The New RussAsian Gold Standard Is Coming

Image via KingWorldNews

It appears it wasn’t that long ago that the U.S. dollar was not to be questioned, and the ruble and the yuan were in the gutter. Such was the strength of the U.S. dollar that President Trump voiced desires to weaken it against other currencies to give America some trade benefits. Not that long ago, either, the ruble was approaching toilet paper status due to oil price oscillations.

Somehow, we are now inching towards the very opposite. The mighty greenback, despite being the strongest it’s been in a while, has everyone concerned. Nobody needs a lot of convincing to hear out the notions of “dollar hyperinflation” or even “the death of the dollar”. On the other hand sit the ruble and yuan. The first is looking to become a global reserve currency by force, with the second no doubt wanting the same, but perhaps content to simply be in the picture for now.

How did we get here? For as many things are in this brew, it seems very easy to answer that question. The West has too long suffered from an over-reliance: on credit, on faith and the money printers that run on it, on Chinese goods, and most damagingly of late on Russian energy. In what seems like a span of a few hours, Russia used the Ukraine attack to send a message to the West: if you want Russian energy, pay in rubles. And so the ruble went from toilet paper to one of the stronger currencies as of right now. One could argue, certainly the most stable.

Behind every great nation lies a great gold hoard. If Russia and China usurp the U.S. dollar’s status, there is almost no question that it will be done through the use of gold bullion as tender. Unlike the West, neither of these two massive nations have spent the better part of a century convincing themselves that gold is outdated and Modern Monetary Theory is, well, modern.

Just as Russia surprised many with the Ukraine invasion, so too might many be surprised by a bid to place both the ruble and the yuan in the dollar’s place. Russia already said that it views the ruble or gold as money, almost foretelling what it plans on doing. China’s stance doesn’t need repeating.

What do their central bank gold reserves look like, then? For the longest time, we heard how the U.S. gold stockpile of over 8,000 tons makes other nations’ reserves seem negligible. Now, again, it seems we might be in for a surprise. Apparently, in a move that shouldn’t surprise anyone, the U.S. has been leasing out its gold bullion due to storage difficulties. In other words, it’s not “readily available.”

Some of our more dedicated readers will remember that, when China’s official gold hoard figure was 2,000 tons, speculations were rife that it’s closer to 4,000 tons. As it turns out, China could be sitting on 25,000 tons of gold, while Russia could hold a comparatively smaller 12,000 tons.

When push comes to shove, if these two titans make a real bid for the global financial system, how much will faith in the dollar carry it in absence of reserves? Will the U.S. trying to hold onto its position not be akin to Hungary or Poland attempting to usurp the greenback? Indeed, if they did, would we not ask how they expect to become the global reserve with such a small gold hoard?

Alasdair Macleod calls such a development a “financial nuclear event,” and that’s probably not an exaggeration. Virtually every fiat currency on the planet would be re-valued overnight, drastically downwards, while global central banks scramble to recover their gold bullion in an attempt to strengthen their currencies.

If this does indeed happen, well, those who already own gold will be much better off than those who waited too long.

How Are Sanctions Against Russia Affecting Precious Metals?

How Are Sanctions Against Russia Affecting Precious Metals?

We’ve yet to hear about a disruption in Russia’s mines. Polymetal and Kinross, two mining companies with operations in Russia, report that the invasion hasn’t affected their day-to-day. Polymetal said that they have a year’s worth of supplies on hand. So what are we to make of the price action in precious metals, particularly in the case of palladium?

A week into the conflict, the “least famous” of the four precious metals jumped to $3,000, a level last seen two years ago. Over the past years, palladium has been a steady outperformer and has caught many off-guard with its valuations. Should things continue this way, we may yet develop a palladium standard.

Part of this has to do with an increase in demand, as the metal is being used in more and more vehicles. But certainly, a sizeable part has to do with the supply picture. Estimates show that last year Russia accounted for 43% of the global palladium production. It has never been the easiest country for a foreign company to start a mining operation in. Now, with Western and even Japanese sanctions against Russia, the supply picture isn’t looking the brightest.

Despite its reassurances, shares of Polymetal dropped. ALROSA, Evraz and Ferrexpo, all miners operating in Russia and Ukraine, mimicked the price movement in the equity market. With nearly half of the world’s palladium being produced in a country that is now essentially cut off from the rest of the world, investors are understandably expecting supply shortages. Though not to the same extent, the same holds true of platinum, 10% of which is produced in Russia.

If palladium and platinum are going to experience a deficit due to production, gold’s might come from demand. The way that the invasion has already begun spilling over into the commodities market is telling. Arcelor Mittal halted operations at its underground iron ore mines in Ukraine and slowed down production at the Kryvyi Rih steel plant. Ferrexpo yelled Force Majeure as the Pivdennyi port terminal was suspended when the invasion started. Polymetal said it’s preparing for all kinds of scenarios, in short. And Japan’s Nippon Steel is looking to Latin America and Australia to source metals due to expected shortages from Russia and Ukraine.

Uranium, coal and aluminum are also some of Russia’s key exports. So it doesn’t take much looking to see how this could spill over into an industrial commodity crisis. Add to this the increased difficulty of operating mines due to inflation, and we have a case for investing in gold.

Silver is, in a sense, positioned to receive benefits from both sides. Its supply comes primarily as a byproduct of mining other metals, like the aforementioned ones. The investment demand is, depending on the chart, somewhere between lower and higher than that of gold. And who could forget that there is a green energy headline around every corner? We’ve heard that precious metals were about to take their turn in this commodity cycle, and it seems like they might loiter for a while.

The Fed Raised Interest Rates. Now What?

Not only has the Fed raised interest rates, they want to keep on doing it through 2018. Can our economy sustain the ongoing increases?

The Fed Raised Interest Rates. Now What?

From Filip Karinja, for Birch Gold Group

This week, the Federal Reserve voted to raise interest rates a quarter of a percent to 0.5%, the first rate risesince 2006.

But this wasn’t the only bold announcement the Fed made. In a report released the same day, titled “Economic Projections“, they predicted that by 2018 they would raise rates to 3.3%.

It seems odd that they would come out with such a view on rates when, just last month, Janet Yellen said she would consider lowering rates into negative territory if the market was to fall considerably, like in 2008.

Considering the astronomic levels of our federal debt, having rates at 3.3% would be economic suicide; the United States simply would not be able to meet its obligations to its debt.

Interest rate target Federal Reserve The Fed Raised Interest Rates. Now What?

Projected Federal Reserve interest rate target (SOURCE)

So what does the Fed see changing in the next three years so positively — not only in the United States, but around the world — to be able to raise rates so sharply?

Here are the present day facts:

  • The global economy is beginning to contract, with many central banks already printing money like crazy and reducing rates into negative territory.
  • Retail sales have been falling short of expectations.
  • New housing has dropped off sharply.
  • The United States is becoming more polarized than ever — on politics, race, religion, etc.
  • The possibility of war in Syria and the Middle East region is ever intensifying, with nations taking turns dropping bombs all over the region.
  • Terrorism is increasingly spreading into the western world.
  • The threat of conflict with nations such as China, Russia, Syria and Iran is on the rise. Consider how Turkey shot down a Russian jet earlier this month.
  • Youth unemployment in Europe is reaching worrying levels.

For some reason, none of these factors seem to be weighing in on the Fed’s projections for the coming years. But ask yourself: How many of these problems do you think will be solved any time soon?

If you think any of this is overly cynical, take a look at this video, from Mr. Positive himself, motivational coach Tony Robbins. In it, he explains the nation’s debt problem and how there is no solution for it. Even if the rich were to be taxed a full 100% on earnings, it would not put a dent in the deficit.

Now, pretend you’re over two years in the future, in 2018. Would you guess that the debt will increase or decrease?

With the debt already so absurdly high, if the Fed moved rates out to 3.3%, the interest on this debt would be practically impossible to pay.

So put yourself two years in the future, and think about what it may hold for our nation. If you have any concerns, you may want to consider protecting your savings with some precious metals. Give us a call — we’re ready to help.

Is the bond market the next shoe to drop in Wall Street? Read why here.

photo credit: Perspectived, lines, madame #instaprol via photopin (license)

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