In case anyone was wondering what the Chinese government is thinking, they are about to unleash a new global monetary system.
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Stephen Leeb: “If you’re a gold investor fretting at the metal’s seeming drowsiness, don’t worry. A lot has been happening lately that brings us closer to the launch of a great bull market in gold that will be unmatched in its sweep and longevity. The biggest mistake you can make now would be to get shaken out of your gold (and silver) positions if gold continues to tread water or possibly even dips below $1,200. The second-biggest mistake would be to not take advantage of near-term weakness to add to your holdings…
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Stephen Leeb continues: “It’s no surprise that the recent developments involve China, which on multiple fronts has been busy creating the conditions for a new monetary system connected to gold. For starters, China, which has been procrastinating on launching a new oil benchmark traded in yuan, now seems inclined to move more swiftly. I’ve long believed such a benchmark is a necessary (though perhaps not sufficient) condition for a new monetary system. But whenever it seemed imminent, China would pull back. In January, China appeared to put the whole idea on hold with no indication of when, or even whether, the Shanghai International Energy Exchange would trade yuan-based oil future contracts.
A Google search of “China oil contract” still leads with stories indicating a launch could be years off. But if you repeat the search and instead of clicking on “All” – which ranks every story – click on “News” for the most recent stories, you’ll see a Reuters article headlined “China plans Shanghai crude oil futures launch in H2 2017.” One source pegged the launch date as September or October, while another said it could be as early as July.
Of course, China could still end up procrastinating longer, but there are reasons to think it won’t. One is China’s apprehension about President Trump, whose erratic actions and words don’t create any sense of security, especially if you are a major foreign power still using the U.S. dollar for the bulk of your trade. It’s telling that the Reuters article appeared at the same time as an article in XinhuaNet titled:
“China expects more secure, supportive financial system.”
What grabbed my attention was a comment attributed to Xi Jinping:
“If the Asian financial crisis and the 2008 sub-prime mortgage crisis are anything to go by, then the next cataclysm will come as a result of the failure of inadequate risk prevention, swiftly followed by a universal economic collapse.”
Unsaid but obviously was that the crises Xi cited resulted from blatant monetary speculation in the West. Whatever your opinion of the Trump administration, the constant turbulence is chalk on the board to Chinese ears, making a monetary system anchored to gold take on heightened urgency.
Evidence of major change comes from throughout the East, including Saudi Arabia. As has been widely reported, the Kingdom plans to sell part of Saudi Aramco, but the date, once slated for 2017, has been in extreme flux. Some now predict the sale won’t happen until next decade. But I’d bet on an earlier date, probably by the first quarter of 2018.
While various reasons have been offered for the possible delay, the crux of it is the low price of oil. The Saudis plan to sell about 5 percent of Saudi Aramco. If that were priced at $20 billion, it would value the entire company at $400 billion, at the low end of ranges analysts have suggested. If the 5 percent fetches $100 billion, though, Saudi Aramco’s overall value rises to $2 trillion. That’s an enormous differential – $400 billion vs. $2 trillion – that would make an immense difference in how much the Saudis can borrow, how fast they can develop, and even in how much military hardware they can buy.
China Acts On What It Expects To See In The Future
China could well agree to pay up for a 5 percent share in expectation that it would pay off in furthering its overall plans. While the West acts on what’s right in front of it, China acts on what it expects to see in the future. That’s a highly consequential difference in perspective. A story that has stuck with me comes from an investment banker in Beijing who was involved in the public offering of PetroChina in the late 1990s, when oil was trading under $20. One of the first things PetroChina did was to bid on some foreign leases. They won the bidding by offering some very large number, one that could be rationalized only if oil were to at least double. Western financiers were scornful, attributing the lease purchases to Chinese naiveté. But China, where there’s an old proverb that can be loosely translated as “wait and see,” had the last laugh.
And it will get the last laugh again if it gains the bulk of 5 percent of Saudi Aramco for $100 billion or even a touch more. With a sovereign wealth fund worth in excess of $800 billion and state oil companies with enormous borrowing power, China would have little trouble coming up with the cash without even thinking about dipping into its reserves.
The stake would make China Saudi Arabia’s anchor tenant and biggest customer. At the same time, the Saudis would gain an assured home for their oil, not just through direct sales to China but also as part of the world’s most important benchmark. This is win-win on steroids in that both the Saudis and Chinese will benefit from a yuan-based benchmark, provided, of course, that the yuan is an integral part of a gold-based monetary system.
And don’t forget that per capita oil consumption in the West is more than 10 times that of the developing East, i.e., growth in demand – almost all of it arising in the East – that will raise oil’s price is inevitable as the East seeks to catch up. It won’t bother China one bit if it draws scorn from the West for paying top dollar for a small chunk of Saudi Aramco: Once again it’s retort will be “wait and see.” And we don’t think the wait will be too long.
China Is About To Unleash A New Global Monetary System
Already, One Belt, One Road infrastructure and trade are being priced in local currencies, the yuan, and in some cases gold. The monetary system that replaces the dollar in the East, while anchored by gold, likely will be a fairly complex admixture of highly sophisticated virtual currency and gold-backed bonds. With the fastest computers in the world and the best programmers, the Chinese will be up to the task of managing it. That, sadly, is likely beyond the skills of the West, which also lacks the requisite gold. Gold is destined to become an extraordinarily scarce and critical commodity with an upside that is many multiples of where it is currently trading. Promise yourself that even if, as we noted above could happen, gold dips below $1,200, you won’t be the last seller before it blasts off.
This weekend a consortium of One Belt, One Road countries are meeting to discuss how to accelerate the OBOR initiative, in the biggest Eastern summit of the year. Also significant is a meeting that took place this week in Oslo – which I learned about from a KWN reader – between a North Korean delegation and NGO groups from North America. We expect both meetings to further cement Chinese economic control of the East and hope to offer more details next week.” ***For investors in gold, to find out which mining company the biggest money on the planet is lining up to buy – CLICK HERE
KWN has just released one of Bill Fleckenstein’s greatest audio interviews ever and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***KWN has already released the fascinating audio interview with Rick Rule discussing stock picks for gold, silver, and uranium, as well as the big picture for the gold and silver markets and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: James Turk – Gold & Silver Shorts Took A Big Gamble And Might Lose Their Ass CLICK HERE.
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