Currently we have been seeing news that China launched gold yuan fix. This comes as good news in the world as we see the troubling news coming from Deutsche Bank in the headlines. Deutsche Bank has agreed to settle out of court over allegations as it illegally conspired with the Bank of Nova Scotia and HSBC to manipulate silver prices at the expense of investors. Deutsche Bank also admitted to price manipulation at the London gold fix. So how does the Chinese and their launch of the gold yuan fix effect the current gold market? Today, we will be going over this briefly and why you should keep accumulating gold.
We Need an Honest Market
If we want to get to an honest market, we need to get to a physical based market. There is nothing efficient about the paper precious metal’s markets. As long as we trade paper derivatives banks can keep on manipulating the prices like we’ve seen currently with Deutsche Bank and their cohorts. The prices are enforced by the physical markets by the bullion banks through London’s gold exchange currently, but as we’ve seen the London gold exchange can be manipulated.
The good news is the Shanghai Gold Exchange (SGE) will get control of some of this price action thanks to the gold yuan fix. With the gold yuan fix, the Chinese are seizing power. The Chinese have been deliberately been understating how much gold they have in their reserves. They haven’t been exporting any gold for the last six years as they have only been importing it. The Chinese also have their mining productions working overtime, and they are not entirely accounted for, but there is a good reason for this.
Gold is Power
There is an old saying that goes, “He that owns the gold makes the rules, and has the power!” The Chinese have been setting themselves up to offer an alternative to the dollar marching into the 21st century. If you understand the true meaning of gold, the power it has, the power it holds, then you would want to have some say in its pricing and evaluation.
By setting up the Yuan denominated fix, the Chinese in sense are setting themselves up to have a say in that control. The Chinese at some point will disclose the amount of its official gold holdings in order to signify its position in global trade. This would validate gold for its actual price to show that their currency is backed fully and takes away power from western countries to show gold is worth a lot more than the current price. But before the Chinese reveal this strategy, they would want to accumulate as much gold physically as possible.
Chinese Gold Strategy
Currently, it doesn’t profit the Chinese to raise the price of gold significantly higher as they are still converting their US Dollar reserves into gold reserves. They want to accumulate as much as they can at lower prices to that of higher prices. Eventually, the time will come when it benefits them to unveil officially how much gold they actually have and that day is coming closer.
For many people across the globe, it’s a hard concept to wrap their minds around because for the last 70 years the US Dollar has been the world’s reserve currency. People think the US dollar will always be the rightful world reserve currency, but that’s not how it works, and it’s not always how it’s been. The US Dollar is nearing the end of the line as huge amounts of debt are piling up more confidence is slipping. Sooner or later, the world will revert back to a form of sound money as a starting point and why wouldn’t gold be a part of that currency as it has been for thousands of years in the past.
Even though the Chinese have the gold yuan fix in, it’s likely that the price of gold won’t skyrocket overnight. There is the likelihood that there will be a transition into an honest revaluation of the physical gold at a strategic point, which will indeed cause a higher price point in gold. Today, is the time to be accumulating gold for the day when the Chinese decide to release their official gold reserves and the price gold does go up. Having the physical metal in your possession is the best hedge you have against all the events that will unravel in the future.