Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

G20 Gold Convertable, Be Careful What Geithner Wishes For...

Commodities / Gold and Silver 2010 Oct 22, 2010 - 02:06 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis Article"There are more tears shed over answered prayers than over unanswered prayers..."
– Teresa of Ávila, patron saint of headache sufferers

IT'S FIVE YEARS and $1.7 trillion of Chinese foreign reserves since the People's Bank of China ended its decade-long peg to the Dollar – the one at CNY8.3 which it had defended through the late '90s Asian Crisis and again as the Dollar first began its long decline in the early Noughties.


Back then however, as today, China refused to even begin make the Yuan freely convertible – and thus accessible to foreign investment – but for very different reasons. The fear in 2005 was of foreign speculators driving the Yuan lower. Whereas in 2010, it's got the opposite problem.

Grabbing export share (and that mountain of foreign-exchange reserves) by suppressing its currency, Beijing clearly fears a repeat of the Japanese bubble-and-bust that followed 1985's Dollar-weakening Plaza Accord. And since first loosening the Yuan's Dollar peg (if only a little) half-a-decade ago, China has overtaken Japan as the world's No.2 economy, and become the world's top importer of copper, biggest user of cement, No.1 consumer of energy, edible oils, soybeans, rice and wheat, and the No.2 destination for physical gold bullion.

Yes, China's currency should reflect this growth, at least as far as Western economists and other Asian central-bank reserve managers can see. But if US Treasury Secretary Tim Geithner gets his wish at the G20 meeting this weekend – and the Chinese Yuan bears a greater share of the Dollar's global devaluation – Beijing's purchasing power in the food, energy and mineral markets will only grow greater.

And where Timmy might want to watch out is that the growth must come at the expense of today's freely convertible currencies.

First, Beijing likely holds some $2 trillion or more of the "big four" reserve currencies – Dollars, Euros, Sterling and Yen. Gresham's Law says it's more likely to spend those holdings ahead of its own, increasingly valuable money, as it hoards ever-more food, energy and mineral resources.

Second, and should the Yuan extend its global usage from this year's McDonalds' bond float to central-banking reserves, the relative loss of purchasing power in Dollars, Euros, Sterling and Yen will only accelerate further. Together, the Big Four account for 96% of forex reserves according to the IMF, but that's the lowest proportion since before the late '90s Asian Crisis – a crisis which Beijing managed to avoid but remembers all too well.

Third, and most critically amid the global currency war – a war which will not be settled over the conference table for as long as Western central-bank policy remains fixated on currency inflation – flows of "hot money" are rightly expected, not least from US, UK and Japanese wealth fleeing zero-per-cent rates at home.

As it is, China is gently loosening controls on money outflows, but only a little, and actual outflows of Yuan remain blocked. So trying to preserve its global value, retained wealth in the West cannot get direct exposure to the currency (nor the equities at present) which will increasingly put a price on the biggest trend of the 21st century – the Eastward shift of global demand and consumption.

Even if China does liberalize (which it won't any time soon) retail investors will be last in the queue. So a fair proxy, meantime, remains buying hard assets and natural resources. It also gets to the heart of the problem, because living standards in the West (by way of our global purchasing power) are certain to fall long-term. Asia's growing use of world resources must come at our expense, in just the same way as the Pound Sterling's first fall from top-dog currency status – starting some seven decades ago, and running pretty much ever since – made for a relative loss of wealth to the United States.

Most clearly amid the currency turmoil only just getting started, China's ever-growing demand for physical gold and silver highlight that big, fat 21st century trend in action. By the time (if ever) that Yuan deposits become widely available through retail banking in the US, Eurozone, UK or Japan, this morning's $1319 price-tag on gold might look a great bargain.

By Adrian Ash

BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in