The recent weakness in commodities correlates highly with events on the trade front. When the U.S. ramps up tariff threats and imposes tariffs, the dollar climbs and most other currencies skid, explains global expert Stephen Leeb, editor of Real World Investing.

In particular, the yuan weakens. In turn, Chinese stocks lose ground. And gold follows the yuan down: The yuan/gold correlation is probably the strongest among any two metrics.

NovaGold (NG) and Barrick Gold (ABX) have recently received key federal permits moving them far closer to development of their potentially world-class Donlin gold mine, and barring some nasty surprise, most, if not all, remaining local permits should be obtained this year.

As a junior miner, NovaGold’s present value (PV) is highly leveraged to the current price of gold, and that current price is always a critical number in projecting future prices.

My abiding belief is that China along with much of the East does not want to be held hostage to the dollar. Think Turkey, China, Russia, Iran, all of which are being sanctioned or otherwise penalized by the U.S.

And realize that the power the U.S. has to impose sanctions derives from the dollar’s reserve status. China’s gold holdings — if large enough — give it the power to break this hold. Such a development would be very good for gold.

I do believe the stage is being set for a major change. The situation is still opaque, but logic dictates that China and the rest of the East think it imperative to break the shackles imposed on them by the dollar (which incidentally might not be so bad for the U.S.).

I can’t be specific about the timing of this change. But if you see China and the Saudis initiating oil deliveries payable in yuan, then we are probably on our way.

Returning to NovaGold, Donlin is one of the world’s largest undeveloped gold assets. Development is costly and harder to finance with lower gold prices. But it is uber-leveraged to a big bang in gold.

I have not heard anything about the Chinese having an option on NovaGold or Donlin. But it’s worth pointing out that John Thornton, head of Barrick, has deep contacts in China and has done some previous deals with China. So Chinese involvement with Donlin would not be surprising, though the current U.S.-China trade hostilities might make it harder.

Still, if I have the right idea about China’s plans involving gold, the metal is headed for a stunning and protracted bull market. And with gold production close to peaking, juniors like NovaGold have an extraordinary gain to loss ratio. The stock is clearly very speculative but is the kind of play that could compensate for a lot of losses in other areas.

Be aware, though, that you may be playing for the fairly long term, which means you have to be willing to tolerate short-term volatility. It’s not a stock for everyone. But I see it as one of the best insurance hedges against chaos.

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