Gold/Silver Reemerging as Money

World Shunning Dollars, Gold/Silver Reemerging as Money

The U.S. currency’s privileged status on the world stage as “King Dollar” is slowly coming undone. As more nations move to bypass the dollar in international trade and exchange their holdings of shaky U.S. Treasury debt for the solidity of gold, the value of the dollar may take an epic tumble.

Last month, Russia signed a historic 30-year contract for natural gas delivery to China that will eschew use of the U.S. dollar. Instead, the two powers will do business in their own respective currencies. It’s a direct frontal assault on the “petro-dollar” system.

Major Russian bank VTB also signed a bilateral dollar-bypassing deal with Bank of China. The two financial institutions will transact in rubles and yuan for “investment banking, inter-bank lending, trade finance, and capital-markets transactions.”

We don’t think the Chinese or Russian currencies will replace the U.S. dollar as world reserve currency – not anytime soon. At present, there is no single currency that is positioned to replace the Greenback in global trade and world central bank reserves.

Most of the buck’s leading competitors, including the euro, are themselves being depreciated to prevent them from gaining value.

In fact, the European Central bank recently took the unprecedented step of imposing negative rates of interest on commercial bank deposits! It’s a desperate attempt to ward off an economic contraction, and it proves that no major fiat currency today is sound.

As all fiat currencies race to see who can depreciate the fastest, gold figures to gain prominence as a time-tested sound currency. Chinese imports of gold set records last year (and what’s on record is likely an underestimate of the real total). China’s ally Russia is now the world’s seventh biggest gold holder and seems intent on accumulating even more of the monetary metal.

In April, the Central Bank of the Russian Federation purchased 900,000 troy ounces of gold – its second largest monthly purchase ever.

by Stefan Gleason