(This is an update of a previous warning)
Here is a validation or another update in the Collapse of the Petrodollar Part1, and the Collapse of the Petrodollar Part-2. By the way, what I do is not quite a prediction, but an observation of a foreseeable behavior or pattern. For instance, if a cop stops a car to give a ticket; but while reaching for the wallet the driver pops the trunk open by mistake.
The cop to be cordial and goes to close it; but before closing the trunk, the cop sees a pair of gloves, a bolt cutter, a stethoscope and a black ski mask. Having these items in the trunk is not illegal, but the cop is familiar with the pattern of robbery and the tools required to rob a safe. A crime has not been committed yet, but there is a pattern in progress that the cop may not be able to stop. See?
It is not illegal for China and Russia to buy tons of gold (and literally speaking, tons of gold). Nevertheless, why buy tons of gold and not put it to use? What is the point of allocating billions and billions of dollars just to stash it away for no purpose whatsoever?
In my book â€œRepursury,â€ I wrote about the power and demise of the Spanish Dollar, the British Pound rise and fall, and what is going to replace the American Dollar as international trade currency, I prefer to call it Petrodollar for short. Just like the stethoscope, gloves and ski mask in the trunk the accumulation of gold bars by China and Russia is leading to a pattern that is bound to happen in a not so distance future.
Since the publication of â€œRepursuryâ€ and the publication of â€œthe Collapse of the Petrodollar Part1, and the Collapse of the Petrodollar Part-2,â€ China and Russia have increased their gold reserves. At the end of 2014 Russia’s gold reserve was 1208 metric tons of gold and in January of 2016 the estimated amount by World Gold Council (WGC) is about 1393; therefore a rise of 15.31% in one year. In 2015, while the Russian stock market collapsed, the Russian Ruble (Ñ€ÑƒÐ±Ð»ÑŒ) collapsed and trade sanctions were imposed against Russia; the Russians were still able to raise their gold reserves by 15.31%!?
Now let’s look the numbers coming from China. The Chinese gold reserves at the end of 2014 were 1,054 metric tons of gold, and in January of 2016 according to WGC is 1,743.3 tons. This is a whopping 65.37% of an increase in one year; once again the increased happened even while the Chinese stock market collapsed and the Chinese growth rate has been the half of the past decades, and not to mention that China’s Yuan is a currency basket of the IMF as of November 30th 2015.
Look at this chart below:
The United States gold reserve in August of 1971 was 8,133.5 tons of gold, and as of today it is the sameâ€”8,133.5 tons, an increase of zero percent! The green and purple lines (China and Russia) show a steep rise in the accumulation of gold even when the media is reporting that Russia and China are in trouble!?
That the financial media is saying is analogous to this:
“Hey Bob! What are you doing!? Begging for money?”
“Yeah Bill! I’m in trouble?”
“Well, let me at least treat you for lunch!”
“Thanks Bill! I have to run to the bank, I’m buying more gold!”
So, do not believe the media, it is time to believe the numbers!
At any day, before 2018 China could say â€œeach ounce of gold is equal to 10,000 Yuan (or another hypothetical number).â€ What does it mean? It means is that the Chinese Yuan will no longer fluctuate against the gold; in other words, holding Yuan currency is just as good as holding gold. What will money markets do? The answer is buy Yuan, well at least for the short term. Money markets will be dumping the US Dollar (and US Treasury Bill) and buy Yuan, the United States and European Union only response is to bring back the gold standard. This is the day I do not want to be holding my cash reserves in British Pound; UK is going to crash worse than Greece.
The US will not be able to peg the dollar to 35 units per ounce like it used to do in 1971, but it is going to have to find a new unit, what will that unit be? When I look back in history, the US is going to do the pegging to gold in two steps, first step would set the gold at one price about $7,000 per ounce soon after pass a law making illegal the hoarding of gold bullion, like what happened with the Gold Reserve Act of 1934. Step two; drop the price of the US Dollar to $10,000 per gold-ounce. What are the main benefits?
- To round up the math, I’m going to use round numbers.
- a) American debt soon will be 20 trillion Dollars.
- b) The international markets are artificially keeping gold at 1,000 Dollars.
- Therefore at today’s gold price, the US debt can be paid with 20 billion ounces of gold.
- Here is the simple math, 2 x 10 e13/1 x 10 e3 = 2 x 10 e10 or 20 billion ounces of gold.
- However, when gold is pegged is finally pegged to $10,000 then the math is like this: 2 x 10 e13/1 x 10 e4 = 2 x 10 e9 or 2 billion ounces of gold.
- Do you see the advantage?
When China pegs the Yuan to gold, the United States may evaporate 90% of its current debt simply by inflating the gold price to $10,000.00 per ounce. These are close numbers for easy math, today’s gold quote is U$ 1,120.90 per ounce. Are there more advantages? Yes!
Gold at a hyper-inflation of 1,000% every trinket at the Dollar Store is now going to cost 10 dollars per item, and Walmart will not be able to import socks from China at one dozen for 5 dollars and 40″ flat TV at $200. Do you understand now, why Walmart is closing 154 stores in USA? There will be fewer buyers and most goods are going to be made in USA.
The media keeps saying that Russia and China are in trouble, yet their gold reserves has had the highest rise since the Global Recession of 2008, it does not appear that buying gold is the behavioral pattern of countries in trouble. If it quacks like a duck chances are it is not a chicken; and by the way if a cop stops you and finds black gloves, a ski mask and a flashlight in your trunk, without missing a beat tell the cop, â€œI’m in my kid’s school play; please come, it’s only a 10 dollar donation at the door.â€
Thanks for reading, sharing and being prepared,