This post initially appeared on EnergyandCapital.com June 1st, 2010.
With the Eurozone looking about as stable as a burning deepwater oil drilling platform — and the partisan American media propping up President Obama’s jobless domestic “recovery” — the U.S. dollar has seemed to get a temporary stay of execution in the court of global economics…
But let’s not allow the buck’s spring bloom to erase the memory that for years now, as the dollar declined against the euro and other currencies, many have been gunning for its replacement as the de facto world reserve currency — and the monetary unit in which oil, gold, and other commodities are priced.
In the heat of the dollar’s descent in 2007, our own beloved (not) Alan Greenspan said that it was “absolutely conceivable that the euro will replace the dollar as reserve currency, or will be traded as an equally important reserve currency.”
His voice presaged or echoed the sentiments of many important nations, among them well-known dollar-bashers China and Russia — but also to varying degrees India, Iran, Brazil, Venezuela, and others…
And let’s not forget that the U.N., IMF, OPEC, and G20 have all recently pondered or publicly called for some form of decoupling of the U.S. dollar from commodities — or its replacement as the gold standard (no pun intended) of world reserve currencies.
None of these bode well for the buck.
One doesn’t have to be economist, monetary historian, or even an investing ace (I’m none of these, to be sure) to see that nothing about America’s current monetary policy could arrest the dollar’s ultimate decline against other currencies of the world.
Even after the Eurozone gets its act together, we’ll still be printing dollars by the truckload, artificially fending off inflation with a bunch of book-cooking hocus pocus — and pressuring (or begging) other nations to underwrite our overspending by purchasing dollar-based debt.
That’s not how a strong, stable global reserve currency is maintained.
And right now, China is making some under-the-radar moves that speak volumes to their waning faith in the U.S. dollar. I’m not talking about a bunch of saber-rattling monetary rhetoric from powerful heads-of-state…
I’m talking about a major, concentrated move against world gold supplies.
China’s three moves to monopolize world gold
What with the ascendancy of Barack Obama to the presidency, the health care debacle, the uncertain domestic economy, climate-gate, various European debt crises, oil spills, and government bailouts and takeovers dominating the news… a very significant world monetary development is falling by the wayside…
The fact that China’s doing everything it can to aggregate the bulk of planet Earth’s gold inside its borders.
You won’t hear this anywhere in the mainstream media, but in just the last few years, the People’s Republic has made three major policy changes aimed at obtaining and keeping ever more of the world’s gold supplies.
- Secretly stockpiling gold — The People’s Republic now holds 30 times more gold than it did 20 years ago. Last spring, the head of China’s State Administration of Foreign Exchange (Hu Xiaolian) grudgingly conceded to the Xinhua News Agency that the nation had bolstered its gold supplies by more than 70% since 2003. And they’re nowhere near finished. The Vice General Secretary of the China Gold Association (Hou Huimin) advocates more than tripling China’s gold reserves to 5000 metric tons. That’s over $211 billion worth, in today’s prices.
- Lifting the moratorium on private precious metals ownership — For years, it was illegal for Chinese citizens to own raw gold or other precious metals. Recently, however, China’s government has reversed its position on private metals ownership, and is even strongly encouraging people in the People’s Republic to put at least 5% of their savings in gold and silver. They’ve even taken to the state-run media to promote this plan (it’s on YouTube), while staking Chinese banks with gold and silver bullion bars in four denominations.
- Strictly banning the export of gold bullion — Despite ranking around seventh in proven gold reserves, China has recently knocked off South Africa as the world’s largest gold mining nation, with more than 330 new gold mines extracting 110,000 tons of gold-bearing ore per day. Aside from things like finished jewelry, new government polices prohibit the export of ANY of this raw gold. It’s all staying in the country. China’s also eyeing up the world’s largest gold and copper deposit, in neighboring Mongolia. It just went online in October, according to Angel analyst Christian DeHaemer (here’s how he’s recommending you play it for up to 57 times your money).
Now, as I said before, not being an economist or any kind of bona-fide expert in money matters, I’m really not certain of all the ways in which China’s covert moves to corner as much of the world’s gold as they can is a dagger to the heart of the U.S. dollar…
I just know intuitively that an already-strong China growing ever more solvent and monetarily sound while the U.S. increasingly puts its faith into paper, promises, and bookkeeping charlatanism is inherently a very bad thing for the buck.
One doesn’t need a physics degree to know that jumping off a cliff will send one crashing to the earth below.
However, even with my limited understanding of things economic and monetary, it seems very obvious to me that China is preparing itself for a day beyond the dollar. And the people who do know something about these things are starting to take notice…
Over the last year, numerous credible sources have predicted that the Chinese yuan (also renminbi) would become a major global reserve currency.
According to Bloomberg’s Business Week, Goldman-Sachs’ Chief Economist Jim O’Neill claimed in March of 2010: ” …the renminbi, dollar, and euro would all form the linchpin of the world’s currency markets.”
Renowned economist Nouriel Roubini went even further. According to a Telegraph UK article from last May, the New York University professor warned that the yuan was better positioned than the dollar to be the 21st century reserve currency, and that China’s already pushing — via the IMF — to make it so.
That would certainly explain China’s merciless buttressing of its financial position with huge quantities of gold over the last few years…
But there’s another element to China’s gold “checkmate” story — one that can make sharp-minded investors money instead of costing them fortunes, as the dollar resumes its spiral into irrelevancy…
World’s largest untapped gold deposit goes live — 50 miles from China
I was talking about these dollar woes with a friend of mine, Angel analyst Chris DeHaemer. And when I got to the topic of China and gold, he lit up like a Roman candle.
That’s because one of his biggest investing focuses right now is an overlooked nation he calls “China’s pantry” — Mongolia.
He’s been virtually obsessed with the place ever since he returned from a fact-finding trip there last November. In fact, several of the Mongolian plays he’s recommended to his Crisis & Opportunity readers have already returned as much as 225% since them…
As is turns out, this frigid, sparsely populated country nestled between Russia and the People’s Republic is home to huge reserves of oil, coal, uranium, copper, and more — basically, everything China needs; hence the “pantry” nickname.
And according to DeHaemer, Mongolia is also home to the world’s single largest untapped reserve of gold and copper — just 50 miles from the Chinese border.
It’s called the Oyu Tolgoi deposit, and it’s estimated to contain nearly 10 million ounces of gold. The deal to extract these billions of dollars worth of gold and was just signed last October. DeHaemer’s sources indicate that soon, as many as 330,000 ounces of gold per year will begin flowing out of this mine…
Now, it doesn’t take a huge stretch of the imagination to think that the bulk of this gold — if not all of it — will end up in China, Mongolia’s friendly eastern neighbor and soon-to-be #1 resource trading partner.
This is more bad news for the buck.
Again, Chris DeHaemer is the real expert on this Mongolia situation — I’m just reporting what he told me because it dovetails so well into my theory that China is trying to “checkmate” the world’s gold supply…
Bottom line: If you like gold as an investment or as a hedge against monetary instability, you might want to get it soon — before China holds damn near all of it.
As for me, I’m going to take a closer look at DeHaemer’s Mongolia portfolio.
Contributing Editor, Wealth Daily