With the US dollar weakening today, China has already laid the path to $10,000+ gold prices.
The Recent Drop In Gold
July 30 (King World News) – Dr. Stephen Leeb: “My feeling is that the recent drop in gold is nothing more than a speed bump. If anything, it further secures the transition from a dollar-based to a gold-based monetary system. As I’ve said before, the transition starts in the East with yuan convertibility into gold, and ends in some bipolar system in which the East’s currency is a collection of commodities and currencies backed by gold – or in the best win-win case, a worldwide gold-centered monetary system…
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Dr. Stephen Leeb continues: “The recent noise – in particular the tariffs initiated by Trump and the possibility of additional broader tariffs – has placed China in a position where it must execute an exquisite pas de trois. It has to offset the potential impact of additional tariffs while simultaneously maintaining the tight relationship between gold and the yuan. With respect to the first, it’s notable that the yuan has depreciated about 10% – in effect rendering the prospect of a 10% tariff on all Chinese exports to the U.S. virtually meaningless.
If the yuan’s depreciation occurred as gold was rising in dollar terms, China would no longer be able to say to prospective trading partners that “the yuan is as good as gold.” Since March 2017, the 52-week moving average of gold priced in yuan is virtually a straight line, and even in the most recent period, any deviation has been so negligible as to be essentially unnoticeable. This is in stunning contrast to the years prior to early 2017, when gold priced in yuan was on a roller coast ride.
As an aside, beyond nullifying the potential tariffs while keeping the yuan a de facto alternative to gold, the Chinese are clearly seizing the moment. While U.S. tariffs have become basically meaningless to China, the reverse is not true: tariffs imposed by China on U.S. goods are biting, and Trump is losing support to some degree on the imposition of tariffs. My expectation is that China, which wants to get on with the monetary transition, will allow Trump to save face through some sort of negotiation that will have no effect on China’s plans.
And speaking of China’s plans, from Africa to Asia to the Middle East, the BRI is picking up steam. The UAE, for example, a trading cornerstone in the Middle East, has been actively courting China. Xi’s recent visit to the country was the first by a Chinese leader in 30 years and resulted in a broad bevy of agreements – especially in the energy area.
An interesting factoid came from Australian iron ore miner Fortescue on July 25th. The company reported that sales to countries other than China doubled to 8% of the total. The company listed Indonesia, India, Malaysia, and Vietnam as the primary examples. These four are all participants in BRI. Three are developing countries, which together represent a microcosm of the countries that are being impacted by Chinese growth. The fourth, Malaysia, has achieved high-income status.
China has become a driving force for cohesive growth for about 130 out of 195 countries. These include virtually all the world’s developing countries along with the high-income countries in the East. The beginning of this decade marked an historic change in the make-up of world growth. For the first time ever the GDP of developing countries surpassed that of high-income countries. Add to that the developed East, and the enormity of China’s influence becomes clear.
China And The Path To $10,000+ Gold
It should be clear why the dollar won’t be able to continue to stand as the world’s reserve currency. China has said publicly on several occasions that gold will be at the center of the next monetary system. The path to $10,000 gold and higher has already been paved. There may be one or two more speed bumps along the way before the trip becomes turbocharged, but don’t let any remaining turbulence discourage you from seeing where the road ultimately leads: to far higher gold prices.”
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