Russia and China have now pooled their efforts in order to make their dreams of a stronger rouble and yuan come true. The currency wars raging around the world are just the tip of the iceberg, the famous US trader Russ Winter says. China has launched a series of manoeuvres to wrest away from the dollar its current status as the planet’s main reserve currency. In accordance with a long-standing Chinese tradition, the strategy of that war is based on deception.
The two allies’ plan is as follows: first they want to put a tight noose around the dollar’s neck, and then, when a convenient moment comes, kick the chair out from under the United States.
We have long warned readers that the dollar is currently undergoing a death by a thousand cuts as nations the world over move to reduce their holdings of dollars and announce new trade agreements in non-dollar currencies.
If currency trader Russ Winter is correct, Russia & China are getting ready to give the process a kick start.
As Russia, Behind the Headlines points out, the goal is for the rouble and the yuan to eventually replace the dollar as global reserve currencies:
In simple terms, Russia and China want to increase the convertibility of the rouble and the yuan, and to increase the two currencies’ role in international trade – and then to propose them as global reserve currencies. The United States, where the level of sovereign dept is approaching 110 per cent of GDP, will be unable to meet such a challenge.
How does one go about position your currency as the next global reserve currency? In a word, gold:
To that end, China and Russia will need to back their currencies with gold. Last year China held 30.2 per cent of the global gold and currency reserves. It is unclear how much of the Chinese reserves are being held in gold, since the country does not disclose such details.
There is no doubt, however, that China’s gold reserves are growing.
Jim Rickards has estimated that China has already accumulated over 5,000 tons of gold. The true number could already be closer to 10,000 tons:
Experts suspect that when the Chinese said they held 1,054 tonnes of the metal in 2009, they deliberately underreported the figure by a factor of 2 or 3.
Be that as it may, China is known to produce 350 tonnes of gold every year, which translates into 1,400 tonnes over the past four years. There is little doubt that all that gold goes straight to the Chinese central bank’s vaults.
Meanwhile, Chinese imports of gold via Hong Kong rose by 950 tonnes between 2011 and 2012. In the first five months of 2013 mainland China imported more of the metal than in the entire 2012.
Perhaps the reason that GOFO has gone (permanently?) negative is the fact that 1,198 tons of gold have been sucked East out of the LBMA during the first half of 2013 alone:
Yet another important factor is the physical shipments of gold from the London Bullion Market Association (LBMA) last May.
During that month, shipments rose to 28.2 million ounces (877 tonnes) of gold. The physical volume of gold that has been sold to China since the beginning of 2013 currently stands at 1,198 tonnes.
While the Western financial media screams that the secular bull market in gold has ended, if anything is ending, it is the global reserve status of the US dollar. We suspect sub-$1200 gold only accelerated China’s acquisition of gold. Expect June’s import numbers to top 1,000 tons. When one day in 2015 or 2017 China suddenly announces that the yuan will be backed with 10,000 tons of 1kg gold bars, the chair will certainly be fully kicked out from under the US dollar.