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April 16, 2016 | China’s Coming Gold Fix April 19th, 2016

Martin Armstrong

Martin Arthur Armstrong is the former chairman of Princeton Economics International Ltd. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.

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Next week, China will begin its competition with London & New York and attempt to create the equivalent of the London gold fix but in Chinese yuan on April 19th. Of course the gold bugs are misrepresenting this as some dollar killer. Top Chinese banks, alongside Standard Chartered and ANZ, will be among 18 members to join a new yuan-denominated gold benchmark that signals China’s biggest step towards making the yuan convertible.  Of course, in London the banks have been fined for manipulating the closings to elect stops playing against their own clients. By creating a yuan based gold fix, this is a back-door to floating the yuan itself. It will allow for arbitrage in currency so you can go long or short gold in dollars and the opposite in yuan and you have then created a yuan futures contract.

For years, these people spinning stories that “paper gold” was evil, failed completely to comprehend how the market even functions. OPEC nations who could not earn interest religiously, bought gold and then sold it forward. They were not interested in gold; it was the means to earn interest without calling it interest. This is what gave gold the liquidity that other commodities did not have. The gold market was an interest play for decades enabling the OPEC state to circumvent their religious restrictions. Creating a yuan based gold fix is once again not about gold but about a test for floating the yuan. Sophisticated players will use this for the currency and China will monitor the trading as a test case for floating the currency. This is the small step forward. China has to float its currency or it will NEVER make it to the big leagues. Capital has to freely be able to move in and out without applying for permission to enter and leave.

So now these people spinning this story show their ignorance. They say “no dollars allowed”, as if this is some war that will destroy the dollar. China dollar reserves are over $3 trillion. Why would they try to make those reserves worthless? If they wanted to hurt the dollar, then convert the $3 trillion into something else. But what? Rubles? Gold is not easily transportable for international settlements among nations. Gold is such a tiny fraction of world capital flows (less than 1%), that converting all their reserves to gold would isolate China’s economy preventing it from trading with the rest of the world. These claims only reveal the lack of comprehension of how the economy even functions when these gold promoters yell this at the top of their lungs.

Those who are screaming gold will now go to $64,000 an ounce because this will some strange way make the yuan a gold backed currency, only demonstrate how ignorant they are when it comes to international finance. It was during the 19th century when the Silver Democrats tried to fix the silver at 16:1 relative to gold seriously over pricing it relative to where it traded in Europe. That resulted in silver being attracted to the USA and gold fleeing the country. This is why the USA entered a 26 year depression and ended up virtually bankrupt when J.P. Morgan had to arrange for a gold loan in 1896 to save the country. Here is the English magazine Puck showing America drowning in silver by their stupid attempt to overvalue silver relative to gold because the miners paid off the Democrats just as the bankers do today.

If China even dared to attempt to make gold some absurd price well above the world price, they would be bankrupted in a matter of weeks. Everyone would sell their gold to China and return with dollars and nobody would accept gold at some crazy price in payment for anything. All you would need to do is just wait for the collapse and buy back the gold at the world price. Any attempt by any government to FIX THE PRICE of gold far above the world price is precisely converting gold to FIAT defined as dictating the price disconnected from reality of the free market.

So anyone claiming gold will rise to some absurd number, just ask them; Will you buy it now at 10% or 5% of that number and how much do they want? I could easily deliver any quantity at 10% or 5% of such a price of $30,000, $50,000, $64,000, or $100,000. I will be glad to sell them an option at those prices. As the TV show use to be say: Let’s Make a Deal. The question really is; Do they honestly believe this BS? Or are they paid by people to try to sell dreams like swamp land in Florida and the miners did to convince the Democrats to buy silver at overvalued prices during the 19th century

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April 16th, 2016

Posted In: Armstrong Economics

5 Comments

  • Avatar Buddy says:

    Since our entire financial system is a fraud which you yourself have hinted at so many times,maybe
    dramactic market moves may occur which Socrates hasn’t been picked up on yet.
    It will surprise everyone.
    What if the governments just revalue their currencies not against each other but against
    A basket of commodities like oil,gold silver and reset to eliminate the fraud in the system.
    Prices could be repriced to reflect the gdp of a country minus their current indebtedness .
    That might be a revaluation .

  • Avatar John Mc Dermott says:

    We’ll see if you are correct soon enough but you are leaving out free markets and Price Discovery.

  • Avatar Alfred Winkler says:

    The practical cap to gold prices is in the range of 3000 US dollars , this is the point that gold can be produced from sea water economically , an unlimited source. The price point may change a little with the main cost ,the cost of the energy needed in the process. This not saying anything about terrestrial mines and increasing supply from them.

    • Avatar Fred Roberts says:

      But if Rickards and Maloney et al are correct and gold rises to 5k or 10k or beyond (Rickards explained in a recent vid the conservative assumptions that conclude in 10000$ per oz)….Then how long before extracting from seawater can grow sufficient annual production to bring the price back to equilibrium at 3000?
      Probably not less than 5 years right? In any case there would be enough opportunity for those who have accumulated some gold as insurance to rebalanced their assets at a price much higher than the equilibrium price Alfred posits.

  • Avatar therooster says:

    Gold is now being brought into the market and monetized & circulated directly by consumers, bottom-up where the mass is the unit of account of the market gold currency. That’s a perfect tool for debt-free liquidity while also allowing for the safe purging of existing market debt associated with fiat currency. The price model belongs to the banks in support of debt-free trades so everybody wins.

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