Currency Wars…and the winner is Gold

The Chinese, Indians and Russians have been importing gold on a monumental scale for the past few years as the currency wars intensify. They are betting on that gold will be the new standard when the fiat currency experiment comes to an end. These currency wars have been going on since 2010 and a good read which covers this is ‘Currency Wars’ by Jim Rickards. Currency wars happen when one country devalues their currency to make exports cheaper/imports more expensive and is managed through various means such as money printing and interest rates. It’s essentially a race to the bottom and one of the reasons why we have quantitative easing and nearing 0% interest rates. What does a currency war look like?

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It’s all fun and games till someone gets hurt. So China have been importing gold and producing gold internally on an epic scale and this data does not contain all imports.

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It is claimed that China’s gold reserves are much closer to 4000 tonnes than what is reported. They haven’t updated the markets since 2009.

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So is there a point to any of this? Well I hope so. The point being that the BRICS countries are betting on a collapse in fiat currency, meaning that it will be worth less than the value of the paper it’s printed on. Why? The only thing that gives fiat currency value is confidence in the value of the currency itself, it has no intrinsic value. The BRICS will then back their currencies with gold like its been done for thousands of years.

The US and UK are complicit in this wealth transfer and have been selling their gold like its going out of fashion. Just look at what happened when Germany asked for their gold back from the Fed and the hassle they went through just to see some of their gold. It’s just not there anymore, the US have nowhere near 8000 tonnes, the vaults at Fort Knox are empty and its all been heading East. Gordon Brown got rid of most of the UKs gold holdings at rock bottom prices. I think the pic below sums up what’s going on.

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5 thoughts on “Currency Wars…and the winner is Gold

  1. Pingback: The US vs China Currency War For Dummies | Zero Hedge « olduvaiblog

  2. “The only thing that gives fiat currency value is confidence in the value of the currency itself, it has no intrinsic value.”

    So long as the government exists and accepts the currency then it’s the only way you can pay your taxes and avoid jail. So long as banks accept the currency (and given they make their money by dealing with it, they basically have to) then it’s the only thing you can pay your mortgage with and avoid being made homeless. So long as functioning society and a market economy exists, it’s basically the only thing you can use to pay your water and heating bills and buy groceries with. (You could try bartering or offering a gold ingot at the checkout, but it took them ten minutes to accept a fifty I paid with one time so God knows how you’d get on…)

    So it’s value isn’t just down to ‘confidence’. It’s value exists so long as governments, banks and market economies with functioning society does.

    And once those three things have gone, I think we’ll have more important things to worry about that the loss of fiat money. Plus, in that situation, I don’t think gold’s going to do you much good either, given you can’t eat it, drink it, burn it for fuel or shelter under it. It’s almost like gold’s value is basically down to nothing more than confidence in it as well…

    • I agree with what your saying and that if the currency or monetary markets fails – food, clean water and shelter are commodities or neccessities which you will need in the short to medium term to survive. As you say, we cannot eat a gold ingot to survive. In the medium to long term if the currency fails and to act as a store of value or wealth, monetary metals such as gold and silver will be a way to protect your wealth till a new system is put into place. Will society want another fiat currency if a collapse happens? No I don’t think they will and a return to sounder monetary principles will ensue. That will be when holders of monetary metals benefit.

      Gold as a monetary metal has been used for over 6000 years. There is a finite amount, there is significant CAPEX and OPEX to getting it out of the ground, refined and transported to market. There is also no counterparty risk if you hold the metal yourself. I’m a big believer that all markets are fixed, the ‘London Gold Fix’ which involves 2 phone calls a day between 5 of the biggest banks, just 2 banks for silver and they set the price daily. The price is not set by market forces, there is no price discovery and if the markets were based on supply and demand, the price would be a lot higher!

      • “I don’t think they will and a return to sounder monetary principles will ensue. ”

        Define ‘sounder’?

        Using a metal with finite quantity which can’t be used for anything practical (in the post-apocalyptic future we envisage) which will lead to deflationary pressure and potentially wars over land where gold exists doesn’t sound ‘sound’ in the slightest.

        Every economy which tried to hang onto the gold standard suffered as a result. A human race trying to get back onto its feet will have much more important concerns than shiny metals, seriously.

        The article is called ‘currency wars’. The main currency wars atm are ones where nations are trying to devalue their currencies to make themselves more competetive. Hugging gold close now makes no sense for a nation, and seems like a wasted investment for any individual given it’s current trajectory. Feel free to cling onto the idea it will save you when the world comes tumbling down, but don’t assume that idea is based in any kind of reality.

        Anyhoo, sorry to sound harsh. Cheers for the reply.

      • Gold has been used as a monetary metal for 6000 years and all fiat currency has never lasted longer than 50 years. If it was a post apocalyptic scenario deflationary or inflationary pressures are irrelevant but gold has intrinsic value, it costs time, labour and energy to extract, refine and get to market. It will act as a store of value whether you like it or not.

        Speculation and/or fraud generally cause the collapse of previous gold standards. The US had to move off the gold standard because they were broke and needed a different monetary asset, the petro-dollar which would allow it to grow again. Their financial fundamentals were flawed and this is why the US has invaded so many countries, for control of oil and to ensure oil is sold in dollars. Whatever the asset that backs a currency, people will greed over it but to ignore the fact that the petro-dollar has caused so many wars and killed millions is short sighted.

        I believe the markets are not free but in fact controlled, Adam Smiths invisible hand has been shoved up his arse. The Gold-fix, which fixes the price of gold twice daily by 5 banks, as well as driving the price down through selling paper gold ETF’s does not give a realistic price. Through money printing, currency wars and massive demand for physical gold, the price should be so much higher but would signal the end game for fiat currency.

        In terms of sounder monetary policy you do realise if a currency is tied to gold and there is excess of your currency held by another country they can exchange the paper for gold. You do not want to get into a import/export deficit as you will lose all your gold. I am not clinging to anything just I accept that this fiat currency experiment is just that, an experiment and it is coming to an end.

        Sounder monetary terms:

        Actual regulation
        Price discovery and free markets
        Reduced speculation
        No HFT
        No dark pools
        No price fixing
        No shadow banking system
        No derivatives markets

        I understand why this can be confusing as we have been told gold is a relic, just tell that to The Chinese, India and Russia. Time will tell.

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