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<p>[QUOTE=&quot;Ainslie Bullion, post: 2213023, member: 75209&quot;]Markets are still reeling from the shock move by China to lower its currency peg to the USD by 1.9%.&nbsp; That might not seem like much but in the context of the biggest deviation from the USD this year being just 0.16% it very much is and the markets certainly reacted that way.&nbsp; Whilst China stated confidently it was a ‘one off’ few analysts appear to believe that.&nbsp; Why?&nbsp; Because China have now well and truly entered this ‘Currency War’ that has plagued the world’s central banks since the GFC – central banks trying to force down their currency through zero or near zero interest rates or rampant money printing to bolster exports.&nbsp; For China too, it is most appealing as it kills 2 birds so to speak.&nbsp; Firstly it addresses their global export competitiveness.&nbsp; They’ve had to endure a 15% rise in value because of being linked to a USD rising on the much anticipated Fed tightening and at a time when China’s economy is showing serious wobbles.&nbsp; Secondly it addresses the IMF’s main concern in not including them in the SDR last week, in that it is not yet an internationally freely traded currency.&nbsp; This is a big step in that direction.&nbsp; The danger?&nbsp; Well they are near equal to Japan as the biggest holder of US debt in the world.&nbsp; They have a large number of businesses heavily indebted in USD and have already seen some large defaults – this will just exacerbate that.</p><p><br /></p><p>But why has gold shot up $25 since the announcement?&nbsp; There are likely a number of reasons.&nbsp; Firstly it is yet another very clear sign of a global economy in severe stress.&nbsp; China is, on a like for like basis, the worlds largest economy and not far behind the US in a simple GDP account.&nbsp; It is a clear sign they are in trouble.&nbsp; Secondly, they are the world’s biggest consumer of gold (1,464 tonne YTD!!) and when you know your currency is going down one of the best means of protection is gold.&nbsp; We’ve seen that very clearly in Australia this year where gold and silver are up 5% and 10% respectively in AUD whereas they are down 5% and 0.6% in USD terms – and that with the AUD at 73.9c today and most forecasts for high 60’s to 70 for year end!&nbsp; </p><p><br /></p><p>There is a line of thought that since the IMF rejected the Yuan for the SDR the gloves may be off.&nbsp; This currency move could be the first, announcing their REAL gold reserves could be the next.&nbsp; If you want a big jump in the gold price, should they do the latter, you just watch…[/QUOTE]</p><p><br /></p>

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