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Is Gold Money? China And Russia Think So, And The Whole World Shortly Will, TOO!

IMG Auteur
Published : April 04th, 2017
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How manipulated have financial “markets” become?  Well, considering all that occurred in the past three months – from what will likely be reported as sub-1% U.S. GDP growth; an expanding, irreversible retail apocalypse; the death blow to “Trump-flation” delivered by “Freedom Caucus” Republicans; Donald Trump forcing the G-20 to remove language promoting free trade from its post-meeting communique; the institution of a $19.9 trillion debt ceiling – which roughly two months from now, will be reached; a plunging dollar and interest rates, despite a “surprise” Fed hike; rapidly deteriorating confidence in the OPEC “production cut” deal; all-out U.S. political war, including an expanding wire-tapping scandal that appears far worse than Watergate; and the commencement of the BrExit process – with the prospect of a “BrExit times 100” French election in the coming weeks; how ridiculous is it to see, that based on VIX trading, 1Q was the least volatile quarter in 11 years?

Heck, until the day before the hideous “Trump-Care” bill was first expected to fail – thus, dramatically damaging the Trump Administration’s credibility, and putting his “massive” tax cut and “yuuugge” fiscal stimulus dreams in jeopardy – stocks hadn’t had a 1% down day in nearly six months.  This, as stocks – quantitatively speaking – are trading at their highest valuations since the dotcom bubble; whilst bond yields, care of global QE (both overt and covert), trade at, for all intents and purposes, all-time lows.  Throw in the fact that despite such incongruity, the quarter’s three best performing assets were gold, silver, and Bitcoin, and you can see how ripe “favored” mainstream assets are for a significant decline.

This weekend, as market participants digested Trump’s stark warnings regarding this Thursday’s potentially historic meeting with Chinese Premiere Xi Jinping – which may well accelerate the already thermonuclear global trade and currency wars; China and Russia dropped the MAJOR monetary bombshell that is today’s principal article subject.  This, as per yesterday’s “is the Cartel’s silver Waterloo looming?, we learned that the “price” of said calm has been an all-time COMEX “commercial” short position.  This, despite no visible crisis to prompt it; not to mention, an expanding run on the COMEX’ already paper-thin registered gold and silver inventories, at a time when global demand is near its all-time high; whilst production is dramatically, and likely indefinitely, declining.  Which is why last night’s 179th “Sunday Night Sentiment” raid of the past 189 weekends; followed by this morning’s “817th “2:15 AM” attack of the past 935 trading days; was particularly egregious; as clearly, with Precious Metals’ all-important 200 week moving averages – of $1,252/oz and $18.30/oz, respectively – on the verge of being taken out, the powers that be have taken their war on the only real money the world has ever known nuclear; in a fight to the monetary death they must mathematically lose.

Which brings me to today’s principal topic, which I’ll presage by recalling an article I wrote nearly three years ago, titled “is gold money?  Who cares!”  In it, I espoused that the chance of a gold standard returning – either in the U.S., or overseas – was essentially zero; as after history’s largest, most destructive fiat Ponzi scheme collapses, no government will ever be trusted to issue and manage currency.  Subsequently, I’ve gone so far to suggest that the utilitarian “money” of the future will be crypto-currency; as when perfected, it can be “administered” in a completely decentralized fashion, free of government manipulation, regulation, and interference.  This will of course take some time to occur, but don’t be surprised if the next major financial crisis – which could, and should occur any day – ushers in this new, world-changing monetary era much faster than anyone can currently imagine.

Back to “gold standards,” I am continually amazed at those who believe they could return; given how, as has been the case with every fiat currency regime every attempted, every gold standard has been destroyed by government fraud, collusion, and abuse.  Let alone, at a time when government credibility will unquestionably be at all-time low; when countless global governments themselves face regime change, as is starting to occur already.  Which is why it’s doubly laughable when Jim Rickards suggests fiat currency will be replaced by SDRs; which in essence, are a basket of the same fiat currencies that are simultaneously failing; issued by the very same governments that are not only being overthrown, but viciously fighting amongst themselves.

In “is gold money? Who cares!”, my main premise was that while gold and silver can certainly be utilized as money when needed – principally, to settle very large transactions – their primary utility will continue, as has been the case for five millennia, to be as the best storage of value mankind has ever known.  Let’s face it, you’d have to be crazy to “spend” your gold and silver at today’s historically suppressed prices, when so much “bad money” (i.e., fiat currency) is being printed.  Moreover, when prices do finally break free of the Cartel, it will likely coincide with dramatic, and chaotic, political, economic, and monetary scenarios, which will make them even more valuable to hold.  Not that there won’t come a time, as with all asset classes, to “sell”; but in my mind, that time won’t arrive in the Precious Metals arena anytime soon.

Regarding “gold as money,” China and Russia confirmed this truism in spades this weekend, when they dropped a monetary bombshell by announcing their intention to pursue a trade settlement mechanism focused on gold – as described here.  To that end, Russia’s opening of a Beijing trade office last month was a major incremental step in the two superpowers’ ongoing initiative to “de-dollarize,” and lead an Eastern Trade Bloc outside the purview of the U.S., Europe, and other Western puppets like Japan.

The New Development Bank (formerly known as the BRICS Development Bank); and the China International Payment System, or CIPS; have already been launched in an effort to “de-dollarize” the East.  And yet, even I was surprised by yesterday’s announcement; as while China and Russia are by far the world’s largest gold buyers; and perhaps, if real accounting were utilized, the world’s largest holders; I didn’t expect them to overtly utilize gold as a bi-lateral trade settlement tool.  Then again, on a visit to China last year, Russian Central Bank Deputy Chief Sergey Shvetsov said the two countries want to facilitate gold-settled trade; whilst just last month, another senior official at the Russian Central Bank, Vladimir Shapovalov, said the two nations were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon.

Quite publicly, two the world’s most influential nations are not only increasing their gold reserves – likely, at a far faster rate than “reported”; but openly discussing means to “monetize” them as a primary trade settlement tool.  Which, when it formally commences operation – which per today’s topic, may well be imminent – will re-legitimize gold, on a global basis, in a way not seen since the gold standard was abandoned in 1971.  Not that every nation will embrace it, of course; particularly those, like the U.S., desperately protecting their dying fiat franchises.  However, it will once and for all end the propagandist myth of gold as a “barbarous” relic – particularly in a negative yielding world desperately seeking to maintain purchasing power against the ravages of Central bank engendered inflation (a topic, I might add, that I’ll be expanding upon tomorrow).  To that end, once institutions start to re-learn why gold (and silver) have been so valuable for so long, the odds of the inevitable, historic physical shortages I have long anticipated coming to fruition will exponentially increase.  At which point, the concept of buying at todays’ historically suppressed prices – well below the industry’s cost of sustainability – will become a long lost pipe dream.

Data and Statistics for these countries : China | Georgia | Japan | Russia | All
Gold and Silver Prices for these countries : China | Georgia | Japan | Russia | All
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Andrew Hoffman was a buy-side and sell-side analyst in the United States (including six years as an II-ranked oilfield service analyst at Salomon Smith Barney), but since 2002 his focus has been entirely in the metals markets, principally gold and silver. He recently worked as a consultant to junior mining companies, head of Corporate Development, and VP of Investor Relations for different mining ventures, and is now the Director of Marketing for Miles Franklin, a U.S.-based bullion dealer.
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