There is still obstinacy against the concept of the gold as one of the safest investments. Many economists and politicians are loath to accept the gold as the right way to composite the nation reserves and backup the currency. They just consider it as a nice way of saving that can be used by investors. Why is that happening yet?
Central banks and institutions are constantly making a gain through the fiat currencies and their fragile structure and behavior. Fiat currency can suffer severe inflation or deflation situations, due to its non-existant intrinsic value. That happens really often, and during that process, many countries and organizations profit.
The whole image adopted by the gold through media manipulation has modified the mindset of many investors. The market put the precious metals in the commodities sector, making people forget its evident and strong relationship with monetary and currency affairs.
One of the main aspect that everyone has known and remember on the daily basis is that the gold can’t be devaluated by a Central Bank’s policies and decisions. In that way, savings and investments are independent of financial and political measures. So the assets remain safe against possible manipulations or misguided judgment by public officers.
Now China is about to suffer a Great Depression-like crisis due its recent stock market crash. Thanks to the important loss of relevance in the gold reserve subject, they Yuan will suffer and there is going to be a deflation process. The Chinese economic machine will take care of delivering deflation to other countries through the pressure applied to commodities.
The import of cheaper commodities into the United States from China will strengthen the Dollar even more, creating displeasure inside the Federal Reserve. There are several proposals from the FED to devaluate the currency to create stimulation in the domestic manufacturing sector and boost exports. With an even stronger Dollar, this intention is clearly frustrated.
Smart investors will look gold closer and stay away from unstable currencies. The China’s purpose were established the Yuan as an alternative and viable reserve currency for investors and countries, so this situation represents a mishap. By the other hand, there are some investors who are thinking about China and a possible selling of its gold holdings between the market collapse panic.
The People’s Bank of China (the Chinese Central Bank) has already taken many measures to counteract many of the recent crash’s effects. Experts stated that the applied policies were well oriented and are going to have relevant results anytime soon. Now a gold revaluation is mentioned widely. It can work to make stable the economy and help against the actual crisis.
But that kind of revaluation means a threat to the US monetary interests. The Yuan gold price can rise up in any moment as a viable measure to fight the damages inflicted by the stock market crash. Also can greatly help with the Chinese intention of strength the Yuan’s image in front of the US Dollar at the international currency markets. For the Chinese Government, sooner or later, the Yuan will become a reserve currency.
Thanks to that and the conversations between the PBOC and the International Monetary Fund (IMF), China release its first gold reserves number since 2009, showing to the world that they have 1658 tonnes. The forecasts were much more optimistic than that, but those numbers still represent a great improvement of almost 60% of the increase.
Neither China nor the US are going to have a serious discussion about the subject. Powerful Central Banks around the world will keep alive their fight against the gold and its relevance inside monetary affairs. But China needs a domestic change to ease the upcoming impacts.