April 3, 2017
China and Russia Plot the Dollar’s Demise… China Leaves Paper Gold… The End of U.S. Led Manipulation… and More!
https://duip7hn7nchpo.cloudfront.net...m-rickards.jpgDear Strategic Intelligence Reader,
Below are the five articles I recommend you read this week. This is a special edition that focuses on the steps China and Russia are taking to ensure the death of the dollar.
But first, there is a critical situation taking place inside the Oval Office. As you’ll see in the articles below, we’re not the only ones paying attention to gold right now…
In fact, in just a few days, President Trump is set to sign a new “gold executive order.”
Read the articles below to get a deeper understanding of the information and themes we’ll be exploring in our monthly issue and over the coming weeks and months.
I. Are You Listening Janet Yellen? China and Russia Plot the Dollar’s Demise
We’ve heard for a long time that Russia, China, and other nations are moving to displace the U.S. dollar as the benchmark global reserve currency. This does not imply “the end of the world” or even “the end of the dollar.” It simply means that the dollar becomes just another local currency, like Turkish lira or Mexican pesos, and a new currency becomes the global benchmark for important transactions such as pricing oil, settling the balance of payments between countries, or keeping books and records in major banks and corporations. Processes such as this don’t usually happen overnight. Even the famous Weimar hyperinflation in Germany played out over several years from 1919 to 1923 before the German Reichsmark was destroyed once and for all.
It took thirty years, from 1914 to 1944, for the U.S. to push sterling aside as the benchmark global reserve currency. The problem is that investors become numb to the warnings, and complacent about the risks. Currency declines start slowly, but accelerate in the end stages, just like patrons fleeing a burning theatre where a few lucky ones get out first but the stampeding crowd ends up jammed at the exit with no way out. This article is clear evidence that the pace of change in the monetary system is quickening. China and Russia have moved beyond rhetoric, and are now taking concrete steps to build their own payments systems free of U.S. control and U.S. dollar denomination. Look for the tempo to increase from here.
II. Russia Takes New Steps to Leave the U.S. Dollar-Based System Behind
The prior article described China’s efforts to open a clearing bank in Moscow. Guess what? The affection is mutual! This article shows that, even as China opens new initiatives in Moscow, Russia just opened a new bank branch in Beijing. And it’s not just any bank. It’s the Central Bank of Russia headed by Elvira Nabuillina, one of the best central bankers in the world. (By the way, my list of “best central bankers” does not include Janet Yellen, but does include Mario Draghi, Elvira Nabuillina, Kevin Warsh, and very few others).
Why would a central bank need a branch office in a foreign country? That’s something commercial banks do all the time, but it’s more unusual for a central bank. The reason is that the Russian government is planning to issue bonds denominated in Chinese yuan. The yuan proceeds can then be used to invest in Chinese infrastructure or buy Chinese gold, free of interference by the U.S. and without using U.S. dollars.
Russia obviously wants a front row seat in Beijing as financial dealings between them grow more intertwined. It’s also convenient for Russian and Chinese financial officials to meet in person to avoid electronic message traffic that is monitored by the U.S. Consider this news as one more step down the path leading to the end of the dollar as the benchmark global reserve currency.
III. Get Physical! China Leaves Paper Gold to Americans, Goes for the Real Thing
U.S. gold investors have been frustrated for years as gold fundamentals continue to improve, but the market price of gold gets smashed by manipulation in the paper gold market, specifically COMEX gold futures contracts. The minute gold has some upward price momentum, a hedge fund with a short position can sell tons of “gold” (really paper contracts) with almost no money down in the futures market. Leveraged long gold players have to sell out their positions too as the declining price hits pre-set “stop loss” limits. Momentum builds, local traders pile on, and the price crashes based on nothing more than a few keystrokes in the automated Globex trading system.
Then the paper shorts close out their positions with a nice profit, move to the sidelines, and leave physical gold holders shaking their heads and asking, “What the heck just happened?” Governments are also involved in price manipulation, although they operate secretly through the Bank for International Settlements, BIS, in Basel, Switzerland. As this article shows, small investors are not the only ones fed-up with the paper gold manipulation.
Now major players are going to the all-physical side by opening physical gold exchanges, building their own physical gold vaults, buying gold mines and exploring for new gold deposits. China is doing all of the above and just hit pay dirt with a new mine that might produce 550 tons of gold. (Don’t worry — it’s not the California Gold Rush. 550 tons is only 0.3% of existing gold stocks, and even that will be produced over 40 years, so this new mine won’t upset the supply applecart.
That’s the beauty of gold; even a huge new discovery doesn’t alter the scarcity factor). What is truly shocking about this article is that Bloomberg reports the Chinese government has a target of 14,000 tons of official gold in-ground reserves by 2020. Why is China seeking gold so urgently if it’s not money?
The answer is that gold is money; something the U.S. may find out the hard way when Russia and China make their moves toward a gold-backed international monetary system and leave the dollar in the dust.
IV. Military Power Flows from Money Power. China Flexes Its Muscles in Both.
This special edition shows how Russia and China are building up gold reserves and creating alternative non-dollar payment systems to end the hegemony of the U.S. dollar as the benchmark global reserve currency. But ending the dollar’s role is not an end in itself — it’s a means to an end. A sound currency has always been the foundation of strong military and political power. That has been true since Ancient Rome, throughout the Middle Ages, and into the modern age.
The opposite is also true. A weakened and debased currency goes hand-in-hand with declining political and military fortunes. The British Empire in the twentieth century is a perfect case study of the decline of a currency causing a decline in political power.
Today the U.S. is repeating the mistakes of the British with a debt-to-GDP ratio of 105% (well past the Rogoff-Reinhart “danger zone” of 90%, let alone Angela Merkel’s target of 60%). This article shows that as China’s gold reserves go up, its military and political assertiveness go up at the same time. China has built a forward base called “Fiery Cross” in disputed waters in the South China Sea. Russia is just as aggressive from Crimea to the Caucasus. The march of gold precedes the march of military forces. Will the U.S. wake up in time or will it go the way of Rome and the British?
V. The Gold Genie is Out of the Bottle. U.S. Led Manipulation Coming to an End
If Russia and China aspire to be true gold powers, and they do, it’s not enough to have physical gold, although that’s a good start. It’s also critical to create gold exchanges and gold markets for price discovery and trading. Currently the price of gold is set in two places. One is the London spot market, controlled by six big banks including Goldman Sachs and JPMorgan. The other is the New York gold futures market controlled by COMEX, which is governed by its big clearing members, also including major western banks. In effect, the big western banks have a monopoly on gold prices even if they do not have a monopoly on physical gold.
This article shows that’s about to change. Russia and China are not only building up physical reserves and exploring for more, they are building trading systems that allow for price discovery and leveraged trading. Due to arbitrage and the fungible nature of physical gold, two exchanges cannot have widely different prices. (If prices diverge, automated trading systems sell the “rich” gold, and buy the “cheap” gold locking in a nearly risk-free profit and forcing prices to converge quickly). It may take a year or so to attract liquidity, but once these new exchanges are fully functional, the western monopoly on paper gold manipulation will be broken. At that point, the physical gold market will regain the upper hand as a price maker, not the price taker. Then gold will commence its march to monetary status, and its implied non-deflationary price of $10,000 per ounce.
All the best,
https://duip7hn7nchpo.cloudfront.net...m-rickards.jpg
Jim Rickards
Comments from Benjaminis: There is nothing to add as Jim Rickards knows what he knows.
China and Russia Plot the Dollar’s Demise… China Leaves Paper Gold… The End of U.S. Led Manipulation… and More!
https://duip7hn7nchpo.cloudfront.net...m-rickards.jpgDear Strategic Intelligence Reader,
Below are the five articles I recommend you read this week. This is a special edition that focuses on the steps China and Russia are taking to ensure the death of the dollar.
But first, there is a critical situation taking place inside the Oval Office. As you’ll see in the articles below, we’re not the only ones paying attention to gold right now…
In fact, in just a few days, President Trump is set to sign a new “gold executive order.”
Read the articles below to get a deeper understanding of the information and themes we’ll be exploring in our monthly issue and over the coming weeks and months.
SPECIAL EDITION – THE DEATH
OF THE DOLLAR
I. Are You Listening Janet Yellen? China and Russia Plot the Dollar’s Demise
We’ve heard for a long time that Russia, China, and other nations are moving to displace the U.S. dollar as the benchmark global reserve currency. This does not imply “the end of the world” or even “the end of the dollar.” It simply means that the dollar becomes just another local currency, like Turkish lira or Mexican pesos, and a new currency becomes the global benchmark for important transactions such as pricing oil, settling the balance of payments between countries, or keeping books and records in major banks and corporations. Processes such as this don’t usually happen overnight. Even the famous Weimar hyperinflation in Germany played out over several years from 1919 to 1923 before the German Reichsmark was destroyed once and for all.
It took thirty years, from 1914 to 1944, for the U.S. to push sterling aside as the benchmark global reserve currency. The problem is that investors become numb to the warnings, and complacent about the risks. Currency declines start slowly, but accelerate in the end stages, just like patrons fleeing a burning theatre where a few lucky ones get out first but the stampeding crowd ends up jammed at the exit with no way out. This article is clear evidence that the pace of change in the monetary system is quickening. China and Russia have moved beyond rhetoric, and are now taking concrete steps to build their own payments systems free of U.S. control and U.S. dollar denomination. Look for the tempo to increase from here.
II. Russia Takes New Steps to Leave the U.S. Dollar-Based System Behind
The prior article described China’s efforts to open a clearing bank in Moscow. Guess what? The affection is mutual! This article shows that, even as China opens new initiatives in Moscow, Russia just opened a new bank branch in Beijing. And it’s not just any bank. It’s the Central Bank of Russia headed by Elvira Nabuillina, one of the best central bankers in the world. (By the way, my list of “best central bankers” does not include Janet Yellen, but does include Mario Draghi, Elvira Nabuillina, Kevin Warsh, and very few others).
Why would a central bank need a branch office in a foreign country? That’s something commercial banks do all the time, but it’s more unusual for a central bank. The reason is that the Russian government is planning to issue bonds denominated in Chinese yuan. The yuan proceeds can then be used to invest in Chinese infrastructure or buy Chinese gold, free of interference by the U.S. and without using U.S. dollars.
Russia obviously wants a front row seat in Beijing as financial dealings between them grow more intertwined. It’s also convenient for Russian and Chinese financial officials to meet in person to avoid electronic message traffic that is monitored by the U.S. Consider this news as one more step down the path leading to the end of the dollar as the benchmark global reserve currency.
III. Get Physical! China Leaves Paper Gold to Americans, Goes for the Real Thing
U.S. gold investors have been frustrated for years as gold fundamentals continue to improve, but the market price of gold gets smashed by manipulation in the paper gold market, specifically COMEX gold futures contracts. The minute gold has some upward price momentum, a hedge fund with a short position can sell tons of “gold” (really paper contracts) with almost no money down in the futures market. Leveraged long gold players have to sell out their positions too as the declining price hits pre-set “stop loss” limits. Momentum builds, local traders pile on, and the price crashes based on nothing more than a few keystrokes in the automated Globex trading system.
Then the paper shorts close out their positions with a nice profit, move to the sidelines, and leave physical gold holders shaking their heads and asking, “What the heck just happened?” Governments are also involved in price manipulation, although they operate secretly through the Bank for International Settlements, BIS, in Basel, Switzerland. As this article shows, small investors are not the only ones fed-up with the paper gold manipulation.
Now major players are going to the all-physical side by opening physical gold exchanges, building their own physical gold vaults, buying gold mines and exploring for new gold deposits. China is doing all of the above and just hit pay dirt with a new mine that might produce 550 tons of gold. (Don’t worry — it’s not the California Gold Rush. 550 tons is only 0.3% of existing gold stocks, and even that will be produced over 40 years, so this new mine won’t upset the supply applecart.
That’s the beauty of gold; even a huge new discovery doesn’t alter the scarcity factor). What is truly shocking about this article is that Bloomberg reports the Chinese government has a target of 14,000 tons of official gold in-ground reserves by 2020. Why is China seeking gold so urgently if it’s not money?
The answer is that gold is money; something the U.S. may find out the hard way when Russia and China make their moves toward a gold-backed international monetary system and leave the dollar in the dust.
IV. Military Power Flows from Money Power. China Flexes Its Muscles in Both.
This special edition shows how Russia and China are building up gold reserves and creating alternative non-dollar payment systems to end the hegemony of the U.S. dollar as the benchmark global reserve currency. But ending the dollar’s role is not an end in itself — it’s a means to an end. A sound currency has always been the foundation of strong military and political power. That has been true since Ancient Rome, throughout the Middle Ages, and into the modern age.
The opposite is also true. A weakened and debased currency goes hand-in-hand with declining political and military fortunes. The British Empire in the twentieth century is a perfect case study of the decline of a currency causing a decline in political power.
Today the U.S. is repeating the mistakes of the British with a debt-to-GDP ratio of 105% (well past the Rogoff-Reinhart “danger zone” of 90%, let alone Angela Merkel’s target of 60%). This article shows that as China’s gold reserves go up, its military and political assertiveness go up at the same time. China has built a forward base called “Fiery Cross” in disputed waters in the South China Sea. Russia is just as aggressive from Crimea to the Caucasus. The march of gold precedes the march of military forces. Will the U.S. wake up in time or will it go the way of Rome and the British?
V. The Gold Genie is Out of the Bottle. U.S. Led Manipulation Coming to an End
If Russia and China aspire to be true gold powers, and they do, it’s not enough to have physical gold, although that’s a good start. It’s also critical to create gold exchanges and gold markets for price discovery and trading. Currently the price of gold is set in two places. One is the London spot market, controlled by six big banks including Goldman Sachs and JPMorgan. The other is the New York gold futures market controlled by COMEX, which is governed by its big clearing members, also including major western banks. In effect, the big western banks have a monopoly on gold prices even if they do not have a monopoly on physical gold.
This article shows that’s about to change. Russia and China are not only building up physical reserves and exploring for more, they are building trading systems that allow for price discovery and leveraged trading. Due to arbitrage and the fungible nature of physical gold, two exchanges cannot have widely different prices. (If prices diverge, automated trading systems sell the “rich” gold, and buy the “cheap” gold locking in a nearly risk-free profit and forcing prices to converge quickly). It may take a year or so to attract liquidity, but once these new exchanges are fully functional, the western monopoly on paper gold manipulation will be broken. At that point, the physical gold market will regain the upper hand as a price maker, not the price taker. Then gold will commence its march to monetary status, and its implied non-deflationary price of $10,000 per ounce.
All the best,
https://duip7hn7nchpo.cloudfront.net...m-rickards.jpg
Jim Rickards
Comments from Benjaminis: There is nothing to add as Jim Rickards knows what he knows.
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