China is Hoarding Gold; Is the U.S. Dollar About to Collapse?

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Iran and its leading oil buyers, China and India, found ways to skirt U.S. and European Union financial sanctions on the Islamic republic by agreeing to trade oil for local currencies and goods including wheat, soybean meal and consumer products. The second-largest producer in the Organization of Petroleum Exporting Countries, Iran said in February 2012 that it will accept payment in any local currency or gold as new sanctions make it harder for trading partners to pay in dollars and euros. [Source]

First, let’s backtrack. In March 2012, the United States and European Union beefed up their economic sanctions on Iran, shutting Iran out of the global payments network called SWIFT. Also in March 2012, Turkey’s gold exports to Iran doubled from the month before and exploded 37 times over the March 2011 figure. “Natural gas is the source of almost all electricity in Turkey. I wrote in Apogee Advisory. “More than 90% of Iran’s gas exports go to Turkey. Iran furnishes 18% of Turkey’s natural gas. Without Iran, Turkey would depend almost entirely on a single gas supplier to keep the lights on — Russia. Under the sanctions, Turkey can’t pay for Iranian gas with dollars or euros. So it pays with gold.” India likewise paid with gold for Iranian oil. Iran could then use the gold to buy food or manufactured goods from Russia and China. “The United States,” Rickards writes,” had inflicted a currency collapse, hyperinflation, and a bank run and had caused a scarcity of food, gasoline and consumer goods, through the expedient of cutting Iran out of the global payments system.” Gold had become Iran’s lifeline...When Iran agreed to resume nuclear talks, a conceit took hold in Washington that “the sanctions worked” — the Iranians had been more or less starved to the negotiating table. Not so, says former Ambassador William Miller, who was stationed in Iran during the 1960s and is in contact with the current regime. “Sanctions only made them more defiant,” he tells the Los Angeles Times. Want proof? Iran put the same offer on the table in 2003 — only to be spurned by the United States. Actually, it was a better offer from Washington’s perspective. Back then, Iran had only 164 nuclear centrifuges; by 2013, it had 19,000. That’s a heck of a lot more bargaining chips to hold once negotiations begin in earnest. [Source]

Soon the feds will seize all retirement accounts, and redemptions will be blocked. Many who are around 60 years old and possessing gigantic “paper wealth” and close to retirement seem absolutely frozen, immobilized, stuck in neutral gear, either unwilling or unable to make that 401K—IRA—Keogh—pension account redemption call. Obama will pitch as an annuity or “guaranteed” income stream from that Mother of All Safe Financial Instruments... U.S. Treasury Bonds!! And how coincidental / convenient that it turns out that the sum total of all retirement accounts is right around 17 trillion…close to at least the federal debt figure quoted in the mainstream media. Neat and tidy and more digestible…..when of course (without regard to derivatives losses of one-and-a-half quadrillion)….America’s REAL debt — including unfunded liabilities like Social Security, Fannie, Freddie, Medicare, et.al — is a staggering $240 trillion. TO ANYONE READING THIS—Please take aside those you care about and do whatever it takes to just “get over” the 20% early withdrawal penalty and CALL THEIR MUTUAL FUND ADVISOR, stock broker, etc. The window of opportunity to re-invest those soon-to-be-worthless dollars into things with high intrinsic value closes a little more each day. [David Carswell]

The global rejection of the Petro-Dollar is well along, which began with the introduction of QE, then QE2, then Operation Twist. But the global rejection took flight after Taper Talk failed in its trial balloon, and achieved supersonic speed with the recognition of QE to Infinity was implicitly endorsed. The global rejection saw the prototype built in the hangar with the Iran sanction workarounds, where India bought Iran's oil and gas, but paid with Turkish gold, delivered to Tehran banks. The global rejection will achieve escape velocity with the acceptance of Russian Rubles for its energy products. The global rejection will achieve additional escape velocity with the acceptance of Chinese Yuan payments for Saudi crude oil (then all OPEC oil). Coming is the launch of both the gold-backed Russian Ruble and the gold-backed Chinese Yuan. The global rejection will be final, and the funeral will be announced. They will enter the financial airspace first, followed by others. When the US Military defense of the US Dollar is recognized as blatant, dishonorable, toothless, and ineffective, the other gold-backed currencies will follow. The isolated paper tiger was revealed in Syria. The toothless rampaging tiger will be revealed in Ukraine. The Kiev Govt is almost ready to collapse already. The Russians and Chinese might put the first daggers in the USDollar heart, but numerous death blows will come from other parties. [Source]

Is China Hoarding Gold to Challenge the U.S. Dollar?

November 19, 2014

WallStCheatSheet - In a world filled with fiat currencies, how important is gold’s role in the financial system? Proponents often view the precious metal as a hedge against economic chaos, while critics typically claim gold is hardly more than an unproductive rock. Interestingly, some countries appear to believe gold is quite important, and one former Fed chair explains why.

Alan Greenspan, who served at the helm of the Federal Reserve for nearly two decades, recently penned an op-ed for the Council on Foreign Relations discussing gold and its possible role in China, the world’s second-largest economy. He notes that if China converted only a “relatively modest part of its $4 trillion foreign exchange reserves into gold, the country’s currency could take on unexpected strength in today’s international financial system.”

Greenspan also believes the downside risks for China stockpiling gold are limited, at least from a pure investment point of view. “It would be a gamble, of course, for China to use part of its reserves to buy enough gold bullion to displace the United States from its position as the world’s largest holder of monetary gold,” he wrote. “But the penalty for being wrong, in terms of lost interest and the cost of storage, would be modest.”

The People’s Bank of China has not formally disclosed any changes to its gold holdings in years, but it’s believed that the central bank is purchasing gold to diversify its reserve holdings. In 2009, China announced that it boosted its gold reserves by 454 tonnes via acquiring gold quietly over the previous five years. That represented an impressive 76 percent increase in gold reserves. Today, China still shows that it holds 1,054.1 tonnes in reserves, but it’s speculated by analysts to actually have around 2,000 to 3,000 tonnes.

Some market participants also believe China is building up its gold reserves to challenge the U.S. dollar, which is currently the world’s reserve currency. A few years ago, China’s official news agency, Xinhua, said, “International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country.”

Gold already plays a significant role in China’s economy. In 2013, China’s gold consumption surged 41 percent year-over-year to 1,176.40 tonnes, exceeding 1,000 tonnes for the first time on record, according to the China Gold Association. Demand for jewelry was the biggest contributor, with an increase of 43 percent to 716.50 tonnes, while bullion demand rose 57 percent to 375.73 tonnes. China is the largest gold consumer and producer in the world.

China faces an uphill battle if it’s going to challenge America’s gold stockpile. According to the most recent data from the World Gold Council, the U.S. holds 8,133.5 tonnes of gold, representing 71.8 percent of reserves and the most held by any one country in the world. Furthermore, a behind-the-scenes look from Greenspan reveals that the U.S. is not likely to sell its gold stash anytime soon.

“In 1976, for example, I participated, as chair of the Council of Economic Advisers, in a conversation in which then U.S. Treasury Secretary William Simon and then Federal Reserve Board Chair Arthur Burns met with President Gerald Ford to discuss Simon’s recommendation that the United States sell its 275 million ounces of gold and invest the proceeds in interest-earning assets,” said Greenspan. “Whereas Simon, following the economist Milton Friedman’s view at that time, argued that gold no longer served any useful monetary purpose, Burns argued that gold was the ultimate crisis backstop to the dollar. The two advocates were unable to find common ground. In the end, Ford chose to do nothing. And to this day, the U.S. gold hoard has changed little, amounting to 261 million ounces.”