Friday, December 30, 2016

Gold, Bitcoin, and the state of the dollar heading into 2017

As an observer of economic and geo-political events, we at The Daily Economist prefer to look at things more pragmatically rather than to make wild speculations in forecasts or predictions for a coming year.  But with certain realities beginning to unfold all across the financial spectrum in the last days of 2016, the groundwork appears to be in place for commentary and analysis on a few trends that could be taking shape.

Each of these trends are tied specifically to differing forms of currency or money, and their potential growth in economies both regional, and worldwide as the global financial system heralds immense change and the likelihood of new crises.

The advent of Donald Trump winning the U.S. Presidential election 50 days ago saw stocks, bonds, and the dollar react in ways not seen in the past three years.  And likewise the rest of the world reacted in nearly opposite fashion, with China and India bearing the brunt of America's artificially exploding markets.

And with this in mind it is a high probability that policies coming out of Eurasia and the Far East will dictate much of the monetary changes that the world will experience in 2017.

Gold:


Following the election of Donald Trump to the U.S. Presidency, gold and silver were summarily crushed around 16.5% in the Comex and in London, and began the separation in price between the Western paper markets, and the physical one run out of Shanghai.  And those spreads in price will only become greater than the average $25 - $50 divergence that is currently taking place due to high demand and lower supply of the physical metal.

And it is likely that sometime in 2017 China will seize sole control over price determination for gold and silver as more and more producers sell their metals directly to China and abstain from the manipulated futures markets run by London and New York.

Bitcoin:

Thanks to the extreme rise in the dollar to over 103 on the index, China has experienced severe pressure to its own currency and economy as it fights desperately to rein in capital flight of the Yuan from the Mainland.  And it has been through Bitcoin that many Chinese investors are using to funnel wealth out of China over the past three weeks, causing the price to surge to nearly $1000 from its support level of $640 late last month.

This rise in value will only increase in 2017 as investors in not only China but also in other countries join in and expand their use of the crypto-currency as a conduit to launder money from their local currency into others to then buy tangible assets that protect their store of wealth.

The fate of the dollar as the global reserve currency:


2016 was a banner year for nations and industries to move away from the dollar and conduct commerce using direct bi-lateral currencies.  And these trade agreements were only drops in the bucket to the advent of China expanding the use of the IMF's M SDR currency in international finance.

But China is setting its sights on bigger game, and began this last week when the Deputy General Manager of the Shanghai International Gold Exchange announced a program through which the Yuan currency will be expanded globally through its physical gold markets.  And all that remains is for China to call for the end of the uni-polar reserve currency that is the dollar, and open the door for nations to bypass it at will in a new gold backed trading mechanism underwritten by the Yuan.
The Chinese Yuan is linked to the US Dollar. With the US Dollar at these levels China has rapidly entered a financial crisis. 
In the last month, China has: 
1)   Burned through over $70 billion defending the Yuan.
2)   Had to halt trading in its multi-TRILLION dollar bond market.
3)   Had to issue emergency lending to financial firms to keep them afloat. 
ALL of these are linked to the US Dollar’s rise. And it’s lead the world to a very nasty situation. 
China has a couple different options, NONE of them are pretty for the financial system. 
Alternatively China could go for the “nuclear” option and demand that the US be removed as reserve currency of the world. 
This is not some crazed notion. China is the second largest economy in the world. And the Yuan is now part of the IMF’s SDR currency basket along with the Yen, British Pound and the Euro. 
I’m not saying the US Dollar would necessarily LOSE reserve currency status, but if China were to publicly call for this, the consequences would be severe.
As in, CRISIS severe. – Phoenix Capital Marketing via Zerohedge
The stage is set for a global change in the long-standing Bretton Woods uni-polar reserve currency system, and 2017 is shaping up to be the year for the end of dollar hegemony.  And the primary winners in this will be gold, silver, bitcoin, and the Yuan, with anyone holding paper investments denominated in dollars potentially losing a great deal of their wealth.

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