AFP / Stringer / Imaginechina

One of the most feared words of the past year was undoubtedly “inflation.” Despite all the talk and promises, prices in the US continued to spike, reaching the highest levels in more than a decade. To be more precise, in the US the Consumer Price Index rose 6.8% year on year in November.

In the Eurozone, inflation went up to 4.9%, whereas in many of the emerging markets, the increase was even more significant.

What about Asia? So far, the largest economies in the region have been able to escape the trap, but soon enough things might go terribly, horribly wrong, and the reason is the huge Chinese appetite.

Long story short, the Middle Kingdom has bought so much food over the past 12 months that the rest of the world might eventually face hunger issues. The country has bought up almost half of the world’s food reserves.

The US Department of Agriculture estimates that China holds 69% of the world’s reserves of corn (maize), 60% of rice, 51% of wheat, and more than 30% of soybeans. And over the past decade, that share has grown by about 20 percentage points. In 2020, China purchased a record US$98.1 billion worth of food, up 22% in one year and 360% in the last decade.

According to Professor Goro Takashahi of Aichi University, Japan, China’s initiative to buy such food reserves is a necessary measure, because domestic production has been stagnant since 2015. China’s crop yields are low, partly because of soil contamination, and farmers migrating to megacities. In addition, China’s growing food supply can be linked to a continuing pandemic, poor harvests, and an energy crisis.

What could this lead to? Eventually, food will become even more expensive. Countries such as Brazil, the US and Canada, members of the European Union, and Japan could be among the most affected. This in turn means that central banks will continue to tighten monetary policy. Thus the growth of the global economy could face a critical downturn.

The only question is how the stock market will react, as so far investors have simply opted to close their eyes to the growing inflation issues.

Is it time to invest in gold? Unfortunately, there is no simple answer. On the one hand, analysts at JPMorgan forecast an average price for the metal of around $1,630 an ounce in 2022. Deutsche Bank expects $1,750 by the end of the year.

On the other hand, there is a possibility that things might take an unusual turn as market entropy increases. In other words, at some point, investors may begin running toward “safe-haven” assets, such as the dollar, US Treasuries, and of course precious metals. On top of that, one shouldn’t forget about geopolitical risks. as lack of stability is always good news for gold prices.

Igor Kuchma

Igor Kuchma is a financial adviser who is passionate about economy and the capital markets in general. He has experience working with Russian, Spanish and American financial institutions. He helped to compile a course for the Series 7 exam, while some companies he has prepared investment portfolios and macro and microeconomic models in Excel, and has studied trends and historical data.