Julian Phillips sees China’s move towards gold as playing an even more active role in its monetary system as hugely significant for the yellow metal’s future
As a forerunner to the expected IMF announcement on the inclusion of the Chinese Yuan into the basket that makes up the IMF’ Special Drawing Right, the IMF has announced that the Chinese Yuan is no longer ‘undervalued’. The next statement should include that it is a “well used currency”. Thereafter we expect a fuller announcement on its inclusion in the SDR.
At the same time the Chinese Premier concludes his ‘empire building’ trip around the world. Such quiet building of the Chinese sphere of influence appears to be being largely ignored. However, it is very significant for gold. Why, because China has made and is making a huge effort to buy and find gold as well as develop the Shanghai Gold Exchange into the global hub for gold.
Its attitude to gold is very different to that of the developed world where gold, while an important reserve asset, is kept in the background behind national currencies, with the dollar atop the currency mountain. China clearly does not want to be dependent on this mountain, while being included in it. It is moving gold to a far more active role in its monetary system. All investors should be asking why.
The rise of China is not simply the rise of an emerging country it is taking power and wealth from the west. There are clear divisions between China and the developed world at the same time. These are likely to grow. Extrapolate these currents and it is clear that gold will find a far more active role in the future in the global monetary system in a far more turbulent world, which remains weakened by the 2008 ‘credit crunch’ and not in a position to undergo the financial turbulence that comes in a divided world.
These are soon to become historic times for gold and for the global monetary system. The turbulence in the global currency markets as the dollar surges and the euro wanes alongside a Yen at new lows, are symptomatic of what lies ahead.
The silver price has dipped to the bottom end of support but remains there. It seems to be ignoring supports and resistance levels and like gold, not sticking strictly to what the Technical picture tells us will happen.