Chicago Gold and Silver Investing Fan Blog

More Dominos Fall for the Decline of Dollar

Arizona legislature approves making gold and silver legal tender

BRICS Regimes Forge New World Bank, Call for Global Currency

So Long, Yankees! China And Brazil Ditch US Dollar In Trade Deal Before BRICS Summit

China and Australia Talking About Dumping US Dollar and Conducting Trade in Own Currency

Zero Hedge reports that China and Australia are talking about using their own currencies for trade. They used to use the US dollar. Thus furthering the decline of the US Dollar as the major world's currency.

What we are seeing before our eyes is the decline of the US Dollar. The demand for the dollar only weakens every year. Combine that with increased US dollar printing and you will see a sharp fall in the exchange rate of the dollar.

 

China Looking for Another Bretton Woods Type Gold Standard

It is no secret that China has been amassing gold. Last year alone they may have accumulated an additional 1,500 tons of gold.

What do the Chinese plan on doing with all the gold? There's talk that they may be preparing for a another Bretton Woods type meeting. And why not. The Chinese Yuan is rapidly increasing in terms of international usage. Some reports say that the Chinese Yuan has increased it's global financial transactions by 170% last year. This means more and more countries are using the Yuan as a medium of exchange as opposed to other popular currencies such as the US Dollar and the Euro.

“We are headed for another Bretton Woods.  It is unsustainable for currencies to continue to lose their purchasing power while median incomes, especially in the US, continue to go down in the West.

At a certain point the Chinese will say, ‘It’s time to have another equivalent of Bretton Woods.’  That will challenge the BIS, and quite possibly lead to some sort of gold standard.  What Bretton Woods did was reestablish the gold standard as the Second World War was coming to an end."

- said Stephen Leeb in a Kings World News article

The Bretton Woods meeting established a globa gold standard and made the US Dollar dominant globally. The US dollar is still the main global reserve currency. However, with the US getting greater in debt and the dollar being regularly devalued, countries may look for alternatives. If the Chines accumulate enough gold and call for another Bretton Woods meeting, we could see a more rapid decline of the US Dollar and a bigger role of a gold backed Chinese yuan.

How soon could this happen? Well right now the United States has somewhere between 8,000-20,000 tons of gold. It is more likely closer to the lower number. In a few years (2-5) China could amass enough gold (10-12,000 tons) to surpass the US holdings.

 

Chinese Backing Yuan With Gold?

I am hearing early reports from Kings World News that China plans on backing their currency, the Yuan, with gold. If that is the case and it is not 100% confirmed yet then that will spell trouble for the dollar. More countries will flock towards using the Yuan as a reserve currency as opposed to the dollar. This is absolutely a development to watch closely.

You could also see a massive short squeeze on gold. A short squeeze is when everyone rushes to take physical possession of gold but it is not all available so the price could jump up dramatically in a short squeeze situation.

China's strategy is to buy as much gold as they can as seceretly as they can without disturbing the price of gold. But insiders know what is going on. China is hoarding gold because they know gold, unlike the Euro, the US Dollar, and other fiat currencies, is real money.

Gold Will Not Go Up Until These Ladies Start Shopping for Gold

With the world going up in economic flames, fiat money being printed like crazy, countries going into massive debts they cannot repay, and countries such as Germany and Venezuela repatriating their gold, how come the price of gold has not gone up like crazy?

See, it works like this. 99.9% of the investors out there do not even consider gold as an investment. Institutional American Investors are taught to keep 40% of their investments in stocks, 40% in bonds, and about 1% in gold. Gold has not been taught to be an investment for over 40 years. Anyone who knows anything about gold is self taught.

Investors are not taught about gold as an investment. Central banks certainly know that gold is real money but they are not going to teach anyone that because they want their citizens to use their fiat currency as money.

China and India are two of the largest buyers of gold. Together they account for about 50% of the gold purchases in the world. The rest of the world combined accounts for the rest of the purchases. The media loves talking about America, Europe, and Japan. But in the grand scheme of things they are minor players compared to China and India as far as gold purchasers.

So when will the price of gold really escalate? One, if the economy of China and/or India really get better then you will see them acquiring even more gold than they already do and then you'll see the price rise. As for the rest of the world. Something really dramatic will have to wake them up. Maybe one morning a country will have it's currency blown up in one day, no one will be able to get their currency in the banks, or hyperinflation will hit them suddenly. Only then, will the rest of the world realize that their government's have been feeding them a lie. They will find out that their currency is not as good as they thought, they will look at an alternative. Some will use another countries currency as an alternative. Others, will flock to gold and silver. When that happens, the price of gold will really rise.

Or if there is some kind of paradigm shift. Right now Gold purchasing is not fashionable. One day, something could happen where that thinking changes. Gold purchasing is already culturally ingrained in India and China. It is not fashionable in most of the rest of the world. However, with the economic chaos seemingly getting worse every day, the conditions seem ripe for a change in gold's perception. When that happens, you better hope you have already bought the gold because when gold becaomes fashionable, the price will be way too high and the opportunit to make the really big profits will have passed.

China Hoarding a Record Amount of Gold

(KWN picture)

The amount of gold that China is acuiring is going parabloic. As you can see from the above chart, the Chinese are dramatically increasing both the amount of gold they are producing and the amount of gold they are importing.

Could it be they no longer see fiat currency- most notably the US Dollar and the Euro - as a place to hold their assets? I feel the chart speaks for itself.

China Smuggling Gold from Phillipines

You may wonder how China keeps hoarding gold secretely. One way they are doing it is through gold smuggling. China aquires gold via the black market through countries such as the Phillippines.

The Phillippines is the 18th largest gold prodcuer in the world. By Phillippine law, the Central Bank of the Phillippines called the Bangko Sentral ng Pilipinas is supposed to purchase all gold from local Phillippine miners wheter public or private. However, Bullion Street reports that "nearly 95 percent of gold trade in the country made through black markets."

Why would a Filipino mine sell their gold via the black market as opposed to selling it to the Bangko Sentral ng Pilipinas? The central bank charges a 7% tax on all god purchased from the mines. So to the miners it makes business sense. Sell to someone else who does not charge the 7% tax and make more profits. Reports are saying, that the someone else are countries like China who get the gold eventually after gold is shipped to Hong Kong.

No one knows for sure hiw much Phillipine gold eventrually ends up in Chinese markets. We do know that

"The Philippines, the world’s 18th largest gold miner, produced just over 1 million troy ounces of gold in 2011, worth $1.6 billion at current prices.

The average gold production in the country is 30 tons per year, 70% of which comes from small-scale miners."

If China gets a decent sized portion from the Phillippines and other countries, the hoard that is stashed in China could be much much bigger than realized.

China Gleeful of Gold Price Drop

According to money manager Stephen Leeb in a Kings World article:

"The bottom line here is that when I see gold engaged in one of these drops I know it doesn’t make any sense.  The Chinese let the price of gold dip because they are smart buyers and we are playing into their hands with this ridiculous manipulation."

Leeb feels that China- while not necessarily being an active participant in gold price supression, loves it when the price of gold drops. A lower gold price allows them to buy gold at a cheaper price to keep adding to their gold stash.

The Chinese know that fiat currency- especially the Euro and US Dollar are on the out, the sooner they can convert fiat currency to real tangible assets such as gold the better. Leeb goes further in even suggesting that the Chinese may be working on a gold backed currency. A gold back Chinese currency could be the currency of choice when the Euro, Dollar, and other non-gold or anything backed fiat currency goes Kaput.

Re-hypothecation

Re-hypothecation means "someone else says they are the true owner of what you believed was yours, because the entity in control of the asset sold it to you, then sold it again to another buyer, and again."

from Wealth Cycles

This is part of the crazy world of derivatives and the financial services world.

The best way to describe Re-hypothecation is that you deposit dollars into a bank. The bank then uses those dollars and sell it to another buyer and they go ahead and sell it to another buyers. This is what led to the Mortgage Backed Security debacle in the United States. In the gold industry, Re-hypothecation is the norm. And that is why it will eventually collapse. Like the housing market collapse in the United States, the gold market will collapse because it is built on this house of cards foundation. All it takes is someone (probably a large institution) to call for their gold. Then other will follow. At some point, someone will not be able to get their gold and that is when the whole fraudulent system will collapse.

And don't think, it will be only relegated to the United States. Chinese trading exchanges have seen an increase in derivatives. The US and Europe it seems have exported derivatives and the eventual collapse.

There may be some good news. According to Wealth Cylces: Singapore has tripled it's gold imports and

"Beginning October 1^st 2012, Singapore will exempt investment-grade gold, silver and platinum from a 7% goods and services tax (GST). This is massively good news not only for the local citizens but, perhaps more importantly, for global precious metals investors.

Taxing a particular type of money discourages its use. Lifting that tax opens the door for citizens and businesses alike to save in, trade and utilize an alternative, a huge boon for demand.

According to finance minister Tharman Shanmugaratnam, the intent is to develop a refining and trading industry within the nation. "

 

What this looks like is that SIngapore is setting up the foundation for a gold-backed exchange. One where paper is traded and proven to be able to be turned in for real physical precious metals. An exchange free from Re-hypoethecation and all the dangers that come with it. If Singapore or another country from likely the East successfully makes this gold backed exchange, investors world wide will flee their current risky Re-hypothecated gold paper exchange and go to one perceived as less risky. If this happens the demand for this new exchange will skyrocket compared to the supply of gold and the price of gold will go up with it.

This is a major major development, worthy of keeping track of closely.

BRICS Countries Looking to Replace Dollar, IMF, World Bank