There's a significant shift in global power going on and most people don't even realize it. It's not military. It's economic. In this episode of the Money Metals' Midweek Memo, host Mike Maharrey explains the movement of gold from West to East - particularly to China - and how it could significantly change the geopolitical and economic landscape. He also gives an overview of Q1 gold demand.
Mike kicks off the show explaining how blindside hits often happen in football. Often, a player who gets hit isn't paying attention to the entire field.
"It can get ugly fast when you miss important things going on around you. And when it comes to geopolitics, I think the U.S. in particular, and the West more generally is so focused on military stuff that they’re missing an economic shift in power that is coming at them like a freight train. The East – particularly China - is taking incremental steps to solidify its economic position and I think this is a far bigger threat to US global dominance than any of the military maneuverings. More specifically, gold is moving from the West to the East and I think this represents a major shift in economic power."
Mike points out that you can see this movement in gold in the first quarter gold demand data, and he gives an overview.
"So, you’ve got central banks in the East accumulating gold. You have investors in the East accumulating gold. The impact remains unclear, but there is no doubt that gold’s axis is moving to the East - particularly China."
So, what’s the big deal about this movement of gold from West to East?
"Well, historically, gold has represented economic power. The Western powers have forgotten this truth. The East has not. The West is enamored with dollars. And I think there is this underlying assumption that the dollar will always be there, always be the reserve currency, always the focal point of the global economy."
Mike concedes that talking about the demise of the dollar may be premature. After all, the greenback remains strong compared to other global currencies.
"But this doesn’t necessarily reflect the greatness of the dollar. It’s more a function of weakness in other global currencies. As the saying goes, the dollar is the cleanest dirty shirt in the laundry. And if we look at the fundamentals underpinning the dollar, there are clearly issues."
Why does the dollar remain strong despite Uncle Sam's monetary malfeasance?
Because it remains the global reserve currency.
Mike explains the "Dollar Milkshake" theory and how its position as the reserve currency underpins the greenback.
"The Milkshake Theory assumes that the dollar will always remain the reserve currency and thus serve as a safe haven. But what happens if the world loses faith in the dollar?"
Mike goes on to talk about how the rise of the BRICS economic block and the global trend toward de-dollarization could challenge dollar dominance.
What is driving this de-dollarization trend?
"De-dollarization is happening for both economic and political reasons. First, other countries don’t want to be overexposed to a rapidly depreciating asset. Second, they don’t want to put themselves in a position where the U.S. can use the dollar as a foreign policy hammer."
And this is where gold comes in.
"This movement in gold from East to West could set the stage for a new gold-backed currency. And make no mistake, a currency backed by gold will ultimately be stronger than the ever-depreciating dollar – no matter what advantages the greenback may currently enjoy."
Mike provides some highlights of Chinese gold demand and notes that the People's Bank of China is shedding dollar-denominated assets even as it adds gold.
"In effect, it’s dollars for gold. Now, put this in context with the expansion and growing influence of the BRICS bloc – a group that has made no secret of its desire to create a currency to compete with the dollar. All this gold moving East could very well underpin a new currency to challenge dollar dominance."
What's the worst-case scenario?
A currency crisis. But even if America dodges the worst case, de-dollarization could cause problems. Even a marginal weakening of the dollar will impact the U.S. economy.
"You and I would feel the impact, with more price inflation eating away at the purchasing power of the dollar. It could even lead to hyperinflation. In other words, even if China and BRICs can’t usurp the dollar, they could significantly erode Americans' standard of living."
Mike says he doesn't think the U.S. government will wake up to this reality until it's too late. However, individuals can take steps to protect their own wealth.
Do what the Chinese and others are doing. Get gold now.
Articles Mentioned in the Show
Q1 Gold Demand Strongest Since 2016
BRICS to Develop Blockchain Payment System to Bypass the Dollar
Turkey China and India Lead Nother Solid Month in Central Bank Gold Buying
About the Author:
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
