World faces deflation shock as China devalues faster

The Telegraph, London/Ambrose Evans-Pritchard/7-7-2016

“China has abandoned a solemn pledge to keep its exchange rate stable and is carrying out a systematic devaluation of the yuan, sending a powerful deflationary impulse through a global economy already caught in a 1930s trap.

The country’s currency basket has been sliding at an annual pace of 12pc since the start of the year. This has picked up sharply since the Brexit vote, suggesting that the People’s Bank (PBOC) may be taking advantage of the distraction to push through a sharper devaluation.”

MK note:  People do not often make the connection but devaluations have this nasty tendency to ignite inflation at home – a scenario that will not be lost on Chinese investors and savers.  By the way, in the July edition News & Views, we feature a short analysis of China’s unexpected and strong foray into the silver market.  A few days later the Wall Street Journal published an article on China’s silver interest and came to the same conclusion – silver in China and much of the rest of the world has graduated from  commodity-based stature to full-blown safe haven asset and gold’s junior partner in that respect.  What I did not mention in that piece is that investors in China who cannot afford an ounce of gold can more readily afford several ounces of silver  (at a 68 to 1 ratio).  (See below)