Wednesday, January 23, 2013

Yes, China Will Back their Currency with Gold

When I came to the conclusion three years ago that China was acquiring massive amounts of gold to back their currency, I was but a lone voice. What was once a fringe idea is now becoming mainstream thought. Today, none other than the World Gold Council, has come to the conclusion that China is preparing to become a world reserve currency, and that demand for gold will continue to rise as China continues to acquire it as an asset with no counter party risk.

You can see their short video and findings here.

Demand for gold is likely to rise as the world heads towards a multi-currency reserve system under the impact of uncertainty about the stability of the dollar and the euro, the main official assets held by central banks and sovereign funds.
This is the conclusion of a wide-ranging analysis of the world monetary system by OMFIF, the Official Monetary and Financial Institutions Forum formed around a core of public sector asset and reserve holders at the heart of world finance.
Driven by China’s desire to increase its financial influence, the Chinese renminbi is likely to emerge gradually as a genuine international currency as Beijing eases restrictions on its use in transactions and investments abroad, but is unlikely to pose any immediate threat to the dollar.
Any setbacks to the renminbi’s rise as a reserve currency will probably benefit gold as a result of doubts about the overall strength of world monetary arrangements.
The OMFIF report, the product of analysis of historical and contemporary data and discussions with global policy-makers and financial experts, explores the consequences for official asset management of greater dispersion of economic power around the world. It states: ‘The world is headed towards the uncharted waters of a durable multi-currency reserve system, where the dollar will share its pivotal role with a range of other currencies, including the renminbi.’
The OMFIF report includes a foreward by Prof. Lord (Meghnad) Desai, chairman of the OMFIF Advisory Board. In reflecting on the different economic scenarios for the five years 2013-18 which the report studies, he states: ‘Whether the world moves into full crisis with the end of the euro, or whether we have a recovery, or whether we experience something in between: all paths lead to towards a multi-currency system, in which gold’s role is likely to become more significant.

 Keith Barron at KWN said this:

The second thing I want to make KWN readers aware of is the report which was commissioned by the World Gold Council.  This is an incredible document, especially coming from the World Gold Council because it's basically saying that the Chinese are going to back their currency with goldThis would, in turn, displace the US dollar and make the Chinese yuan the world's reserve currency.

The Chinese are sitting on piles of dollars right now, and while the US continues its decline, the reality is that all of the fiat currencies are in a race to the bottom.  We just saw the Bank of Japan yesterday talk about opening up QE and printing vast sums of money.  This will be an attempt to reverse their deflation with inflation.  This move by the Japanese is very, very bullish for gold.

But between what is happening with the set up for the coming short squeeze in gold, coupled with the Chinese moving to back the yuan with gold, and the shortages we are seeing in the silver market, the outlook for gold and silver going forward are spectacular.  Quite frankly, the gold and silver bulls are going to begin to trample the bears at some point in the near future.”
And from Stephen Leeb:

I was just speaking to a Chinese diplomat and I said to their diplomat, ‘Your two most important commodities are water and gold.’  And this diplomat said to me, ‘Yes, we need gold to back up the yuan.’  Well this diplomat realized very quickly they had made a terrible mistake in admitting that and began to back off and stated, ‘No, it’s not to back the yuan.  It’s because of jewelry.’  But it was too late, the horse had left the barn so-to-speak.

China could (already) have the second largest gold reserves in the world, even ahead of Germany.  What is confirmed by everything you can see is they are importing as much (gold) as they can without trying to disturb the price of gold.  You won’t believe what’s going to happen (with the price of gold).  I’m telling you in 3 years people will not believe the price of gold.  They will not believe the gift that Basel and the West gave everybody that wanted to accumulate gold.”
Of course, my regular readers have seen over the last year that I have noted China's massive accumulation of gold at suppressed prices here, here, and here.

With that established, let me make an equally "fringe" suggestion that Germany is now repatriating  their gold from Britain, France and the United States for one reason: They see the deterioration of currencies including the Dollar, Yen, Pound, Swiss Franc and the Euro which are being devalued together in an orgy of printing, and are preparing for the future when they will re-introduce a gold backed Deutsche Mark, after the Euro has collapsed and the union is kaput.

I believe that the run up in gold over the past 10 years is merely a hint of what the future holds as faith in international fiat currencies declines further and faith in central banks turns to anger and mistrust.

No comments:

Post a Comment