Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21
Is This the "Kiss of Death" for the Stocks Bull Market? - 14th Sep 21
Where Are the Stock Market Fireworks? - 14th Sep 21
Play-To-Earn Cryptocurrency Games Gain More and Is Set to Expand - 14th Sep 21
The CashFX TAP Platform - Catering to Bull Investors and Bear Investors Alike - 14th Sep 21
Why every serious investor should be focused on blockchain technology - 13th Sep 21
SPX Base Projection Reached – End of the Line? - 13th Sep 21
There are diverse ways to finance the purchase of a car - 13th Sep 21
6 Tips For Wise Investment - 13th Sep 21 - Mark_Adan
Gold Price Back Below $1,800! - 10th Sep 21
The Inflation/Deflation debate wears on… - 10th Sep 21
Silver Price seen tracking Copper prices higher - 10th Sep 21
The Pitfalls of Not Using a Solicitor for Your Divorce - 10th Sep 21
Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
This Boom-Bust Cycle in US Home Ownership Should Give Home Shoppers Pause - 9th Sep 21
Stock Market September Smackdown Coming Next? - 9th Sep 21 - Monica_Kingsley
Crazy Crypto Markets How to Buy Bitcoin, Litecoin for Half Market Price and Sell for TRIPLE! - 8th Sep 21
Sun Sea and Sand UK Holidays 2021, Scarborough in VR 180 3D! - 8th Sep 21
Bitcoin BTC Price Detailed Trend Forecast Into End 2021 - 8th Sep 21
Hyper Growth Stocks - This billionaire is now using one of our top strategies - 8th Sep 21
6 common trading mistakes to avoid at all costs - 8th Sep 21
US Dollar Upswing, S&P 500 and Nasdaq Outlook - 7th Sep 21
Dovish Assassins of the USD Index - 7th Sep 21
Weak August Payrolls: Why We Should Care - 7th Sep 21
A Mixed Stock Market - Still - 6th Sep 21
Energy Metals Build Momentum; Silver & Platinum May Follow - 6th Sep 21
What‘s Not to Love About Crypto Market Fireworks - 6th Sep 21
Surging US Home Prices and Gold – What’s the Link? - 6th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Clarifying Asian Gold Strategy

Commodities / Gold and Silver 2014 Jun 06, 2014 - 03:08 PM GMT

By: Alasdair_Macleod


The Russians came up with an extraordinary statement recently, central to why Russia and China are buying gold, the importance of which was missed by the media. President Putin said that “Russia and China need to secure their gold and foreign reserves.” He may have been overstepping the mark in making comments about China’s monetary policy, but he was unlikely to have done so without good reason. Furthermore it is impossible to secure foreign currency reserves, because they are at all times under the control of the issuing central banks. So what Putin was actually implying was that China and Russia need to secure their gold.

For those of us that follow these issues closely the emphasis on gold comes as no surprise. The reason this particular penny has not dropped in western markets is we do not think like they do. They emerged from failed communism based on Marxian creed. Keynesian and monetarist theories developed while most of Asia was in economic isolation, and is based less on Marx and more on Christianity. This means the Russians and Chinese have not automatically adopted western economic theory in the wake of communism’s collapse: parts of it, yes, wholesale no.

For this reason it is far too simplistic for western commentators to analyse Russia and China in western terms. Both nations from the top down, in common with the whole Asian population, have no illusions about national currencies which always devalue over time, compared with gold which for them will always be the most secure store of value. And unlike western governments the Chinese and Russian governments regard themselves as being business-like in their affairs and so care very much about the quality of payment they receive for their nations’ exports.

This is why it is likely gold will play a major role in cross-border trade in Asia. It is also worth noting that the Chairman of the State Bank of Russia is Putin’s personal appointee, a woman who previously had been his own economic adviser. She would not have got this position by parroting anti-gold Keynesian and monetarist theory. All the indications are that Elvira Nabiullina is at one with Putin and that she, like him, is a commercial and economic realist. She is also one of very few central bankers who refuses to rescue insolvent banks.  

The State Bank of Russia under her chairmanship is also accumulating gold, allocating what a western central bank would regard as precious foreign reserves that should be used to protect the currency in troubled times. So Russia’s view on gold is in line with China’s, giving force and validity to Putin’s statement.

China’s long-term plans
I have long argued that the Chinese government is working to a strategic plan, which is only partly disclosed through formal five and ten year targets. Having developed her economy on the back of rapid industrialisation China is now switching her attention to her own back yard, which ironically could be described as the maximum boundaries of Genghis Khan’s empire in the thirteenth century, from the Bering Strait to the gates of Jerusalem. She will continue to trade with Europe and America and to extract minerals from Africa and Australia, but there is no doubt her commercial focus is now on Asia. And when it comes to cross-border trade settlement negotiated at inter-governmental level, we can assume western currencies will be excluded where possible. The choice will be for the balance of trade to be settled in a mutually acceptable Asian currency or gold.

China and Russia have been planning towards this outcome for a considerable time through the establishment of the Shanghai Cooperation Organisation, and this is the backdrop to mutual trade settlement policies. Between its members, associates and future members the SCO covers almost all Asia, with the exception of the Sinophile nations of South-East Asia and the Arab states. These regional and cultural blocs are bound to be subsumed into the SCO as the west’s economic and political power declines. It is a total market of over four billion people, four times that of a declining west.  

Genghis Khan’s old stamping ground is being moulded into an economic bloc that will become larger than the North American Free Trade Agreement and the EU together, and potentially more cohesive. It does not have the heavy baggage of the welfare state and its citizens are savers. The confidence China feels in this strategy is reflected in territorial disputes with her non-SCO neighbours. The sub-text is she is telling Vietnam, the Philippines and Indonesia to ditch the foreign influence of America and join the SCO.

Already governments all over Asia are beginning to recognise this pull towards a combined future. As soon as we leave Afghanistan she is likely to be fast-tracked into the SCO. Turkey is turning her back on joining the EU and is moving towards SCO membership. And coincidentally financial markets from Moscow to Dubai and perhaps even Bangkok are all gearing up to be gold-dealing centres.

The signs are as clear as daylight. With a financial system that has the structural stability of a house of cards and the prospect of eventual bankruptcy from welfare commitments, trade with the US and EU is not the future priority for China and Russia. And without the west’s Keynesian and monetary baggage to carry, they have retained in large measure an understanding of the importance of gold as sound money.  

This is why so much of the world’s gold has ended up in Asia, including the Middle East. Gold is destined to be an integral part of Asia’s financial system, leaving the west short and out in the cold. And we know from the tonnage flowing to Asia that much of this gold has come from western central bank vaults.

It amounts to an Asian gold strategy that excludes the west, and by supressing the gold price through sales and leasing of monetary gold western central banks have unwittingly enabled China’s carefully thought-out plans. How and when will western central banks break the news to us all, that the bulk of the gold reserves entrusted to them are now in Asian hands, and they have been secretly complicit since the 1970s in setting up a whole continent with what probably amounts to the largest wealth transfer in history?  

Alasdair Macleod

Head of research, GoldMoney

Alasdair Macleod runs, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is also a contributor to GoldMoney - The best way to buy gold online.

© 2014 Copyright Alasdair Macleod - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Alasdair Macleod Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in