What’s gonna be the Federal Reserve’s next big move? Negative Interest Rates or helicopter money. Harley Bassman, Pimco’s strategist, says the easiest way for the Fed to create inflation is to buy gold, huge quantities of gold at a higher price so it can get ahead of the game.
Bassman got his idea from a 83 year old plan, referring to FDR’s 1933 Executive Order 6102, which made it illegal for a citizen to own gold bullion or coins. Americans promptly sold their gold to the government at the official price of $20.67, with the resulting hoard of gold was then placed in Fort Knox.
The Gold Reserve Act of 1934 raised the official price of gold to $35.00, a near 70% increase. It also resulted in an implicit devaluation of the US dollar. As Bassman points out, over the three years from January 1934 to December 1936, GDP increased by 48%, the Dow Jones stock index rose by nearly 80%, and most salient to our topic, inflation averaged a positive 2% annually, despite a national unemployment rate hovering around 18%.
The Federal Reserve should do this before the gold market is changed for good. A couple big changes are coming, but few are listening. China is going to play a big role in the next chapter for gold. Step by step they are taking over the gold market … without a whistle.
# 1. China has its own gold fixing. China wasn’t part of the London Bullion Market Association (LBMA) So it decided to create an own gold fixing … in yuan with 12 members, 10 of them are Chinese banks.
# 2. China can influence silver fixing. China did get a foot between the door with silver. China’s biggest bank, China Construction Bank, is now part of the silver fixing next to HSBC, JPMorgan Chase, Bank of Nova Scotia, Toronto Dominion Bank and UBS.
# 3. Yuan in the SDR. In November last year China finally got his confirmation about the yuan being admitted to IMF’s SDR’s. This is a victory for de Chinese monetary progress, the yuan joins now the dollar, euro, pond and yen. But to be equal, China still got to buy lots of gold.
The United States has 8,133 tons of gold. The members of the Eurozone and ECB together got about 10,788 tons. Russia has 1,447 tons but has been acquiring over 200 tons per year.
China reports holdings of 1,788 tons, but actual holdings are closer to 4,000 tons, based on reliable data from Hong Kong exports and Chinese mining. They want to buy as much gold as possible at the lowest price.
Since today’s international monetary system is largely based on the US dollar, a new collapse will be triggered by a collapse of confidence in the dollar and its role as a store of value. It may be surprising, but such collapses do happen every thirty years or so,” Jim Rickards wrote in his recent book ‘The New Case for Gold’.
The economist drew attention to the fact that each time the system collapsed major economic powers teamed up to write new rules: like it was at Genoa in 1922, in Bretton Woods in 1944 and at the Smithsonian Institution in 1971. An upgrade to the Smithsonian Agreement was made by the Louvre Accord about 30 years ago.
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Courtesy: Secular Investor
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