As we near the end of trading in April, China is taking steps to accelerate the replacement of the US dollar.

Within hours KWN will be releasing one of Egon von Greyerz’s greatest interviews ever. For now, Alasdair Macleod’s audio interview has just been released (LINK BELOW)!

April 26 (King World News) – Alasdair Macleod:  Not only has the US dollar embarked on a new bear market versus currencies, but the best way to play it is by selling dollars for gold. PBOC actions appear to confirm this view.

After gold’s dramatic run to $3500 on Tuesday, gold has backed off on profit-taking. This morning in European trade gold was $3300, down a net $25 from last Friday’s close and up 27% this year so far. Silver was $33.35, up 85 cents from last Friday and up 15% this year so far.

Early markdowns in both metals this morning coincide with China winding down for its weekend. Understandably, the shorts are grabbing the opportunity to shake out any flaky longs by triggering their stop-losses. But both metals are far from overbought on Comex, and gold’s open interest is not too far from rock bottom:

However, Comex and London are becoming less relevant. The reality is that pricing is moving away from western capital markets to Shanghai. 

All too often Europe awakens to Asian trade having driven gold prices higher. This was particularly acute until President Trump backed off from attacking the Fed’s Jay Powell and from further tariff threats against China.

This change in tone was reflected in all capital markets. US equities stopped falling, Treasury yields eased, and after its recent collapse the dollar’s trade weighted index stabilised:

After the recent disruptions a pause in all markets is understandable. But does a volte face on Powell and tariffs mark the start of more realistic and less unsettling US monetary and trade policies? It seems unlikely. Importantly, it is what the Chinese think that matters.

Inscrutable as ever, they simply continue to let the Americans make the mistakes. But China recognises that problems for the dollar continue to mount and will be reflected in gold — even threatening to undermine their own currency. 

According to the South China Morning Post (23 April), as part of a drive to increase international usage of the yuan and reduce dependence on the dollar the SGE and other institutions will build additional gold storage vaults abroad. In a statement jointly issued by several government authorities, they stated, “We will explore the internationalisation of physical delivery for specific products traded on the Shanghai Gold Exchange by establishing offshore delivery and storage facilities”.

Why?

This is a first. China is taking steps to accelerate the replacement of the dollar, and gold is now central to this policy. It ties in neatly with Xi’s recent tour of his ASEAN neighbours to secure trade relations with them in light of America’s destabilising tariff policies. We can draw some important conclusions from these events:

  • China is inching towards international control of gold pricing and moving at least part of it from dollars to yuan.
  • The network of SGE vaults will probably be in ASEAN countries. And
  • This could be the start of a gold standard for the international yuan initially focusing on ASEAN trade. Yuan could be bought and sold against gold stored in SGE vaults outside China.

This answers a question posed above: has the dollar now stabilised or are the developments in the last week merely a pause in the dollar’s downward rush?

The Chinese authorities appear to think it’s time for their Plan B: to protect themselves and their currency from the dollar’s seemingly inevitable collapse.

Returning to current markets, silver is now beginning to outperform gold, with the ratio this week dropping from 107 to 98.8 this morning. Is that canary in the goldmine sneezing? I finish with the silver chart for readers to make up their own minds:

To listen to Alasdair Macleod discuss the pullback in the gold market as well as the advance in the silver and much more CLICK HERE OR ON THE IMAGE BELOW.

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