We have all heard the expression first coined in John Bunyan‘s book, Pilgrim’s Progress, in 1678, “A bird in the hand is worth two in the bush.” China is starting to take that old adage to heart. Not only will China become the largest Christian Nation by 2030, but China’s Shanghai Gold Exchange (SGE) is positioning itself into becoming the world’s primary physical gold market place, beating out of course, the London exchange and aiming at the west’s futures markets. How are they going to do this? Well, it’s not how, but now. The Chinese central bank just granted SGE to launch a global physical trading platform in the city’s pilot Free Trade Zone (FTZ) a bold move posturing for complete dominance over New York and London in fixing the gold price. Do you remember back in September 2011, when China set a new standard for the purity of gold by one factor, five nines, 99.999 fine pure 24k gold? Much of the world scratched their head as to why would they do that, wouldn’t they have to contend with much more of a loss factor when in the refining process? Evidently, China has figured out a way around any extra loss factor when refining to 99.999% pure gold. The benefits of adding this extra factor must be to allow them to secure their currency on a gold standard much more quickly than when using a less pure standard of four nines, which is currently used universally the world over. Essentially, less weight is needed when the gold is more pure to reach the same value monetarily. Pretty simple especially if the only audits taken are internally. So basically, China intends to out trade the west in control of the price of gold while backing their own currency, the renminbi, not just on the current gold standard but the new standard they have created and are enacting. All the while during this transformation China and Russia will disrupt markets across the globe while they back out of the US dollar and US treasuries only to support developing areas of Africa and West Asia with the gold backed renminbi. China’s main goals are obvious: increase the pricing power of physical gold while seeking to internationalize the renminbi and diminish the world’s obedience to the US dollar, especially when meeting energy or oil demands. Meanwhile in Russia, Putin states that Russia and China need to secure their gold and currency reserves thus achieving the obvious goals stated above, more rapidly than we first anticipated. All we have to do is look at history to see the future, take last month’s highlights for examples: Russia’s central bank bought 28 metric tonnes of gold in April and are setting up a joint currency with Belarus and Kazakhstan, while dumping record amounts of US treasuries. Over the table, China and Russia agree to a $400 Billion energy deal amongst 40 other business contracts. Openly China calls for the de-Americanization of the world and what may include an introduction of a new international reserve currency to replace the dominant U.S. dollar. No doubt the international community wants to permanently stay out of the political turmoil and spillover of the United States preventing any future ripples into the world markets. However, it is a little premature of China and Russia to try and slow gold growth in the short term, with gold currently below 1300, but it seems only convenient for the central banks’ appetites to gobble up. Could a long term world currency evolve behind a precious metal backed renminbi? Possibly but only if Americans can encourage Washington enough to play a more constructive role in addressing global affairs, and increasing confidence in the government of the United States. Other countries are bolstering cooperation to promote peace, security, and stability in Asia and Africa by investing in infrastructure and some of those 21 countries include China, Russia, and even, Iran. Beyond any doubt is the unprecedented amounts of physical gold China is importing, the aggressive posture taken economically towards the American dollar’s future and buying their gold back with declining American dollars. Peaking world interest is the amount of interest in the new global trading platform offered by SGE, which will most likely become the largest global physical gold trading platform on planet earth. China and the world wove their dependence on the U.S. dollar slowly over the half century, now they wish to bring forth a strategy of insulation against any volatility in the U.S. dollar. What better way to do this than buy large amounts of gold, refine the gold a factor further, place it back in the market in the form of their paper money, shield the actual remaining gold reserve figures from world auditors while promoting confidence that the gold remains intact and safe. So, even if instances where countries like Germany call in 50% of their gold reserves only too…well, not be given their gold. Wait, China’s stealing a page from our current gold market playbook as seen in the gold manipulation game that continues to play out in the western courts and while more countries call-in or audit their gold reserves, i.e. Austria. Only the eastern world is in position to be able to glean the benefits of any judge or referee’s decision in the current western style gold game. Yes, the gold game is changing while the calls from the last few years are getting sorted out, the newest player, the Shanghai Gold Exchange, is building a rockstar roster of a portfolio to slam dunk the price of physical gold to a real bottom this season in future hopes of over inflating the price in upcoming seasons to prop up their vested interest. SGE is set to acquire a majority portion of the physical gold trade away from the long established franchises and once completely established will become the definite gold game changer in the world. Brace yourself America we are poised to get knocked off our perch for sitting on the sidelines too long. Obey natural history, get secured in physical gold now, while the powers that be are doing the same. Thanks for reading. As always comments or questions are welcomed. God Bless.
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