The desire of gold is not for gold. It is for the means of freedom and benefit. ~ Ralph Waldo Emerson
The century-old fiat experiment is playing out its final stages. With instability rising, the massive shift in wealth is accelerating to the East. Precious metals are one vehicle leading the way.
Importing Inflation and The Big Taper
The Chinese have taken the other side to the great Western financialization by importing its inflation and gaining control of its bond market. In addition, they have built a massive infrastructure capable of supporting its billions of upwardly mobile.
The Chinese have already cut back significantly on U.S. debt purchases. They have also rotated out of long-term debt in conjunction with the operation twist of the Fed. (The Fed sold short-terms notes in order to buy further out along the curve. This has basically caused interest rates to flatten across the spectrum). This means that the Chinese don’t need to “suddenly” begin selling their dollar-denominated assets. Instead, they can simply allow these short-term notes to mature and not make further purchases.
The Fed, by order of the Treasury, will need to step up its purchases to keep spending alive — something it is already doing to an unprecedented degree. Such action requires much higher deficits to justify in terms of confidence. In other words, if they don’t slow down on QE (without a new source of deficit spending), they will trigger a confidence signal that will push us closer to the point of no return and to bond collapse.
By allowing their currency to finally appreciate against the dollar, the Chinese empower their citizens with greater purchasing power. It also provides them with the ability to take up the production slack lost from the U.S. consumer who will no longer be able to afford cheap exports. In addition, the Chinese have been directly encouraging precious metals ownership. With enough population ownership, it would be much easier to position and pull off the transition to a gold backed Yuan.
The Physical - Paper Divide
China and (to a lesser extent) the so called BRIC nations have been rapidly accumulating Western gold for years.
This drainage of Western gold (and the source of its financial power) is in many ways yet another chapter in a continuum set in motion decades ago — just before the U.S. officially closed the gold window in September of 1971.
Awareness and concern over these quickly drying inventories is far from the mainstream spotlight. But dynamics have been set in motion that promises to reverse the paper induced trends currently in place.
These dynamics are a reflection of the much larger set of currency conflicts set in motion by the financial elite. These influential have risen to priesthood in convincing a mass of followers that it is possible to control the cost of labor and the price of capital.
The inflection point is where the market for hard assets engulfs the universe of paper promises.
Precious Metals Ownership
In addition to openly encouraging precious metals ownership, plans are in place to open a Chinese futures market with complete physical backing. Major gold trading could easily shift toward the East as a result.
This will put extreme pressure on the highly leveraged and, in many ways, fractional LBMA and COMEX trading systems in the West.
Again, this was all inevitable. Just as there is always profit to be made from war, the financial elite have been able to extract wealth from the largest inflationary credit expansion ever.
Silver may also return to (unofficial) monetary status in a more breathtaking manner, as the "oldest currency" has been hidden from view and fundamentals for much longer.
Critiques of the grey metal often point to its industrial role as a hindrance to monetary adoption.
While much of modern society depends on silver in much the same way as oil, the great stock of silver sequestered in the multitude could easily serve the high stock to flow ratio required of monetary assets.