Gold Goes East


The gold bubble burst last year but gold is back now and supported with some solid fundamentals for long term growth.

The Nixon shock measures of 1971 cancelled Bretton Woods and moved the world currency valuation standard away from gold to the U.S. Dollar. Without the underlying support of a measureable tangible asset, we were set on a path of spiralling, systemic inflation. The present calamity in global financial markets has been well-forecasted.

Countries all over the world continue to print unsubstantiated cash supplies. The M3 number, which ceased being publicly available in 2005, was the main component used in determining the true value of the US Dollar (i.e. all U.S. assets divided by all U.S. money-in-print). The only basis for currency valuation at this time is held by the U.S. government.

The existing fiat-currency cash bubble is both fascinating and disturbing. Considering the brain power and millions of man-hours thrown at managing the global financial industry, the elephant-in-the-room cash bubble is strangely silent and odour-free. One does not have to be a conspiracy theorist to appreciate the extent to which the value of gold has been self-servingly manipulated by the U.S. government; trillions of dollars per year created from thin air with no inflation. A return to a Bretton Woods model of asset-based valuation would expose the flaws and deception inherent in the existing system, and the U.S. government would never willingly return to this level of scrutiny or accountability. Likewise, economists and financial planners will never back a return to gold as a world currency; multi-million-dollar paychecks are tied to supporting the backroom machinations of bank bail-outs. But the inevitable transition is coming and all of these stakeholders have been relieved of the burden of making this decision for us.

China has spent the last five years amassing tons upon tons of gold. As the speculative market in ETFs diminished and the value of gold dropped, China was able to triple their stockpile and has become a major player in international gold holdings. An aggressive mining acquisition program combined with shrewd market-price negotiation (i.e. all gold mined by companies they partner with – inside and outside of China – must be delivered to and stay in China) ensured a constant and exponentially increasing inventory. Equally aggressive was a program to promote the purchase of gold to its own citizens through retail stores dedicated to the distribution of real gold assets, supplying an eager population with everything from jewellery to gold bars.

Why? China knows that the trillions of U.S. Dollars still held in their reserves are quickly becoming worthless. Their five-year mission to convert as much of their U.S. Dollar portfolio to hard-asset mining companies has been successful and they are ready to implement the next step.

China’s intention to have the Yuan/Renminbi become the world’s trade currency is no secret. Supported by gold reserves, it will be promoted as the safest and most stable choice for international business. The world’s fiat currencies will establish their market value through the trading of tangible hard-assets in established market systems, just like the good old days.