Tuesday, June 4, 2013

Major Insider: Time to Buy Gold; The Chinese Want to Make the Yuan Gold Backed

Philippa Malmgren is an insider's insider. She was Special Assistant to the President for Economic Policy on the National Economic Council. She was also a member of the President's Working Group on Financial Markets, aka, the Plunge Protection Team. Her client list includes every elite corporate firm in the world (Take a minute to look at the list, its mind boggling, the list is here.). You don't get much more insider than this.
She is out with a new comment on gold. In it she seems to hint that there might have been a conspiracy to push gold down (Remember this is coming from a major insider, who travels in the circles she is talking about):

Why Won't Gold Go Up? After all, gold should be rising given that every major central bank is expanding the monetary base by historic magnitudes. Japan is doubling the monetary base. The UK is about to print until they reach what the new Governor calls "escape velocity" which is as yet undefined. The US has open-ended Quantitative Easing that will last at least until nearly full employment is reached at 6.5% to 5.5%. The ECB has not even started to monetize the debt but hopes to as soon as the Germans give in. So, why did the gold crash of 2013 happen on April 12th? Gold lost an almost unprecedented 84 USD an ounce that day.
Conspiracy theories abound. It seems the Japanese bond market and gold are highly correlated. As the JGB market sells off, due to their effort to create inflation, every bank starts hitting it's VAR driven risk limits and has to raise cash.
Maybe the Fed did it? Like all central bankers who are pursuing QE, Chairman Bernanke, is bound to hate it if the market puts more trust and faith in gold than in government. Some observers are now going crazy with the possibility that the Federal Reserve and other central banks might somehow have encouraged the sudden sell pressure. Central banks are either selling or exchanging gold for credit. Cyprus sold 75% of it's gold, though that does not begin to provide enough cash for them. The IMF is selling too. Euro zone banks are all pledging their gold as collateral against the generous and probably repayable loans the ECB is extending to them.
Is it materially important that JP Morgan and other investment banks are net beneficiaries of money printing but also maintain massive short positions? Why did several banks all issue "sell gold" notes just before or in the months before the record price drop? Were they prescient or forcing a desired outcome?
Note her comment on who has been buying gold during the recent selloff and what it means (my bold):

The most interesting piece of the puzzle is that the Chinese have emerged as the biggest buyer of gold, mainly in large off market. They want the Yuan to emerge as a hard, gold-backed currency in a world where everyone else has chosen to inflate and devalue. The recent bilateral currency deals with Australia, France Russia and Singapore, and many others, reflect this desire to displace the USD as the world's reserve currency. It may be an interesting and long race between the Chinese reaching for convertibility and the Western central banks straining credibility.
So what is her advice to investors:
Gold bulls have a rare chance to double up now. Gold bears will have a hard time doubling down from a record profit. Meanwhile, apparently the Indians and everybody else in the emerging markets recognizes a good deal when they see it. As inflation pain continues to make headlines from high tomato prices in Brazil to the same for onions in India, no emerging market investors have any illusions. Inflation for them is here for the duration. A gold backed Yuan is increasingly sounding like a sensible idea.

22 comments:

  1. Nonsense. Nonsense. Nonsense. C'mon people, THINK! and stop all this wishful thinking. The Chinese have no plans for "a hard, gold-backed currency." The LAST thing Chinese elite want is the transparency that necessarily goes along with "honest money." Hello folks -- that's why corruption is so rampant in China. In truth the Chinese want it both ways. They want to hold more than their share of a hard reserve asset, but they have no desire to kill their export markets by having the strongest currency in the world. Think! Think! Think!

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    1. There are many factions in China. Some want a strong currency and all Chinese from the central bankers to peasants want to accumulate gold.

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    2. China is no longer the country with the cheapest labor market. Businesses are finding SE Asia as a viable alternative to China due to the low labor cost. Think again my friend. China is today what Japan was yesterday. SE Asia will be tomorrow what China is today. Never say nonsense or never.

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    3. I will say it again. No, I will shout it from the rooftops: China has no interest in converting the Yuan to "a hard, gold-backed currency." Not now. Not ever. It is NEVER going to happen, my friend. NEVER.

      How can I be so certain? Because no one with any sense gives the whole world a free option to acquire its physical gold at a fixed, unchangeable non-renegotiable price. And that's exactly what a gold standard does! It gives the world an option to empty your vault and take your gold at an agreed price that you cannot change even if other circumstances change. Who in their right mind does such a thing when the world remains perfectly willing to accept fiat? Nobody! To do so would be utter stupidity. Tell me, would you do it with your gold? Would you promise to give your gold over to me at a PERMANENT fixed exchange rate when you have no idea what will happen in the future? Of course not! You want flexibility to change your price if demand for gold increases.

      The Chinese will keep acquiring gold reserves, as well they should. That gold will all be revalued much much higher the day the dollar collapses. But if you are expecting they will promise the world to hand over that gold (which they have been working very hard to patiently accumulate) at a fixed exchange standard, you are living in a dreamworld!

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    4. Hey Robert .. Du-oh!

      What IS going to happen is Gold as a Trade Settlement Mechanism. They are accumulating gold aggressively. One would have to be positively insane to believe that valueless pieces of paper printed to infinity can be continued to be exchanged for real products. THINK MAN THINK!

      How long to you believe this farce will go on? They are already arranging Yuan swaps and settlements all around the world to AVOID USING THE US DOLLAR.

      Good grief the USA is corrupt beyond belief and only those living here with the stinking corrupt US media could believe the rest of the world doesn't want out of this US dollar / bond insane asylum!

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    5. Yes, unknown, you are absolutely right! The dollars days as the world's reserve currency are numbered. And that's why central banks (an individuals too) are a lot better off transitioning to gold reserves. Gold will literally recapitalize the whole system in the Great Reset. It is inevitable!

      But that's all that's going to happen. Gold will recapitalize the world's financial system, but no government will ever EVER go the additional (and completely unnecessary!) step or re-implementing a fixed exchange standard. They have absolutely nothing to gain by doing that.

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    6. Robert, I agree that what you say in your 9:31 message is probably most likely.

      However, the Chinese *could* (at least initially) offer gold at a Treasury window with a price adjusted so as to maintain a certain level of stock. This could be a huge "trump card" and foster extremely rapid adoption of an internationalized Yuan. This would, notably, NOT be the same as your (obviously unworkable) straw man of offering physical gold at a fixed exchange rate.

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    7. Robert, I agree with you about China not endorsing a fixed exchange gold standard. Why not mark their gold to market and when gold is revalued upward (in a big way) China's gold will serve as a wealth reserve to counterbalance the yuan. There is a reason central banks have been accumulating gold (of course we have no idea how much China actually has) and it is not to implement another failed gold standard.

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    8. Robert, Im with you on your take on GOLD.. A Gold standard could never work.What happens when the GOLD runs out? Economies need a virtual/elastic currency for it to expand. Western Finance just got too greedy. OTC Derivatives total over $1.4 Quadrillion.A serious reset is in order no doubt.Gold could be a very good component in the monetary system if priced to market not the paper scam now in place.Euro countries combined would be stupid not to put it to use as they have more than the USA. Has anyone noticed the disclaimers now on the Comex and US Tres. sites to cover there asses that they may not have the GOLD. God & Gold help us all.

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    9. AS THOUGH THE WESTERN FINANCIAL SYSTEM IS NOT CORRUPT ?

      Could say that the western financial system is a bastion to the neo-financiers who have been further empowered on the path of corruption . . . a nefarious, strategic path that has been successfully exploited. The neo-financiers have embraced it . . . propagandized it . . . and increased the corruption exponentially within the framework of 'the rule of man' and antithetical economic laws. . . . which will be talked about and studied for a very, very long time upon the dawn of the next renaissance (of fiscal and monetary matters).

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    10. AS THOUGH THE WESTERN FINANCIAL SYSTEM IS NOT CORRUPT ?

      Could say that the western financial system is a bastion to the neo-financiers who have been further empowered on the path of corruption . . . a nefarious, strategic path that has been successfully exploited . . . thus far. The neo-financiers have embraced it . . . propagandized it . . . and increased the corruption exponentially within the framework of 'the rule of man' and antithetical economic laws. . . . which will be talked about and studied for a very, very long time upon the dawn of the next renaissance (of fiscal and monetary matters). . . for the neo-financiers have violated the sacred 'golden rule'.

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  2. well if can export, why not import all the worlds wealth...
    money is money whether you trade real goods or ...real trust ... if they go gold backed ...i will get some of their currency for sure ... just in case ...

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    1. Better than owning a printing press, own the gold mines.

      This morning's news stories - China vastly cut the percentage for trading gold.
      China announced completion of $1.5 Bl investment in Australia gold mining stock.
      China State owned mining making huge bids on 4 of Barriks (sp) mines...
      China is cashing in the remaining US Debt for gold mines everywhere.
      The China/Russia/Mid-East accord - they can have it both ways. The new Reserve Currency for all international trade backed by gold - then the actual currency with all of its non-transparency.

      Spectators will not be invited to play!

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  3. I'm curious if merely having lots and lots of gold supports a nation's currency, even if not gold backed. Could the Chinese accumulate so much gold that going on the gold standard becomes a serious possibility in the mind of the international markets?

    And could the Chinese benefit from a degree of ambiguity regarding a gold standard, even if they have no intention of ever adopting one?

    Lysander

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  4. What if they just follow the same strategy as the U.S.? First offer a full gold standard. Use that to establigh your currency the world's reserve currency and become the world's gold vault.

    Next step, maybe a decade or two after achieving the first goal, eliminate gold exchange to everyone except foreign central banks.

    And, finally, after achieving total domination of currency, go completely fiat.

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    1. Exactly. When the existing fiat dollar system breaks down, the world will be left with gold or barter between nations. It would work out fine for China to settle international trade in gold as they consistently run a trade surplus. They will gain gold.

      Now, if they then define the value of the yuan in terms of gold, they gain a huge financial, geo-political advantage in exchange for accepting a disadvantage that only accrues slowly over time. The US maintained its trade surplus for 20 to 30 years or more (depending on what definition one uses) while offering a gold-backed currency. It is in fact the US government that provided the mechanism for other governments to weaken their own currencies in respect to the dollar by running enormous federal deficits and selling foreigners Treasury bonds to finance it. The Chinese do not have to empower other countries to artificially weaken their currencies in respect to the yuan by running up a huge national debt financed by outsiders. (Perhaps the British did a better job of maintaining an international trade currency, the pound, for a longer period than the Americans and they maintained it as mercantilists, to their advantage. But, in the end, it was Britain's huge external [war] debts that brought the pound down.)

      When it is convenient for the Chinese, they can make the yuan a floating currency again at any time. They then retain the geo-political advantages without the ultra-strong currency disadvantages. The Chinese are working for more than just wealth; they want power too.

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  5. Jim Willie covered this gold trade note issue, the G20 emerging nation alliance, BRICS, the selling and preparation for repudiation of bonds, the real European and Middle East new alliances and trade agreements with Russia,, China, India and smaller states which replace the petrodollar and junk bonds, the trading standard that will replace central banking standard monetary policy, and related issues such as railroads and pipelines, defense technology and resources management.

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  6. I think if china backs it currency with gold then it could have profound effects for gold sellers and also consumers.Certainly a currency that is gold-backed will have appeal as a reserve currency capable of storing wealth.

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  7. Not gold backed in the traditional gold standard manner. Gold as a free floating wealth reserve.

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  8. What's to keep China Inc. (if run like a business with a balance sheet, income statement and stock - "stock being the Yuan thus all outstanding Yuan would equal net worth) from using Enron bookkeeping and pump assets like those empty cities to the moon making their balance sheet bottom line a complete farce but also over value the Yuan to where there is light years between it and reality? Gold would take off and the world would then all hunger for Yuan not knowing they are buying into the final fiat collapse before fiat goes dormant for a thousand years. While this "kill the dollar" plan snowballs word gets out that Ft. Knox AND LBMA are both empty, titanium or all leased. RIP entire Western World! Yes, GOOD time to own gold (or silver!). Anything tangible with real long-term value! Diversify! I have vodka to the ceiling in my basement!

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  9. This is a great article with some good tips. I have been trying to sell gold jewelry for cash and I have not recently been getting much money for what I have. Hopefully if I get informed about how to go about selling gold I can get better prices. Thanks for the good information.

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    1. DO NOT SELL BELOW SPOT PRICE

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