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Goodbye Petrodollar: Russia and China Dump US Treasuries, Buy Gold

TaiShang

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Goodbye Petrodollar: Russia and China Dump US Treasuries, Buy Gold

Gold is appealing to Russia and China because it shields them from the US government's ability to control the value of their holdings

Matthew Allen

There's black gold. And then there's gold gold.

It's no secret that Russia and China both share a growing appetite for gold. But how excited are they about U.S. Treasuries, the most boring but "safe" investment which basically translates into "we believe that everything will basically stay the same"?

From the looks of it, Moscow and Beijing no longer think T-bonds are a safe bet or in their national interests.

As Bloomberg's Zhuo Zhang explains, Russia and China are selling their treasuries and buying up all the gold they can get their hands on:

As they sharply increase their gold reserves, China and Russia are selling off their U.S. Treasuries, with their hunger for the metal coming amid a strict diet excluding dollars. Gold is appealing to these countries because it shields them from the U.S. government's ability to control the value of their holdings. Gold is a country-less currency. A continuing trend of reserve buildup and Treasury sales might weaken the dollar and pressure gold prices higher.

China and Russia have officially added almost 50 million ounces of gold to their central banks while selling off more than $267 billion of Treasuries.

Yes, for those who missed it: "Gold is appealing to these countries because it shields them from the U.S. government's ability to control the value of their holdings. Gold is a country-less currency. A continuing trend of reserve buildup and Treasury sales might weaken the dollar and pressure gold prices higher."

We imagine this is also part of an effort to increase confidence in their own currencies, which are increasingly being used for bilateral trade. A year ago, Moscow became China's top crude exporter after it agreed to accept Chinese yuan for its oil.

Moscow realizes that despite the risks, a policy of gradual de-dollarization is crucial in order to shield itself from western economic warfare. China of course is in the same boat. These countries aren't just dumping the dollar, they're also positioning their own currencies for trade throughout Eurasia.

And the fact that growing demand for gold could lead to a weakened dollar is definitely an extra "F-you" to Washington.

And hey: maybe a weak dollar would allow American manufacturing to blossom, returning the U.S. to the happy days when it actually had good, not-Walmart jobs. Who knows?

http://russia-insider.com/en/its-ha...-treasuries-buy-all-gold-they-can-get/ri18875
 

Sanchez

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China is the largest gold producer as well as No1 gold importer in the world. Chinese Yuan is eating the dollar bill...If you get the message.
 

cloud4000

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Isn't gold a volatile commodity? What happens when the value of gold plummets? It sounds like some countries are going back to the gold standard, forgetting why many countries left it in the first place.
 

samsara

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Bundesbank Has Completed Gold Repatriation From New York Fed, Three Years Ahead Of Schedule

ZeroHedge, 2017-02-09

In January of 2016, the Bundesbank announced that three years after commencing the transfer of some of its offshore-held gold from vaults located at the Banque de France in Paris and the NY Fed in New York, it had repatriated a total of 366.3 tonnes, bringing the German central bank's gold reserves held in Frankfurt to 1,402 tonnes, or 41.5% of Germany's total gold of 3,381 tonnes, for the first time greater than the 1.347 thousand tonnes located at the New York Fed, which as of January 27, 2016 held 39.9% of Germany's official gold.

"With approximately 1,403 tonnes of gold, Frankfurt has been our largest storage location, ahead of New York, since the end of last year," said Carl-Ludwig Thiele, Member of the Executive Board of the Deutsche Bundesbank. "The transfers are proceeding smoothly. We have succeeded in once again significantly increasing the transport volume compared with 2014. This means that operations are running very much according to schedule," added Thiele last January.

As a reminder, according to its gold storage plan, unveiled in January 2013, the Bundesbank would store half of Germany's gold reserves in its own vaults in Frankfurt am Main by 2020 which would necessitate a transfer to Frankfurt of 300 tonnes of gold from New York and all 374 tonnes of gold from Paris. It also meant that as of January, another 111 tonnes of gold from the NY Fed and 196.4 tonnes of gold from Paris remained to be transfered.

The "politically correct" motives for the transfer, as well as the logistics and the mechanics behind it were explained in a March 2015 video released by the Bundesbank...


... the real reasons, however, is that following several reports on this website which cast doubts on Germany's gold holdings, in late 2012 the German Court of Auditors demanded that the Bundesbank undertake an audit of its gold reserves. Specifically, the court wanted to ensure that the nearly 3400 tons of gold, of which more than 2,000 tonnes held offshore, is in fact in existence - 'because stocks have never been checked for authenticity and weight'. The move to repatriate was only accelerate following rumors that much of the offshore-held gold might have been "rehypothecated", and not be there anymore, that it might have been melted down, leased, or sold.

Ironically, at the time, Bundesbank Board member Carl-Ludwig Thiele told the Handelsblatt that these moves were a “trust-building” measure, and he tried vigorously to put the rumors about the missing gold to rest. Of course, repatriating your gold from foreign central banks is precisely the opposite of a "demonstration of confidence."

What made matters worse is that at the end of 2013, the Bundesbank announced it had managed to repatriate only 37 tonnes of the total 700 scheduled for redemption, further spooking the local population and suggesting that conspiracy theories that the gold was missing were in fact accurate.

As a result, following blowback from both the media and the public, the Bundesbank accelerated its activity, and repatriated 120 tonnes in 2014 and another 210 in 2015, implying that the Bundesbank's faith in its foreign central bank peers had declined in inverse proportion to the following accelerated redemption schedule as of January 2016.

* * *

Then, in an update last December, Germany's Bild reported that in 2016 the Bundesbank has repatriated "more of its gold than planned", as it moves toward relocating half of the world's second-largest reserve at home. "We brought back significantly more gold to Germany in 2016 again than initially planned. By now, almost half of the gold reserves are in Germany," Buba president Jens Weidmann told the German publication. According to Bild, around 1,600 tonnes of Germany's gold reserves are now in the country, a figure set to rise to 1,700 tonnes by 2020. This, according to our recent calculations, meant that the Bundesbank repatriated roughly 200 tonnes of gold in 2016, comparable to the 210 tonnes its brought back to Frankfurt in 2015, and the total held domestically amounts to 1,600 tonnes at the end of 2016.

Fast forward to today, in a press release, the Bundesbank provided an official update of its gold holdings, and our analysis was accurate: the German central bank said it had "successfully continued its transfers of gold last year", and in 2016, more than 216 tonnes of gold were transferred to Frankfurt am Main from storage locations abroad: 111 tonnes from New York and 105 tonnes from Paris.

This would make 2016 the year of fastest gold repatriation, with the 216 tons of gold transfered, higher than the previous record of 210 in 2015. Altogether, the Bundesbank, has now transfered a total of 583 tonnes, or 86% of the 674 tonnes planned in total.

Most importantly, as of December 31, the Bundesbank has now completed all of its scheduled gold withdrawals from the NY Fed, having repatriated a total of 300 tonnes, some 3 years ahead of schedule.

"The transfer of gold from New York was completed successfully last year," said Carl-Ludwig Thiele, Member of the Bundesbank’s Executive Board. "The transfers were carried out without any disruptions or irregularities. The gold storage plan for New York, which envisaged the transfer of 300 tonnes of gold from New York to Frankfurt, was fully realised in 2016," Mr Thiele stated.

The Bundesbank also said the repatriation of gold reserves back home was "considerably ahead of the origianal schedule" and as Thiele added "We will be able to complete the transfer of gold from Paris this year too." Which considering there is only 91t of gold left in Paris, or less than Germany withdrew in 2015 and 2016, should be relatively easy.



In summary, as of the end of 2016, the Bundesbank had 47.9% of its gold in Frankfurt - just 2.1% shy of the the planned 50% - 36.6% at the Federal Reserve Bank of New York, 12.8% at the Bank of England in London, and 2.7% at the Banque de France in Paris.

Why this unexpected scramble to repatriate so much gold 3 years ahead of the 2020 stated schedule, remains a mystery.

* * * * * *


- The moves from the central banks of many Major Economies (like China, Russia, Germany, the Netherlands, Austria, Switzerland, Iran and so on) simply tell us that gold is NOT just another (volatile) commodity, otherwise the central banks will be commodity trader or hoarder. Indeed gold (and silver) had been serving as money and medium of transactions as well as saving (both domestically and internationally) for thousands of years!

- Why do those major economies with surpluses keep on accumulating gold or the so-called "barbarous relic" as their national reserves? What do the central banks see and understand that we, the masses, are not able to digest?


Note: ALL above currencies were backed up by or tied up to gold, EXCEPT the USD post the collapse of Bretton Woods in 1971, which has been backed up by KSA's petroleum (hence the Petrodollar) and military might since then.
 

nang2

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I expect 2020, Yuan will tie to gold and drop pegging to US dollar.
Not likely, reasons are:
1. Chinese government isn't custom to strict financial discipline. Gold standard will severely restrict their freedom of printing paper money.
2. Chinese economy is growing faster than gold production. Adopting gold standard will choke off the much needed credits in the economy.
 

samsara

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Termed more properly: "Currencies Used Predominantly In Commerce Since 1450"

The term of "World/Global Reserve Currency" is only known or used in the 20th century.
 

somebozo

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Gold is a negative assets ..it cost money to secure gold..but it does not grow into value ...rather it can unpredictably rise and fall...
 

jhungary

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Gold is a negative assets ..it cost money to secure gold..but it does not grow into value ...rather it can unpredictably rise and fall...
The reason gold system did not work is because we can never mine gold faster than we are using it to develope a country, hence you can either choose one of the two. you either limit your country development so gold can keep up as backing of a payment, or you inflat the value of gold like it does with USD today, the only difference is, there are only 150k ton of gold in the world, and there are about 10 trillions of fiat currency in the world.

Gold Standard are abandoned because it cannot caught up with the developement during WW1, now imagine two things. 1.) There are less gold in public circulation than it was in 1900s, due to people collect gold, using it on item such as electronic. 2.) The world is being develope in a faster pace than it was in the 1900s.

People who think Gold Standard can be revived need to wake up and smell the coffee.
 

samsara

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China does not have to back up the yuan with the gold as in the old sense, it just needs to reveal its way much higher gold reserve figure than the officially reported level to BIS at present. The much higher gold reserve will surely increase further the worldwide confidence upon the economic strength and healthy progress of China's economic engine.

Thus it is not exactly about the gold tied up currency as the pre-Bretton Woods era, but more to a currency being supported by huge gold reserves.


Following article written by Koos Jansen and carried at ZeroHedge may shed more light to this issue.

The Chairman of the China Gold Association and General Manager and Party Committee Secretary of China National Gold Group Corporation, the latter being China’s largest gold mining enterprise, is Song Xin and happens to be one of my favorite commentators in China. This gentleman made waves in July 2014 when he candidly wrote on Sina Finance that the People’ Bank Of China (PBOC) should slowly raise its official gold reserves to 8,500 tonnes, more than what the US Treasury claims to hold. The article was published in Chinese but translated by BullionStar to share the views by Song Xin with the English speaking world:

For China, gold’s strategic mission lies in the support of renminbi internationalization, and so let China become a world economic power and make sure that the China Dream is realized. … gold forms the very material basis for modern fiat currencies. Gold is the world’s only monetary asset that has no counter party risk… That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

In the next translation further below you will read more on how Song Xin views gold’s role in China’s financial strategy. The bullet points from the article:
  • China continuously accumulates gold reserves to support and accelerate renminbi internationalization.
  • Renminbi confidence and gold are closely related. Gold reserves are the cornerstone for renminbi internationalization.
  • In modern times gold plays an important role in managing economic risk and maintaining China’s financial safety.
  • China is continuously increasing its official gold reserves in conjunction to joining the SDR.
  • The ratio of China’s official gold reserves to its GDP should be more in line with the US and other developed countries. At this moment China’s official gold reserves are still relatively low.
  • The Silk Road economic project, also called “One Belt and One Road” (OBOR), has huge development opportunities for the Chinese gold industry. Song Xin mentions that the in ground gold reserves of countries along OBOR reach 21,000 tonnes. In 2015, witnessed by Chairman Xi Jinping and President Putin, China National Gold Group Corporation and Russia’s largest gold mine Polyus have signed a strategic cooperative agreement and they are promoting detailed relevant cooperative issues at present.
What he didn’t mention is that China is striving to boost gold trade along OBOR to be settled in renminbi through the Shanghai International Gold Exchange.

Is The SDR A Means Or And End For China?

In the mainstream media we often read China wants the SDR to replace the US dollar as the world reserve currency, based on statements from PBOC Governor Zhou Xiaochuan - among others:

Special consideration should be given to giving the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency.​

Since 2009 China has vigorously pressured the IMF for renminbi inclusion into the SDR. Finally, in 2015 the IMF decided the renminbi would be added to its currency basket in October 2016.

Zhou and other prominent economists at the PBOC are clearly pushing the SDR, but what’s China’s exact strategy?

In advance of the official inclusion of the renminbi into the SDR, which will take place on October 1, 2016, developments regarding the International Monetary Fund's synthetic reserve currency are unfolding rapidly.

Author of the Big Reset, Willem Middelkoop, reported this August a “Substitution Fund” is being discussed in the higher echelons of the monetary elites, to facilitate dollar exchange for SDRs outside the market, and thus creating an escape from dollar reserves without putting downward pressure on the dollar.
(...)

I find it interesting that Song Xin mentions the importance of the ratio between China’s official gold reserves and GDP. This concept was also brought forward by Jim Rickards. If the PBOC would have 5,000 tonnes of official gold reserves their “gold to GDP ratio” would be roughly on par with to the US, Europe and Russia. One of the theories about our current international monetary system – that was detached from gold in 1971 – is that it can shift to a new gold anchored system when the power blocks have equalized the chips (Jim Rickards). In other words, if the US, Europe, Russia and China all have a roughly equal ratio of official gold reserves to their GDP, the international monetary system could make a transition towards gold.



[...]

Read further at: ZeroHedge
 

Jlaw

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China does not have to back up the yuan with the gold as in the old sense, it just needs to reveal its way much higher gold reserve figure than the officially reported level to BIS at present. The much higher gold reserve will surely increase further the worldwide confidence upon the economic strength and healthy progress of China's economic engine.

Thus it is not exactly about the gold tied up currency as the pre-Bretton Woods era, but more to a currency being supported by huge gold reserves.


Following article written by Koos Jansen and carried at ZeroHedge may shed more light to this issue.

The Chairman of the China Gold Association and General Manager and Party Committee Secretary of China National Gold Group Corporation, the latter being China’s largest gold mining enterprise, is Song Xin and happens to be one of my favorite commentators in China. This gentleman made waves in July 2014 when he candidly wrote on Sina Finance that the People’ Bank Of China (PBOC) should slowly raise its official gold reserves to 8,500 tonnes, more than what the US Treasury claims to hold. The article was published in Chinese but translated by BullionStar to share the views by Song Xin with the English speaking world:

For China, gold’s strategic mission lies in the support of renminbi internationalization, and so let China become a world economic power and make sure that the China Dream is realized. … gold forms the very material basis for modern fiat currencies. Gold is the world’s only monetary asset that has no counter party risk… That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

In the next translation further below you will read more on how Song Xin views gold’s role in China’s financial strategy. The bullet points from the article:
  • China continuously accumulates gold reserves to support and accelerate renminbi internationalization.
  • Renminbi confidence and gold are closely related. Gold reserves are the cornerstone for renminbi internationalization.
  • In modern times gold plays an important role in managing economic risk and maintaining China’s financial safety.
  • China is continuously increasing its official gold reserves in conjunction to joining the SDR.
  • The ratio of China’s official gold reserves to its GDP should be more in line with the US and other developed countries. At this moment China’s official gold reserves are still relatively low.
  • The Silk Road economic project, also called “One Belt and One Road” (OBOR), has huge development opportunities for the Chinese gold industry. Song Xin mentions that the in ground gold reserves of countries along OBOR reach 21,000 tonnes. In 2015, witnessed by Chairman Xi Jinping and President Putin, China National Gold Group Corporation and Russia’s largest gold mine Polyus have signed a strategic cooperative agreement and they are promoting detailed relevant cooperative issues at present.
What he didn’t mention is that China is striving to boost gold trade along OBOR to be settled in renminbi through the Shanghai International Gold Exchange.

Is The SDR A Means Or And End For China?

In the mainstream media we often read China wants the SDR to replace the US dollar as the world reserve currency, based on statements from PBOC Governor Zhou Xiaochuan - among others:

Special consideration should be given to giving the SDR a greater role. The SDR has the features and potential to act as a super-sovereign reserve currency.​

Since 2009 China has vigorously pressured the IMF for renminbi inclusion into the SDR. Finally, in 2015 the IMF decided the renminbi would be added to its currency basket in October 2016.

Zhou and other prominent economists at the PBOC are clearly pushing the SDR, but what’s China’s exact strategy?

In advance of the official inclusion of the renminbi into the SDR, which will take place on October 1, 2016, developments regarding the International Monetary Fund's synthetic reserve currency are unfolding rapidly.

Author of the Big Reset, Willem Middelkoop, reported this August a “Substitution Fund” is being discussed in the higher echelons of the monetary elites, to facilitate dollar exchange for SDRs outside the market, and thus creating an escape from dollar reserves without putting downward pressure on the dollar.
(...)

I find it interesting that Song Xin mentions the importance of the ratio between China’s official gold reserves and GDP. This concept was also brought forward by Jim Rickards. If the PBOC would have 5,000 tonnes of official gold reserves their “gold to GDP ratio” would be roughly on par with to the US, Europe and Russia. One of the theories about our current international monetary system – that was detached from gold in 1971 – is that it can shift to a new gold anchored system when the power blocks have equalized the chips (Jim Rickards). In other words, if the US, Europe, Russia and China all have a roughly equal ratio of official gold reserves to their GDP, the international monetary system could make a transition towards gold.



[...]

Read further at: ZeroHedge
US DOESN'T have the 8500 tons of gold reserves it claims to have. their gold reserves have not been audited for over fifty years. there may not be a lot of gold in there except maybe foreign gold
 

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