Important News Note: China sets up Largest Gold Fund

Here is a little news item that popped up on a Chinese media source that is important news. It talks about the Shanghai Gold Exchange setting a new $16 billion fund that will allow central banks to increase the holdings of gold reserves. Below I have pasted in this brief news article. Below that I have linked to Koos Jansen's review of this news.

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"A gold sector fund involving countries along the ancient Silk Road has been set up in northwest China's Xi'an City during an ongoing forum on investment and trade this weekend.

The fund, led by Shanghai Gold Exchange (SGE), is expected to raise an estimated 100 billion yuan (16.1 billion U.S. Dollars) in three phases.

China is the world's largest gold producer, and also a major importer and consumer of gold. Among the 65 countries along the routes of the Silk Road Economic Belt and the 21st-Century Maritime Silk Road, there are numerous Asian countries identified as important reserve bases and consumers of gold.

About 60 countries have invested in the fund, which will in turn facilitate gold purchase for the central banks of member states to increase their holdings of the precious metal, according to the SGE.

"China does not have a big say in gold pricing because it accounts for a small share of international gold trade," said Tang Xisheng of the Industrial Fund Management Co. "Therefore, the Chinese government seeks to increase the influence of RMB in gold pricing by opening the domestic gold market to international investors."

According to Tang, the fund will invest in gold mining in countries along the Silk Road, which will increase exploration in countries such as Afghanistan and Kazakhstan."

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Now here is the link to Koos Jansen's article on this with a few quotes pasted below the link.

Koos Jansen: China sets up Gold Fund for Central Banks (some quotes just below)


"Today we got a glimpse of what could be a global game changer, China is planning to launch “a 100 billion yuan fund led by the SGE, …which will in turn facilitate gold purchase for the central banks of member states to increase their holdings of the precious metal.” This was just published by news outlet Xinhua in China mainland. Xinhua also published an important article in late 2013 in which it said, “it’s perhaps a good time for the befuddled world to start considering building a de-Americanized world… a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies… As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites”. It’s being thought these articles are written indirectly by the Chinese government. "

"It’s no secret it has been in the interest of the US to remove gold from the international monetary system to leverage their paper money power. Gold still is the US dollar hegemony’s Achilles heel. Is China now attacking the US by quickly strengthening ties with Asian and European countries through the Asian Infrastructure Investment Bank (AIIB), develop the new Silk Road and implementing gold as a financial center piece in these projects? We do know China has been buying A LOT of gold recently, has setup an international gold exchange (SGEI) – to trade gold in renminbi – and is likely setting up a new monetary system that includes gold."

Please read the full Koos Jansen article here

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My added comment:

This news seems to put China's intentions in a little different light. This looks much more like a direct attack on the US dollar than we have seen so far. It's always hard to tell what China is planning to do. Here we have this important news story being published by an officially sanctioned Chinese media outlet. This suggests the article is acceptable to the Chinese government. All we can do in regards to China is follow events and see what actually happens. 

In this case, it is obviously significant news when China sets up a $16 billion gold fund that will encourage 60 central banks to add more gold reserves. If we see this many central banks adding huge additional gold reserves like we know that China has been doing, we have to take notice of that news. Central banks don't make moves like this for no reason. 

It is a clear and obvious statement that there is concern over the stability of the present US dollar led fiat system in many parts of the world. There is no other way to interpret this that I can think of. Especially if you read the full Koos Jansen article linked above.

Added note 5-25-15: Rueters runs an article on this today.

Additional added note 5-25-15: This article provides a little more detail on this. This fund will invest in gold mining operations for the specific purpose of adding gold reserves to the 60 nations involved. China is clearly leading this effort. There can be no doubt that China has some kind of plan to use all this gold in the future. It will take awhile for all these nations to acquire actual gold from this fund since it has to be mined first. All this continues to suggest a long term Chinese plan that could take years to unfold, but will probably involve some big changes to the existing monetary system.

News Note: Austria to Repatriate Some Gold Reserves

This Reutuers news item got quite a bit of attention on a number of alternative media sites today. Austria is planning to move a significant part of its gold reserves back to Austria. We will have to see if this has any significant impact on the gold market. Below is the news article from Reuters.

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Austria's central bank plans to repatriate some of its gold reserves from Britain after facing criticism for storing too much of the precious metal abroad, the Krone newspaper reported on Friday without naming any sources for the information.

Officials at the Austrian National Bank (OeNB) were not immediately available for comment.

The OeNB in February rejected criticism of its gold storage policy by the country's Court of Audit and insisted that keeping the bulk of reserves in London was in the country's best interests, but also said a policy review was under way.

The central bank, which administers Austria's 280 tonnes of gold reserves, had argued it makes sense to store gold where it can be traded if need be, which made London a logical place given its role as an international market for the metal.

Austrian gold reserves have been unchanged since 2007, according to the OeNB's 2013 annual report, which says around 80 percent is kept in Britain, 17 percent in Austria and 3 percent in Switzerland.

Krone said in the future 50 percent would be kept in Austria, 30 percent in Britain and 20 percent in Switzerland. 

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My added comment: If my math is correct about 140 tons of gold would be moved out from Britain (50% of the total 280 tons).

Bill Holter: Does China Have 30,000 Tons of Gold Reserves?

Bill Holter has written a new article appearing on Jim Sinclair's blog site that quotes a new article in the Russian publication Pravda as claiming China now owns 30,000 tons of gold reserves. If true, this will be a huge piece of news of course in relation to potential monetary system change. 

Mr. Holter reviews the Pravda article and acknowledges that some will question this media source, but asks what a Russian media outlet would have to gain by making a public statement like this if they know it's not true? Below are quotes from the Pravda article (which also points out that China needs a lot of gold to gain respect for the Yuan and get it included into the SDR currency basket at the IMF). After the quotes are a few added comments.

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"China is waiting for the right moment to remove the US dollar from economic reign. Once the US dollar loses its leadership, China plans to make the yuan world's first currency.

According to Duowei News, to ensure its domination, China is saving up gold. According to unconfirmed reports, China already has about 30,000 tons of the precious metal. If this is true, it means that China will be capable of brining the US dollar down in an instant.

Economic analyst Jing Zhou believes that in order to challenge such a powerful economy as that of the United States, one will need a very large amount of gold.

In addition, the Chinese authorities expect that the Chinese national currency will be added on the list of IMF reserve currencies that already includes the dollar, the euro, the pound sterling and the Japanese yen.

Thus, Beijing is getting ready to topple the US dollar by increasing its gold reserves. Noteworthy, Russia also sticks to a similar tactic: since 2005, the country has doubled its gold reserves. As of late 2014, Russia was ranked fifth in the world in terms of gold reserves

"If China does have 30,000 tons of gold, then the yuan will have a very strong shield to protect itself. Even if it is not true, it is clear that China collects gold very actively. In addition, China's position in global financial markets has increased considerably," Duowei News said."  

. . . . 

"Vice-president of the Golden Mint House, Alexey Vyazovsky, said in an interview with Pravda.Ru that China increases gold reserves without far-reaching plans just because gold is "eternally valuable." However, the expert did not exclude the appearance of the so-called golden yuan."

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My added comments:

First, a thank you to Bill Holter for finding this interesting article. Mr. Holter handles this article in a responsible way by noting that the report comes from a source many will not trust and that the claim of 30,000 tons of gold reserves is not verifiable. He does a good job, however, of asking why Russia would run this article unless they are laying the groundwork for a big announcement on gold reserves by China (perhaps later this year). Here are his thoughts on it:

"I believe there are several questions needing to be asked. Is this a "30,000 ton bluff" by Russia? I don’t think so but if it is, what is the upside? Would Russia really throw this figure out publicly without clearing it with Beijing? Would China really bluff about how much gold they have? My opinion is no, they would not. I have said all along I believed China would announce their holdings probably this year. If this is the "pre pre announcement", it is a very big number and one I believe only as an opening salvo. Should China themselves make this announcement, please understand the "golden nuclear bomb" this would actually be."

This is part of what we will continue to follow here on the blog. So far, we know that China is buying up large amounts gold worldwide. We know that the IMF will decide on whether or not to add the Yuan into the SDR basket later this year. We know China wants more voting power at the IMF and has led the initiatives to start up both the new BRICS bank and the AIIB (Asian Infrastructure Investment Bank). All of these facts tie together in some way, but exactly what China plans to do in the future is not clear yet. Here are the main theories I see out there while researching this topic:

1- China wants to gain influence within the IMF and wants the Yuan added into the SDR currency basket. It is buying gold because it has less gold than the western nations and must have the gold to improve its position when a monetary reset (change in the rules of the game) takes place. This is the Jim Rickards view.

2- China plans to abandon the IMF and do away with the US dollar as global reserve currency. They are buying gold to back the Yuan with gold and then replace the US dollar as the leading global reserve currency. They will use the new BRICS bank and AIIB to basically overthrow the western led global financial institutions (IMF and World Bank). Some gold advocates hold to this theory.

3- Here is a new one I have seen lately. China is buying gold in order to get the Yuan into the SDR basket, but perhaps has plans with Russia to takeover the IMF and replace the US and the EU nations as head of the IMF. I have not seen any tangible evidence that supports this theory, but it has shown up lately on some alternative media sites.

One thing is pretty clear. China is buying a lot of gold for some reason. They own a lot more gold than they have acknowledged in public documents. So far the evidence I see doing research for the blog is more supportive of theory #1 listed above. We'll continue to follow it here. We should know quite a bit more by the end of this year.

Added note: Want China Times ran this article recently also talking about 30,000 tons of gold.

Important additional update 5-26-15: Koos Jansen writes this article about this story making the rounds on the internet saying China may have 30,000 tons of gold. Koos says there is no credible source for this estimate and gives a detailed explanation of his reasons for saying that. Koos is considered an expert on the Chinese gold market so you should read this article in conjunction with the reports above on how much gold China may have. Again, I suspect no one except China knows for sure how much they own officially and how they plan to use the gold.

Dan Popescu on The SDR, Gold and China

We are now seeing more and more thought provoking articles on this topic show up as we move towards this fall when the IMF will let us know if the Chinese Yuan will be added to the SDR currency basket. This is a major story for this blog to cover. In this article, Dan Popescu offers his thoughts on how all this may turn out and makes his case for why eventually the global financial system will have to re-anchor to actual gold. 

Below are some a few quotes from this article and then a few comments.

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"During the recent visit to China by the president of the International Monetary Fund (IMF), Christine Lagarde, the government of China formally requested that the Yuan be included in the Special Drawing Rights (SDR) at this year’s review. I wrote a shortarticle on gold and the SDR in April 2014, when few were even mentioning it. Let me, with the help of some charts, explain what the SDR is, its relation to gold and what role it can play in the international monetary system, if any.

The IMF created the Special Drawing Rights (SDR) in 1969. Originally, the value of an SDR was defined as equivalent to 0.888671 grams of fine gold which, then, was also equivalent to 1 US dollar (1oz of gold = 35 SDRs = US$35). After the gold exchange standard, commonly called the Bretton Woods Accords, collapsed in 1973, the SDR was redefined as a basket of currencies, today comprising of euros, Japanese yens, British pounds and US dollars. It is calculated as being the sum of a specific amount of the four currencies in the basket, rated in US dollars based on the exchange rate fixed at noon, each day, on the London market. Today, since December 2010, the value of one SDR equals the sum of 0.423 euro, 12.1 yens, 0.111 British pound and 0.66 US dollar."

 . . . . . 

"We know there is a review going on right now of the SDR, but we don’t know which version will be adopted. Will it only add China’s Yuan? Will Russia, India and Brazil agree with it, or will they ask for their currencies to be considered also? Could gold also be part of some form of the SDR?

Remember that China’s Yuan is presently pegged to the US dollar, so it would make no sense to include it into the SDR before it is un-pegged. Lawrence Williams, in a recent article, says, “The possible inclusion of the Yuan in a revised SDR and the un-pegging of the Yuan from the dollar are all inextricably linked and the countdown to this is already under way.” I would add that the update of China’s gold reserves is also linked to the un-pegging and SDR’s inclusion of the Yuan."

. . . . . 

"China certainly has a long-term strategy and a short one. It seems the immediate one is to get the Yuan included this year into the SDR and sign as many agreements as possible to use the Yuan in international trade, rather than the US dollar. Longer term it wants to get the Yuan backed by as much gold as the US dollar and the euro are. China wants to destroy the “exorbitant privilege” of the US dollar, making the dollar just another currency. This explains the massive buying of gold by China, especially since 2008. An announcement of China’s official gold reserves is expected at the same time as the inclusion of the Yuan in the SDR, sometime in the fall of 2015."

A major financial crisis that is expected soon could derail China’s strategy and collapse the present system before a system based on the new SDR is being approved. Still, the large accumulation of gold will put China in a very strong negotiating position.   . . . . .

. . . . .

"As far as I am concerned, I cannot conceive, just like General de Gaulle, president of France (in his 1965 speech, at the end of the “gold exchange standard”), that “there might be any criterion, or standard, other than gold. Yes! gold, that is never altered, that can be made into bars, ingots or coins, that has no nationality, that has been held, eternally and universally, as the most excellent unalterable and fiduciary value”. It would also reconnect the international monetary system back with the real world."

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My added comments:

Readers here know that I do not try to forecast how all this will turn out. Instead I try to offer a variety of views from experts who are able to discuss the topic in ways that the average person can understand. As we see more and more articles like this, it is becoming clearer and clearer that we are following the key events that could lead to major monetary system change here on this blog. Major monetary system change very likely will impact all of us in one way or another. 

I have now followed this topic for a long time and covered it here on the blog for nearly a year and a half. I don't know how this will all turn out, but I do think I know the big keys to watch for in the coming months and years. There are two big questions I have. The answers to these questions will either mean we are going to see major monetary system change or that there may not really be a reason for this blog to continue. Here are the two big questions I am waiting on answers for:

1) Will we get another huge financial crisis that is so big that the US Fed cannot fix it and the IMF steps in with the SDR on a global basis to try and fix things?  This is the Jim Rickards forecast. If Jim is right, we are going to see historic events unfold that lead to major monetary system change without a doubt. That makes this a huge question for us to follow and why we cover Jim so much here.

2) If the IMF and the SDR do become the center of a new more global monetary system, is it possible that someday new technology will allow the average person to own an asset backed currency that has the same level of system support and backing as the SDR used inside the IMF? Notice I said asset backed and not credit based currency.

If the answer to either (or both) of these questions is Yes, this blog will continue to stay on all this because we will get to witness historic change happen in real time in our lifetimes (within the next decade). We are not talking about just some minor ups and downs in the economy. We are talking about the kind of events and change that only happen perhaps once in a lifetime. That is how big all this could be.

If the answer to both questions is no however, it may be that there is no further reason for this blog to continue. If we are not going to get major change, the whole premise of this blog is off base.

 It will be awhile longer before we know the answers, but these are the two big questions for me based on all the research I have done and the input I have received from people I view as experts (people who are in a position to know what the big issues are).

Head of India's Central Bank says IMF Needs to Re-examine "Rules of the Game"

Recently we ran a blog article featuring the comments of Bank for International Settlements General Manager Jaime Caruana in which he says it may be time for new global "rules of the game". Rules of the game is a term used by central bankers to describe the fundamental rules used to govern the international monetary system. If someone is calling for new "rules of the game" that means they are calling for monetary system change which is what we follow here on the blog.

A big thank you to a reader who sent me this link to an article in the Economic Times ! (an Indian based publication) This article is about comments from Raghuram Rajan who is the head of the central bank for India (Reserve Bank of India). He also says it may be time for new rules of the game. Keep in mind that Jim Rickards has long predicted we would see changes to the rules of the game so these articles are very supportive of his forecast in that regard. Below are some quotes from the article and then an added comment.

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Multilateral institutions like the IMF need to re-examine "rules of the game" but central banks should not ignore international responsibilities despite their domestic mandates, RBI GovernorRaghuram Rajan has said. 

Rajan, in his address to the Economic Club of New York here yesterday, made a strong case for the IMF to analyse each new unconventional monetary policy, including sustained unidirectional exchange rate intervention. 

Rajan said based on their effects and the agreed rules of the game, the IMF should declare them "in or out-of-bounds." 

"We also need better international safety nets. And each one of us has to work hard in our own countries to develop a consensus for free trade, open markets and responsible global citizenry," he said. 

"If we can achieve all this even as recent economic events make us more parochial and inward-looking, we will truly have set the stage for the strong sustainable growth we all desperately need," the RBI Governor said. 

Rajan stressed that central banks should not ignore international responsibilities despite their domestic mandates. 

"The bottom line is that multilateral institutions like the IMF should re-examine the 'rules of the game' for responsible policy and develop a consensus around new ones. No matter what a central bank's domestic mandate, international responsibilities should not be ignored," he said. "

Click here to read the full article

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My added comment: 

Please note how similar these comments are to the ones made in the recent speech at the IMF spring meeting by the BIS General Manager. This suggests there is a growing consensus for changes to be made that give the IMF more power. Please also note that this is the head of the central bank of India (one of the BRICS nations) calling for more authority for the IMF. Keep this in mind when you see articles that suggest the BRICS nations are wanting to leave the IMF or have given up on it.

We don't yet have another major global financial crisis, but we already see calls for "new rules of the game" showing up. This suggests that if we do get another major crisis like Jim Rickards expects, we will most certainly see new "rules of the game" setup to move forward and the the IMF will be in the center of that process.

Bloomberg: Here is a Big Reason China Wants the Yuan in the SDR Basket this Year

There are many reasons why China wants to see the Yuan included in the SDR currency basket later this year. The added prestige is a factor. Wider adoption of the Yuan around the world as a reserve currency is a huge factor. This Bloomberg article points out that as much as $1 Trillion in global reserves could move into the Yuan if the IMF approves it later this year. Below are some quotes and then a comment.

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"At least $1 trillion of global reserves will switch into Chinese assets if the International Monetary Fund endorses the yuan as a reserve currency this year, according to Standard Chartered Plc and AXA Investment Managers.

People’s Bank of China officials have called for the IMF to include the yuan in its reserve basket -- which consists of the dollar, euro, pound and yen -- in a review later this year. An inclusion could spur as much as 6.2 trillion yuan ($999 billion) of net purchases of China’s onshore bonds by end-2020, Standard Chartered estimates. AXA Investment Managers says about 10 percent of the $11.6 trillion of global reserves will flow into yuan assets. It didn’t give a timeframe.

“What is significant is the seal of approval by the IMF that the yuan has internationalized as a reserve currency,” Aidan Yao, senior emerging-market economist at AXA Investment, said in a briefing in Hong Kong on Thursday. “It could trigger a reallocation of global reserves portfolios.”

Click here to read the full article

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My added comment:

Please note that every time we see an article on this issue it points out that "People's Bank of China officials have called for the IMF to include the Yuan in its reserve basket". This is an extremely important goal for China. China may be organizing new banks to have alternative ways to increase its influence on the global monetary system, but they are still fully engaged at the IMF. This fall we will find out if China is going to get more say at the IMF or not. Right now, it seems very likely the Yuan will be added to the SDR basket. The fate of the 2010 IMF reforms giving China more voting power is less certain.

Another thing to note is that the changeover to the Yuan is predicted to take several years with the year 2020 specifically mentioned. 

Bloomberg: White House seeks to Preserve US Veto Power at the IMF

Bloomberg provides us an update on one of they key stories we follow here that can impact monetary system change. The article notes that the Obama Administration delivered the message at the recent IMF spring meetings that the US would not go along with a so called "Plan B" that would put the US veto at the IMF in jeopardy. Below some quotes from the Bloomberg article and then some added comments.

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"The Obama administration signaled it won’t jeopardize the U.S. power to veto IMF decisions to achieve its goal of giving China and other emerging markets more clout at the lender, according to people familiar with the matter.

That message was delivered at the International Monetary Fund’s spring meetings in Washington last month, the people said, where officials discussed how to overcome congressional opposition to a 2010 plan to overhaul the lender’s voting structure.

A solution backed by Brazil would have enabled an end-run around Congress -- while potentially sacrificing the veto the U.S. has held since World War II. With that option off the table, the people said, IMF member nations are considering a watered-down proposal that risks alienating China and India, which are already challenging the postwar economic order by setting up their own lending and development institutions.

“I’m not at all surprised the United States has rejected anything that puts the U.S. veto at risk,” said Edwin Truman, a former assistant U.S. Treasury secretary for international affairs. Yet on the new alternate plan, “You can imagine some countries saying, ‘Why are we doing this at all?’”

The Obama administration’s priority remains securing congressional support for the 2010 plan, Whitney Smith, a spokeswoman for the Treasury Department, which oversees U.S. engagement with the IMF, said in an e-mailed statement."

. . . . 

"The option backed by Brazil and other countries would have pushed through the changes without requiring Congress to ratify them. The catch was that the U.S. veto over major IMF decisions may have been at risk if Congress failed to react by approving the 2010 plan, because America’s voting share would potentially fall below the 15 percent threshold needed to maintain the power."

. . . . 

"The fund is now considering a capital increase of just 10 percent, said the people familiar with the matter, who asked not to be identified because the discussions are confidential. Most of the boost would go to emerging nations that are underrepresented based on the size of their economies.

The solution is unlikely to satisfy some emerging economies because the capital increase is too small, said Truman, now a senior fellow at the Peterson Institute for International Economics in Washington."

. . . .

"Treasury Secretary Jacob J. Lew has said the changes are crucial to maintaining the fund’s ability to lend to countries in crisis. Republicans say they would give too much influence to countries that don’t share U.S. interests, with some in the party questioning the need for international bailouts."

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My added comments:

This article has quite a bit of new information on this story we continue to follow. Here is a summary list of key points in this article:

- the IMF reforms are still very much stalled and less likely to be approved in their original format than ever. This just illustrates that the IMF does always get what it wants even when a large majority of its members want something done.

- the White House is not willing to give up the US veto power at the IMF and so the so called Plan B we have heard about now for quite some time looks dead in the water. Jim Rickards said in his speech in Dallas that the White House was slow playing this issue to get more concessions from China. This tends to support his comment on that. The White House will get serious about pushing this in the US Congress once China makes the concessions they want.

- The new "Plan B" is so weak that IMF expert Edwin Truman says it is doubtful China and India would go along with it. Jim Rickards has told me by email that he views Edwin Truman as the leading IMF expert on this issue so his comments in this article are meaningful.

It is pretty clear that it will be later this year before we see how all this plays out. If China makes the concessions the White House is looking for, we can expect to see a strong push in Congress to pass the reforms and to allow the Yuan to enter the SDR currency basket this year (effective at the start of next year). If China decides not to go along, then we may actually see China move more towards using the new AIIB and BRICS bank to move forward. By the end of this year we should have a much better idea what China will do. 

Jim Rickards: Why Most Gold Bugs are Dead Wrong

Here is the latest article by Jim Rickards that lays out his views on why China is buying gold in full detail. The article repeats the points he made at his recent speech in Dallas, Texas that we covered here. Below are some quotes from this new article and then some added comments.
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"One of the most persistent story lines among gold bugs and market participants who foresee the collapse of the dollar goes something like this:

China and many emerging markets including the other BRICS are looking for a way out of the global fiat currency system.

That system is dominated today by the U.S. dollar. This dollar dominance allows the U.S. to force certain kinds of behavior in foreign policy and energy markets.

Countries that don’t comply with U.S. wishes find themselves frozen out of global payment systems and find their banks unable to transact in dollars for needed imports or to get paid for their exports. Russia, Iran, and Syria have all been subjected to this treatment recently.

China does not like this system any more than Russia or Iran but is unwilling to confront the U.S. head-on.

Instead, China is quietly accumulating massive amounts of gold and building alternative financial institutions such as the Asia Infrastructure Investment Bank, AIIB, and the BRICS-sponsored New Development Bank, NDB.

When the time is right, China will suddenly announce its actual gold holdings to the world and simultaneously turn its back on the Bretton Woods institutions such as the IMF and World Bank.

China will back its currency with its own gold and use the AIIB and NDB and other institutions to lead a new global financial order.

Russia and others will be invited to join the Chinese in this new international monetary system. As a result, the dollar will collapse, the price of gold will skyrocket, and China will be the new global financial hegemon. The gold bugs will live happily ever after.

The only problem with this story is that the most important parts of it are wrong. As usual, the truth is much more intriguing than the popular version.

Here’s what’s really going on."

Click here to find out Jim's view on it

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My added comments:

Jim's analysis in this article agrees with the information I see when doing research for articles here on the blog. I repeatedly see Chinese officials making it clear that they view increased voting power at the IMF and inclusion of the Yuan in the SDR basket as their highest priority goals. We have run numerous articles here from publications all over the world that report this to be the case. (Click here to see one example)

So why do so some gold advocates so strongly believe that China's secret plan is to overthrow the existing global financial system by replacing the US dollar with a gold backed Yuan?  

In doing research for articles here, I read both mainstream and alternative media sites to get as many perspectives as possible. It is on the alternative media sites that you find the gold advocates views. I believe that the reason they take the view that China is planning to back the Yuan with gold and basically overthrow the IMF is because they have a world view that does not trust the IMF or other central planning agencies. They believe another major crisis is near that will cause the public to lose confidence in the present system and turn back to a gold standard and that China will lead the way.

If tangible evidence that China is really planning to overthrow the IMF and replace the dollar with a gold backed Yuan does emerge, I will certainly cover that here. But so far, the available evidence I see does not support that view. Jim Rickards explains why in this new article. There is really no reason for Chinese officials or the Chinese central bank to get rid of a fiat based currency. They derive the same benefit from that system that the western central banks do. It makes more sense for them to use increased gold reserves to gain more leverage within the present system.

The available evidence indicates that all these central banks and the IMF view gold as an important reserve asset and they all hold lots of it. China needs a lot more in order to gain influence within the IMF so they are building up their gold reserves very quickly. All these central banks understand that gold is the core asset of last resort even though gold is no longer used to back any national currencies on a gold standard. I think its more accurate to say central banks are anti gold standard than to say they are anti gold. 

It is possible that some day the public will lose trust in the current fiat system run by the central banks. If that does happen, gold may well return one way or another into the monetary system. But for now, so long as there is confidence in the present system, I don't expect much to change in regards to gold's role in the monetary system. It's a core reserve asset and available to use as a last resort.

Those running the present system do not foresee another major financial crisis that would change their long term plans to continue the fiat system. They see risks to the system, but they view them as manageable risks. If they are right, China will just move forward slowly and steadily towards its goals of increased influence at the IMF and expansion of worldwide adoption of the Yuan. But that plan will move forward over many years and decades with most people not noticing the changes. 

Only another major financial crisis will get the attention of the general public and change the timetable. How the public would react to another major financial crisis (perhaps the biggest in history) is an unknown in a complex system. 

Many gold advocates believe we will see a crisis soon and it will bring an end to the central banks because the public will lose trust in them. Jim Rickards believes the next big crisis will lead to the IMF stepping in and using the SDR to resolve the crisis at a global level. They both think gold will go much higher, but for different reasons. Those running the present system think they can manage things to avoid another major crisis, but they do hold large gold reserves just in case they are needed.

We will follow it here to see what actually happens.

India announces first BRICS Bank President

The BRICSPOST runs this article which announces that Kundapur Vaman Kamath of India will be the first BRICS Bank President. This is another step forward for the BRICS nations in their efforts to move the world away from a global financial now dominated by the US dollar. However, as noted in the quotes shown below this is a slow moving process.

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"Ahead of the 7th BRICS Summit in Russia, the Indian government on Monday announced the appointment of Indian banker Kundapur Vaman Kamath as president of the $100 billion New Development Bank being set up by the BRICS. Kamath has earlier worked with the Asian Development Bank and was the FORBES ASIA’s 2007 Businessman of the Year.

The BRICS Bank launched last year will fund infrastructure projects in Brazil, Russia, India, China and South Africa, and challenge the dominance of the Western-led World Bank and the IMF.

The bank is likely to be operationalised within one year, Indian Finance Ministry official Rajiv Mehrishi said."

. . . . 

"South African Trade and Industry Rob Davies said last year that although the capital of the New Development Bank and the Contingency Reserve Arrangement had been set at $100 billion each, this did not mean that this capital would necessarily be held in US dollars.

“We want to move away from the same old, same old way of doing things. What currencies the capital will be held in is something that will be part of the Sherpa process with the pace set by Brazil, but we expect substantive progress by the time of the next BRICS summit in Russia in June 2015,” he said."

. . . . .

“For the past 15 years, the BRICS have been seen as the world’s best hope for sustainable growth. These five countries, representing 40 per cent of the world’s population and 25 per cent of its GDP in 2013, recorded growth rates 4 to 5 times greater than those of the US, Europe and Japan, and threatened to displace them as the world’s most important economic powers in another 20 years or so,” say Prof. Ingo Walter and Prof. Roy C. Smith of the New York University, writing for The BRICS Post.

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My added comments:

The BRICS Bank is still a year away from being "operational" and the article cites a quote that the process of moving away from the US dollar could be a "20 years or so" long process. This is not the kind of dramatic change we watch for here. If the change takes places slowly over 20 years, the impact on the average person will likely not be noticed very much. It would mean a major crisis scenario was avoided.

Yahoo News: Somethings Brewing in Central Asia

Yahoo News picked up this Business Insider article by Elena Holodny. It won't come as surprising news to readers here, but she quotes an offical as saying the new Russia-China alliance that is building is "something the west needs to take seriously".  Below are some quotes and then a comment.

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Although the Sino-Russo relationship predates the Ukraine conflict, there's no question that the crisis has shifted Moscow even more toward Beijing.

Over the last year, we saw the two countries sign highly publicized energy deals, conduct jointmilitary exercises, and even generally support each others' foreign policy adventures.

And this shift has more implications than just short-term deals.

Russia pulling toward China will lead to "expanded" political cooperation in three areas: "cooperation in Central Asia; alternatives to the Bretton Woods institutions; and increased cooperation on domestic political issues," although the two countries will "likely stop short of a formal military alliance," according to Alexander Gabuev, a senior associate and chair of the Russia in Asia-Pacific Program at Carnegie Moscow Center.

The Beijing-led, Moscow-supported "answers to the Bretton Woods institutions," such as the Asian Infrastructure Investment Bank (AIIB) and the BRICS Development Bank, have already been created.

Furthermore, the decreasing global influence of the US — specifically in Central Asia and the Middle East — leaves room for a new regional economic and political powerhouse in those regions.

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My added comments:

This is mostly old news for readers here, but more and more mainstream new articles are showing up on this topic. It takes a while for change to take hold and sink in. The new Chinese led banks (the AIIB and BRICS bank) are going to spur some type of change as they begin to operate and get fully funded. It remains to be seen what the change will be and how quickly it happens.

It would be a mistake to think that all this means the IMF has been bypassed. So far the Chinese appear to want to use their new banks to increase their leverage at the IMF, not to bypass the IMF. Until we find out what happens with the IMF reforms and the possible addition of the Yuan to the SDR currency basket later this year, our focus remains on the IMF in terms of potential monetary system change. We will know a lot more by the end of this year.

Googleplex: Off Topic But Fun

We have to take a break now and then from all the financial stuff. Here is a Bloomberg article about the new "Googleplex" that Google is building. It's forward looking in concept and suggests ways the work place might change in the future. Of course it also helps to have the billions needed to build a place like this :)

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The most ambitious project unveiled by Google this year isn’t a smartphone, website, or autonomous, suborbital balloon from the Google X lab. You can’t hold it, or download it, or share it instantly with friends. In fact, the first part of it probably won’t exist for at least three years. But you can read all about it in hundreds of pages of soaring descriptions and conceptual drawings, which the company submitted in February to the local planning office of Mountain View, Calif.

The vision outlined in these documents, an application for a major expansion of the Googleplex, its campus, is mind-boggling. The proposed design, developed by the European architectural firms of Bjarke Ingels Group and Heatherwick Studio, does away with doors. It abandons thousands of years of conventional thinking about walls. And stairs. And roofs. Google and its imaginative co-founder and chief executive, Larry Page, essentially want to take 60 acres of land adjacent to the headquarters near the San Francisco Bay, in an area called North Bayshore, and turn it into a titanic human terrarium.

Read and enjoy the full article here

Checking in on the US Dollar and Gold

We know that the US dollar is the world reserve currency and that it has had a very strong move up over the past year. Most of the forecasts about a new monetary system not based on the US dollar as sole reserve currency predict a massive drop in the value of the US dollar. Those forecasts have been way off so far. But lately, as we can see from the chart below, the dollar is starting to weaken quite a bit. 

When the USD index fell below 95 it broke through the strong uptrend line in place since July 2014. We can also see that the index has fallen below both the 50 day and the 100 day moving averages (blue and green lines). These are all warning signs that the dollar may have peaked out. If that is true, the dollar could fall back down to the 80 level where it started the strong up move. The chart indicators show that right now the dollar is somewhat oversold and should rally back up some. A key to watch will be if the dollar can manage to get back above the 95 level (where it fell through the uptrend line). If the dollar is unable to rally back above that level, it could be headed quite a bit further south later this year. If it breaks below the 200 day moving average (red line), it would likely pickup downside momentum. Since a weak dollar is one prediction related to potential monetary system change, we need to keep an eye on it.

Charts from Stockcharts.com

(click on chart to enlarge)

One other note in regards to gold in relation to the US dollar. When the dollar started its strong move up last July, gold was trading at around $1320-1340 as we can see from the chart below. As we would expect gold did pull back as the dollar moved up. However, gold did not fall nearly as much as it normally does in relation to the amount that the dollar moved up as we noted in this earlier blog post. Even if you use an inflation adjusted gold price, gold was around $450 the last time the US dollar index was around 100. This time gold was well above $1000 when the US dollar index hit 100. Also, gold actually had a pretty strong rally earlier this year (Jan-Feb) even though the dollar was not dropping significantly at that time.

What this means is that gold has actually held up very well during a massive move up in the US dollar (while also doing well versus other major world currencies as we noted here). If the dollar does drop all the way back down to the 80 level, it suggests that gold will be quite a bit higher than the $1340 price level this time around. The key will be if the dollar rallies back up again or falters (at around 95) if it tries to rebound from its recent slide. 

All this is worth watching. If gold makes a big move higher and the dollar drops sharply, it indicates something is not going well in the financial system that we may not know about yet or that markets are anticipating higher inflation. If the dollar stabilizes and gold fails to stage a significant rally, it suggests that things are probably under control. If the dollar were to rebound and soar back over 100, that would suggest a major deflation event.