Chinese set to back the Yuan with gold... new world reserve currency?

I've been hearing about this for a while now... while it is not definitive news in my opinion, it is certainly somthing to be aware of...
http://kingworldnews.com/kingworldn..._Coming_As_WGC_Confirms_Gold-Backed_Yuan.html

 

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The "study" was done by the World Gold Council. From Wiki:

The World Gold Council is a non-profit association of the world's leading gold mining companies, established in 1987 to promote the use of gold. It aims to stimulate demand for gold from industry, consumers, and investors.

No, there would absolutely be no conflict of interest there.......

KWN is simply a blog who loves to make inflammatory rhetoric repeatedly about how PM will "explode". One of these days they may be right, and they will point to their correct "prediction" for decades, ignoring the fact they made the same "prediction" 1000 times when it was wrong.

SOP for many PM bull sites. Same has been happening since the 70's at least. Be "aware" of their predictions to the extent they can back them up, meaning zero.

 

Fair enough... but many people called the gold bugs crazy when they said gold would reach $1000/oz, yet now here we are at $1600+ an ounce. Gold bugs say $3500/oz... people are calling them crazy... if it hits $3500 will they still be crazy or just lucky?

There are many powers that be which can manipulate and suppress the prices of EVERYTHING we use, but eventually supply and demand will win, then we will see who is correct and who is crazy.

 

I don't think they are actually doing it. Why should they? The masses are happy with fiat. Now rich people may want a reserve currency, like in Rome when the masses got denarius while the rich used gold solidus to preserve their purchasing power. I can't see one of the major currencies going to real value when nobody else is doing it.

 

So you are saying there would be no benefit to the Chinese by backing their currency with GOLD instead of DEBT, and overtaking the US dollar as the world reserve currency?

Well the masses may be happy with fiat, but that is because for the most part the masses are STUPID and oblivious to the real problems of the world... they are more concerned about what is happening on Jersey Shore~

If everyone is so happy with fiat currency, then why are the central banks (which act on behalf of their respective goverments) buying gold in record amounts?

From Bloomberg.com, which I don't believe is a "gold bug" site... http://www.bloomberg.com/news/2012-...eserves-with-third-purchase-as-banks-buy.html

 

History of PM "predictions"

1975 "Gold will explode!"
1976 "Gold will explode!"
1977 "Gold will explode!"
1978 "Gold will explode!"
1979 "Gold will explode!"
1980 "Gold will explode!" - "We were right, you need to pay me for my predictions!"
1981 "Gold will explode!"
1982 "Gold will explode!"
1983 "Gold will explode!"
1984 "Gold will explode!"
1985 "Gold will explode!"
1986 "Gold will explode!"
1987 "Gold will explode!"
1988 "Gold will explode!"
1989 "Gold will explode!"
1990 "Gold will explode!"
1991 "Gold will explode!"
1992 "Gold will explode!"
1993 "Gold will explode!"
1994 "Gold will explode!"
1995 "Gold will explode!"
1996 "Gold will explode!"
1997 "Gold will explode!"
1998 "Gold will explode!"
1999 "Gold will explode!"
2000 "Gold will explode!"
2001 "Gold will explode!"
2002 "Gold will explode!" - "We were right, we need money from you for our predictions!"

etc ad nauseum.

How much "value" do you give to someone who predicts there will be no rain today and is right 75% of the time? Those folks are a LOT more accurate than the PM bug "predictors".

COULD they be right? Yes, just as much as i COULD be right that I will predict on May 14th 2086 in New York City there will be no rain that day. Do either of us have any basis to justify the prediction? Not really.

 

Well in 1975 gold was about $150 an ounce... just because it didn't double overnight dosen't mean they were wrong, are you saying it was a bad investment to have bought and held it? I mean it has only gone up over 1000% since then... clearly they are just lunatics...

I mean gold is in a 10 year bull market yet somehow it is still the devils investment... I just don't get it~

 

Not a "devil's investment", but you are right. Its in a 12 year bull. Do things go up forever? Actually, yes, with inflation they will.

Remember that if gold goes up $68 this year, that is not one red cent of profit. That is only keeping up with inflation, keeping your purchasing power. So, in 5 years gold has to be priced about $400 higher per ounce than today just to stay EVEN. in ten years that number is about $800 per ounce higher. Trust me, if it does go up like this the PM sites will claim "victory" and "they were right". But they aren't, a successful investment has to go up more than inflation, or kick off current income. Gold cannot kick off income, so it needs to go up more than inflation to really "make money".

Go back to 1933 and the "official" gold price in the US, and assume 5% inflation. What is the worth of that ounce of silver today? $1734.65. How much did you "profit" by buying that ounce of gold in 1933 and holding it until today? I would say you protected the purchasing price of your money, EXCEPT if you sell it today you owe capital gains taxes on about $1700.

Has there been ups and downs? Yeah. I bought PM in the 90's when I was considered an idiot for doing so. I thought PM was seriously undervalued historically at the time. Is it STILL considered undervalued after a 12 year bull run? That's the harder question, and to me one not so easy to answer.

However, an investor if they always listened to the PM "gurus" could have been hurt. Problem is that every investor has a timeline when he needs to sell. If you had to sell before the market corrected you can get very hurt.

I just find it very easy to predict "market up" on a commodity innately tied to inflation in many ways. The easiest course of action price wise for all metals will always be up in an inflationary economy such as we have.

Btw, WILL gold be $3500 an ounce? Of course, but WHEN. If gold is $3500 an ounce in 20 years you will have lost money. It seems predictions like this, if they say it will be in a year, if it doesn't occur its always because of "market conspiracies". Just keep track who predicts what and when. I have been reading about PM since the mid 70's, since I have always loved PM, and I am simply trying to give you my historical perspective on "predictors".

 

ok well someone who predicts rain and is right 75% of the time could be called a weatherman, and actually we do give them a lot of credit. What kind of prediction is a 40% chance of rain tomorrow? Not to mention they have all sorts of specialized equipment.

Here is another scenario for you... what do you think would happen to the price of gold/silver yet alone ANY commodity if we did not have ETF's? Meaning no speculating etc. and no company could sell an entire years worth of production in just a few minutes. For easy examples use the gold and silver ETFs which sell at a supposed 100-1 ratio, so now there is 100 people all claiming to the same 1oz of gold, will that ounce of gold still sell for the same price?

 

I definitely agree with most everything you said and appreciate your insight~ I certainly don't have that much personal history on my said as I have only been at this for a few years, but the biggest problem is that in todays markets we are playing with a very different set of rules then even 10-20 years ago (hence my question/statement on the ETFs).

Lots of corruption and scandle, everything controlled by the most powerful... the world is completely intertwined, there are huge players in the markets who were not even allowed to play before, news happens in an instant... personally I feel that we are all going to get blindsided and I would rather be on the side of the track when the train comes through... not standing in the tracks!

 

ETF's have nothing to do with it. You are talking about leverage both on the buy and sell side of the COMEX.

I would predict much less liquid markets, much higher buy/sell premiums, and much larger up and down movements. Leverage allows markets to be more liquid benefiting nearly all participants. Without it yes, silver could spike short term to $100 an ounce much easier, but it could also crash to $8 much easier as well. Physical markets have a whole slew of imperfections, and are MUCH easier to mainipulate than markets allowing leverage. Read about 19th century markets and all of the bad things that could/did happen in them.

Almost all rules in COMEX markets today are in response to how BAD physical only markets were. People complaining about "manipulation" in current markets should at the very least read their history and see WHY today's markets are structured the way they are, and how they are much better. How would you like a physical only market where you saved gold your whole life, but someone decided to dump the market and the price of gold was down to $400 an ounce when you HAD to sell? Yes, it might go up to $4000 in 6 months, but you do not know for sure, and you need the money NOW.

 

finally, some currency backed up with gold.....

 

While I know some history, I am not familiar with the problems of past physical markets so can't really comment on those. I agree that the ETFs give much more liquidity, but my problem is with how much they are able to trade with relation to the physical market. The ratios are far far out of wack.

Straying off topic a bit... Gold I am not really worried about, it has been cherished and hoarded pretty much forever... used primarily for jewlery and storing/preserving wealth, lots to go around...

Silver on the other hand not so much... It is has been used and abused throughout history, most of the strategic stockpiles have been used up. The US used to have 5,000,000,000 ounces of silver but that is all gone, thanks in part to the American Silver Eagle program! Silver has over 20,000 uses and growing especially with todays technologies CONSUMING more and more. Industry eats up almost 500,000,000 ounces a year from solar panals to silver-nanocide (I just made that word up, not sure the technical term )to keep your socks from stinking. Investors have been buying physical silver at a 50+ to 1 ratio to gold, yet it only comes out of the ground at a 15-1 or so pace, and they sell the paper at a 100-1 ratio...

So first off it is really hard to believe it is only $32/oz, but when so much can be bought and sold without having any actual metal moving that is frightening, especially with companies like Apple who could eat up a large portion of the silver market and stockpile it to make sure the iPhone27 isn't delayed.

I am sure gold will go up and keep pace with inflation and more... but I am a silver bug and firmly believe we will see supply and demand reign down with great vengance and furious anger!

That brings a funny thought to mind... from Pulp Fiction...
Brent = Silver ETFs
Jules = Supply and Demand
Marsellus Wallace = Physical silver

http://youtu.be/czb4jn5y94g

 

John, just one notion I would put in your head. If the US wanted silver for an important purpose, isn't all of those ASE's just sitting around? What about all other silver coins, silver tea sets, etc etc.

The US wanted a gold reserve so simply took it from the population in 1933. I guess I cannot see why it would HAVE to be "different" this time.

When they talk about "physical reserves" of silver, they NEVER count all of the coins, tea sets, silverware, etc laying around. How are these not meltable silver? We are making tens or hundreds of millions of more ounces of these every single year. If I were a conspiracy theorist, I would say the US is intentionally buliding a silver reserve in the form of ASE's in collectors hands........

 

When the term "backed with gold ( or silver) " has been used in a country, it meant you could exchange the paper for the metal. Today in China , a Chinese can put their Yuan/Rimb in a "Gold Savings account" where the paper is changed to POG value", but when they want to withdraw it , they are give back the paper money equivalent of the gold value, rather than the gold itself. They tend to use the term "Backed by gold" as a "safety" play rather than a monetary one. If a citizen can not get their money back in gold in a gold backed account in the BOC, what luck do you think anyone would have ? They are smart to do it , as are most central banks, to keep a ready reserve if needed in country to country exchange or in case of financial blockades like with Iran. The paper money could say it is backed with gold, but if you can't freely exchange it for the metal, it is just fiat. Since they haven't done it ( and I would be very surprised if they ever did) it is just financial propaganda. Remember it was just some months ago the Chinese were going to close the Comex and other western exchanges with their proposed "better" metal exchanges. Didn't happen.

 

Interesting theory, and yes SOME of that metal is still around... add up the entire production run of silver eagles, it is only like 350,000,000 so at todays current rate of industrial usage that will last us a little under 1 year... What are we going to do next years after we melt all of the silver eagles, then all the pre-65 90% coins etc.?? There are not enough silver flatware sets to sustain our demand for cell phones - it is simply UNSUSTAINABLE.

Also in todays society full of political correctness, do you think a govt. confiscation could really happen again? Perhaps in the form of trading your gold/silver in for "new" dollars... but isn't that the reason we buy precious metals? Because our old dollars won't be worth anything, or trading them in at a 100-1 or 1000-1 ratio... creating yet again another transfer of wealth to the rich, leaving the masses with paper IOU's because it is easier to do what you are told.

 

While I don't know how the gold backed currency system will work, from what you are describing it sounds like that currently have an ETF system set up that is tied to a checking account? To me that dosen't sound like a bad idea, but is not what is meant by backing the currency with gold.

If gold is good enough for central banks and can be used to get around a financial blockade, then it sounds like a pretty good thing to me, and if I were trying to become the dominant world superpower, I can't think of a better way of doing it then to back your currency with it.

With regard to the Chinese vs. COMEX exchanges, did Rome fall overnight? Did the great stock market crash all happen overnight? No, they simply can't when they are that large. Certainly it has not happened yet, but it still could. Could they both exsist in harmony from now until forever, sure, but competition keeps things fair~

 

As far as supply demand scenarios, from what I can see in the scientific world, the increased prices of silver, gold and platinum, etc has forced the study of less expensive chemical replacements and there have been many successes as far as catalysts, solar panel components, even the medical uses mentioned. Whereas before solar panels ( 2x6 ft) used about an ounce of silver, modern ones use less than half that and are more efficient. In 2000, the solar industry said that by 2010, 1 out of every 100 houses would be solar powered ( 50% use level), and that the initial outlay would be repaid by then. Hasn't happened.

In Calif, and probably some other states, 20% of energy provided by electrical utilities has to be renewable by end 2013. Thus they built wind and solar areas on BLM property and ship the energy 120 miles to the coast to satisfy the % needed. Without the provision, such generation would be switched to NatGas, especially with the price and supply.

 

Even though Honk Kong and Shanghai are "part of China", they do function more as western equivalent in many ways than mainland. Even special papers are needed for a Chinese citizen to pass from mainland to Hong Kong or Shanghai. The Shanghai exchange existed when they were British colony and still continues. The Pan Asian Exchange was the new one that was to take over world wide. However, perhaps with the new party in power having different ideas, it seems doomed. And this is from a bullion site.
http://www.bullionstreet.com/news/chinas-pan-asian-gold-exchange-in-trouble/683

Seriously, it doesn't matter to me about it, I don't have membership with any exchange, and yes you are correct in that the the Chine BOC scheme is a poorly explained ETF like GLD ( except no options).

 

One other thing about a currency backed by gold, fully backed or fractionally backed? They never seem to say. Considering the amount of currency and the amount of gold needed my bet would be fractionally backed say 1% backing? One oz of gold backing $170K dollars worth of currency.