There’s a BIG story developing … something we’ve been tracking for years …
… which might be about to create a SEA CHANGE for investors all over the world … including YOU.
Here’s a headline you SHOULD be aware of but might have missed …
China sees new world order with oil benchmark backed by gold – Nikkei Asian Review, September 1, 2017
There’s SO much to say here, it’s hard to know where to start.
We’ll hit some highlights … and refer you back to some of our previous coverage of this VERY important topic.
First, let’s quickly consider …
WHY this matters to real estate investors …
If you denominate your net worth, assets, debt, or income in U.S. dollars, then you should care VERY MUCH about the future and health of the dollar.
Ditto if you utilize debt or care about the impact of interest rates (and you should) … on your mortgages, the stock and bond markets, as well as the overall economy.
And if you’re an American or invest solely in the U.S., the health of the U.S. dollar and economy should be of even GREATER interest to you.
So yes, what China is doing with gold and oil matters a LOT to real estate investors … especially in the United States.
What’s the big deal?
First, this recent move by China is the latest in a long series of moves they’ve been making to undermine the role of the U.S. dollar as the world’s reserve currency.
This is something we’ve been tracking since 2009, when we first read about China’s concerns about U.S. debt and interest rate policy.
We continued to track China’s actions and made this the focus of our remarks in our 2013 presentation at the New Orleans Investment Conference.
Shortly thereafter, we expanded on the situation in our special report on Real Asset Investing.
We’ve also talked about it on our radio show and in our blog.
So if you’re new to this whole subject, we recommend you go back and review those reports, broadcasts and blogs.
For now, just understand China has been overtly, aggressively and systematically working to undermine the U.S. dollar’s uniquely powerful role in global finance.
This latest move is a HUGE next step in unseating the dollar’s dominance.
The rise and (potential) fall of the U.S. dollar …
If you’re unfamiliar with U.S. dollar history, schedule some time to study it. It’s too big a topic to unpack here.
For now, we’ll simply point out that the U.S. dollar was originally backed by gold from its inception and when it ascended into its role as the world’s reserve currency at Bretton Woods in 1944.
The gold backing was broken in August 1971 when then-U.S. president Richard Nixon defaulted on Bretton Woods. Gold soared and the dollar crashed.
The U.S. quickly cut a deal with Saudi Arabia … where the Saudis would use their influence to force oil shipments to be settled in U.S. dollars.
This “petro-dollar” deal created a huge and persistent demand for dollars …
… and protecting the petro-dollar has been a focus of U.S. foreign and trade policy ever since.
To further bolster the dollar, then-Fed chair Paul Volcker jacked-up interest rates to over 20%, which had a profound impact on the U.S. economy … and real estate.
All this to say … gold, oil, the dollar, and interest rates all impact each other … and have been VERY important to maintaining U.S. dominance around the world.
So it’s no surprise other countries looking to increase their influence in the world are interested in all those things … and you probably should be as well.
Chinese currency to be backed by gold …
So let’s take a look at some of the notable statements in the news article …
“Yuan-denominated contact will let exporters circumvent US dollar”
“Yuan-denominated gold futures have been traded on the Shanghai Gold exchange as part of the country’s effort to reduce the pricing power of the U.S. dollar”
“China is expected shortly to launch a crude oil futures contract priced in yuan and convertible into gold … could be a game-changer for the industry.”
“… will allow exporters such as Russia and Iran to circumvent U.S. sanctions …”
“… China says the yuan will be fully convertible into gold in exchanges in Shanghai and Honk Kong.”
Think about this …
When oil exporters … like Iran, Russia and Venezuela… can circumvent the U.S. dollar in oil trade … and get GOLD instead of U.S. paper which can be printed out of thin air …
…which do YOU think they’ll choose?
And how influential will U.S. sanctions be (i.e., getting locked out of the U.S. dollar and banking system) when countries can do business without the dollar?
How important will GOLD become as more and more international trade settles in gold-backed yuan instead of nothing-backed dollars?
How unimportant will dollars become? Where will the bid move?
Is THIS why gold has been moving up lately? Is this why the dollar has been falling?
Why did U.S. Treasury Secretary Mnuchin pay “a rare official visit” to Fort Knox and subsequently tweet, “Glad gold is safe!”? All of the sudden gold is interesting to the Treasury?
Meanwhile, Germany recently completed a repatriation of a big chunk of their gold … ahead of schedule. Maybe the rush is to pacify voters in the upcoming election … or maybe there’s another reason?
Of course, way back when China began publicly expressing concerns about the U.S. dollar … and taking steps to mitigate its own exposure to dollar denominated assets …
… several countries joined Germany in taking steps to repatriate their gold from foreign hands. That feels a lot like a “run” on the bank … and it began long before any of the current elections.
Besides, if gold is really just a barbarous relic with no role in modern finance as some claim … then why all the fuss?
As you can see, this all raises a LOT of questions.
What’s an investor to do?
First, simply understand the fate of the dollar has a PROFOUND impact on anyone who earns, saves, invests or borrows in dollars.
If that’s you, then this is an IMPORTANT topic for YOU to pay attention to.
Next, be encouraged there are investment strategies which you can use to mitigate risk and generate profits … even in the face of a falling dollar.
We discuss some of these in our special report on Real Asset Investing.
Get and stay connected and informed. That’s why we attend the New Orleans Investment Conference and produce the Investor Summit at Sea.
Right now, it’s more important than EVER to attend events like these.
It’s where you hear from thought leaders, focus deeply on important topics, get into great conversations with like-minded people and subject matter experts …
… and form valuable relationships with people who can help you implement useful strategies.
The WORST thing you can do is ignore it all and hope nothing’s going to change. The world is changing whether you know it, like it, or understand it.
How you choose to respond will determine how it changes for you.
Until next time … good investing!
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