Jim Rickards latest market newsletter

September 11, 2017

Special Edition: RIP U.S. Dollar… Savvy Investors Turn to Gold… BRICS Join Attack on the Dollar… and More!

Jim RickardsDear Strategic Intelligence Reader,

Below are the five articles that I recommend you read this week. Each article adds to our understanding of global market dynamics.

In this special edition of the Five Links, you’ll see several indicators confirming our thesis that the death of the U.S. dollar is gaining speed.

In todays’ edition, you’ll see TEN links all pointing to increasing activity in the currency wars.

I’ve even uncovered a secret $477 billion operation underway right now. Click here to see the details.

As you’ll see in the five bonus links, we expect a huge reboot to currencies around the world.

But don’t worry, the coming turmoil could be good news for you. In fact, it could make this secret $477 billion operation even more lucrative.

After you’ve seen the details, read the articles below to see the themes and ideas we’ll be exploring over the coming weeks.

Given the large volume of reporting on this topic over the past week, I want to offer as much information as possible on this critical subject, that’s why we’re including additional links today.

Nothing is more important for your financial well-being than understanding how the dollar is impacted by these important trends in fiat money, crypto-currencies, and gold.

I. We’ve Warned You for Years that This Day Would Come. RIP U.S. Dollar

In my 2014 book, The Death of Money, I laid out the case for the demise of the U.S. dollar as the world’s leading reserve currency. I also presented its replacement with one of two leading contenders — gold or the IMF’s special drawing rights, SDRs. I expected this process to begin gradually and then accelerate to a sudden climax and possible monetary chaos. Now in 2017, my forecast is playing out even faster than I expected. This article describeshow China, Russia, and Iran are coordinating a new international monetary order that does not involve U.S. dollars. It has several parts, which together spell dollar doom. The first part is that China will buy oil from Russia and Iran in exchange for yuan. The yuan is not a major reserve currency so it’s not an especially attractive asset for Russia or Iran to hold. China solves that problem by offering to convert yuan into gold on a spot basis on the Shanghai gold exchange. This straight-through-processing of oil-to-yuan-to-gold bypasses the dollar completely. China also offers gold hedging facilities on the Shanghai futures exchange to cover any FX risk on the conversion of yuan to gold. Importantly, this establishes a yuan-denominated benchmark price for oil at the same time. This marks the beginning of the end of the petrodollar system that Henry Kissinger worked out with Saudi Arabia in 1974, after Nixon abandoned gold. U.S. investors cannot easily store oil or hold yuan in their portfolios. The only prudent course to avoid this dollar demise is to do what the Chinese, Russians and Iranians are doing — hold gold.

II. China Not Only Attacks the Dollar, It Attacks Crypto-Currencies, Too

The article above describes a full-scale attack on the U.S. dollar by China through the use of yuan-to-gold conversion facilities. But, China’s not finished attacking rivals to the yuan! As this article shows, at almost exactly the same time that China announced its plan to purchase oil in gold-backed yuan, it also issued a ban on ICOs. An ICO is an “initial coin offering,” similar to an IPO or initial public offering of stock in a company. The major difference is that the “coin” being offered is just a digital token that gives the buyer access to and use of some new crypto-currency application. The crypto-currency market is small, but it does pose a threat to China. Chinese citizens have been using crypto-currencies such as bitcoin to get money out of China and avoid Chinese capital controls. China is also a major center for the “mining” of bitcoins (technically a process of solving math problems with massive computing power to create new bitcoins for the “miners” to sell). China’s ban on ICOs is not a complete ban on crypto-currency transactions, but it is a significant step in that direction. China is not only running the dollar off the road, it’s trying to crush upstart competitors to the yuan before they even get off the ground.

III. With Dollars and Cryptos Both in Retreat, Savvy Investors Turn to Gold

As shown above, both the U.S. dollar and crypto-currencies are under attack. There are no other major currencies ready to replace the dollar in full. The nations behind the euro have internal problems with unified fiscal policy that are still unresolved. Japanese yen are issued by a country with the highest debt-to-GDP ratio of any developed economy by far. Russian rubles, and Chinese yuan suffer from an unreliable rule-of-law. Markets in developed economy currencies, such as Canadian, Australia and New Zealand dollars, are simply too small to absorb the currency flows that the world needs to hold its reserve positions. So, if the dollar is being marginalized, crypto is on the run, and no other candidates can do the job, where should major economies and investors park their reserves? One of the savviest global investors has an answer. In this article, legendary investor Mark Mobius sees a rush into gold. Mobius is right about the attractions of gold, but investors should consider the implications for the price. The global gold supply increases only about 1.6% per year, and the floating supply of gold has been disappearing into private vaults from Zurich to Shanghai. Refiners cannot find enough “scrap” gold (your discarded jewelry) to produce fine gold to meet demand. If the kinds of inflows to gold that Mobius foresees do materialize, and we expect they will, there’s only one solution to the shortage of gold supply, and that’s much higher prices. The time to move into gold is now before the wave of new buyers shows up.

IV. It’s Not Just China. All of the BRICS are Joining the Attack on the Dollar

China is in the best position of any country to marginalizing the U.S. dollar as the leading global reserve currency. It has large gold reserves, and has the second largest economy in the world. Yet, China is not alone in this effort. From September 3-5, China hosted the 9th annual summit conference of BRICS nations in Xianmen. BRICS is an acronym for Brazil, Russia, India, China, and South Africa. These are the leading developing economies. Together they account for 25% of global output and 45% of the world’s population. The BRICS summit covered a lot of issues as this article reports, including North Korean weapons development and the BRICS development bank. Importantly, the BRICS leaders announced their support for China’s efforts to price oil in yuan convertible into gold. They went further to support a new “multipolar” world, which is code for the decline of U.S. dollar hegemony. Russia’s Vladimir Putin said, “Russia shares the BRICS countries’ concerns over the unfairness of the global financial and economic architecture, which does not give due regard to the growing weight of the emerging economies. We are ready to work together with our partners…to overcome the excessive domination of the limited number of reserve currencies.” That last phrase about “limited number of reserve currencies” was just a polite way of referring to the U.S. dollar. Putin is putting his money where his mouth is by tripling Russia’s gold reserves in the past ten years. Everyday investors can do the same by adding to their gold allocations up to our recommended level of 10% of investible assets.

V. When in Doubt, Even the Establishment Rushes for the Haven of Gold

I write and speak about gold in various channels all the time, including financial newsletters and financial TV. Readers and viewers are familiar with my positive views of the role of gold in investor portfolios. But, it rare to see conservative wealth managers from Switzerland do the same. Among super-elite asset managers, gold is not widely discussed because it invites skepticism at best and ridicule at worst. This is for all the usual reasons such as “gold has no yield” or “gold is a barbarous relic,” etc. (By the way, these repeated criticisms are completely debunked in my 2016 book, The New Case for Gold.) But, the times may be changing. In this article, one of the largest and most conservative wealth managers in the world, Pictet Group, based in Geneva, Switzerland, offers a very constructive view on gold. Pictet’s strategist, Luc Luyet, says that the Fed will be on hold for the rest of 2017 and most of 2018 because of U.S. disinflation and the failure of President Trump to deliver on his growth agenda. We agree. With the Fed in easing mode, the dollar will weaken and the dollar price of gold will remain strong. This is a fundamental case for gold that does not take into account other positive vectors such as geopolitical shocks from North Korea or outright assaults on the dollar from Russia and China. When a conservative institution like Pictet Group has a kind word for gold, you know the rest of the institutional world will not be far behind.

Special Edition Bonus Links

Bonus I: China’s Crypto-Currency Ban is Just Getting Started

Bonus II: It Looks Like the Beginning of the End for Crypto-Currencies

Bonus III: Even the Power Elites Understand that a Global Money Reboot is Coming

Bonus IV: China is Seeking a New World Monetary Order

Bonus V: The War on Cash Shows No Signs of Abating. It’s Only Getting Worse

All the best,

Jim Rickards

Jim Rickards