Win The Week Special Report:
China’s Gold Rush Will Break the Bond Market
CHINA’s GOLD RUSH – On September 18, 2023 China lifted curbs on gold imports into the country … This is a shot across the bow that signals how China will weaponize gold and force a new war between:
China’s Shanghai Gold Exchange (SGE) and London’s Bullion Market Association (LBMA), where western gold is held …
THIS CHANGES EVERYTHING – what does it mean for YOU as a Trader? …
Well, If China can control gold, they can control:
• US Inflation expectations
• US Treasury Security (UST) interest rates, and
• By extension they can control the US dollar (USD).
Today’s report will share the details and how you can turn this into your own gold rush
As I revealed during an Option Pit live event on the BRICS currency alternative to the USD, Russia, along with new BRICS member Saudi Arabia, now controls the price of oil …
So, just within a couple of months time we first learned that the West had lost control of the price of Oil …
Now we are seeing that they have lost the price of gold.
Here is the proof …
Notice the chart below showing the SGE gold price premium trending higher versus the LBMA gold price … This has never been the case over the past 100 years …
Western institutions had always controlled the price of gold through the LBMA, which represents the western precious metal participants who bought from the East in bull markets and sold to them in bear markets as they accumulate gold.
Now that relationship has broken …
For the first time in decades, gold is flowing from West to East as gold’s price is RISING (chart below).
Russia Steps in to Tip the Scale Even More in China’s Favor
Gold will ultimately be the the settlement mechanism use in all BRICS oil and gas transactions.
So, when Russia stepped in last week and agreed on a deal with China to sell them natural gas at half the price it trades in Europe it showed there was a method to the madness.
- Cheap energy in gold terms will drive increased consumption of energy in China, which will drive economic growth, because energy IS the economy and cheap energy drives economic growth.
- This will spark a virtuous cycle of more growth, more energy demand, more gold demand… Until either the western gold price adjusts higher or the west implements gold capital controls.
This is incredibly important to understand:
When gold buys more energy in China than in the west due to the Russian deal, gold will flow to China, which means China controls gold and China locked in this deal for 3 years.
The Russian cheap oil also deal facilitates an arbitrage in the oil, gas and gold markets:
- cheaper energy drives higher Chinese economic growth over time
- which will drive more Chinese gold buying over time
- which becomes a positive loop for China until the price of western gold rises to the price of domestic Chinese gold.
The strategy China has put in place has been in motion since 2004 … Ten years later in May of 2014 Xu Luode, Chairman, Shanghai Gold Exchange stated:
Shanghai Gold will change the current gold market with its “consumed in the East but priced in the West” arrangement … China accumulated gold throughout the 10-year period.
He also stated ”When China has the right to speak in the international gold market, the true price of gold will be revealed.
That time is NOW! … What this Means for YOU! …
As I mentioned earlier China’s control of gold means they can control:
• Inflation expectations,
• US Treasury Security (UST) interest rates, and
• By extension that means they can control the US dollar (USD).
If you understand this, and the impact it has on the markets you WILL increase your probability of success trading by wide margins.
The Trends They are a Changing
Notice the chart of “real rates” rising (inverted price), which should push the price of gold down , when instead it has been rising. This is a critical change in investor behavior as gold investors the East import gold at a premium to the west (LBMA)
London is now Losing its Pricing Power
As you can see in the chart above as the TIPS rate rose dramatically (inverted down in the chart) instead of the gold price dropping it rose 17% …
The US got the first word versus China and Russia by weaponizing the USD …
China and Russia will now get the last word by weaponizing gold and energy commodities against the weaponized USD.
What this Means for Markets
With interest rates soaring due to inflation and foreign selling of US Treasury (UST) Bonds gold’s volatility is actually lower that USTs for the first time in history!
This is a critical change in relative value and could ultimately drive a tremendous amount of money out of US Treasury Bonds into Gold and Silver …
In a new world order where multiple currencies can be used for global trade US Treasury Bonds lose buyers as central banks diversify to other currencies …
This means the US Treasury dept. (Janet Yellen) will have to Increase UST bond issuance to fund a widening budget deficit, which will push bond volatility even higher.
- A recession or crisis could easily drive UST supply up by $2T, due to less tax receipts in recession + $1.5T due to incremental deficits in a recession + $2-3T in foreign UST selling … That amounts to $5.5 trillion in new supply
- The government needs to roll another $5trillion in bonds that mature in the next couple of years … These would have to roll at much higher rates forcing the government to issue even more bonds.
- The increase in relative Bond/Gold volatility is a massive plus for holding gold over long-term bonds.
There is only one answer to this dilemma, which makes another headline from this week all the more powerful …
US Treasury buyback plan to boost market resilience, Treasury official says – 9/21/23
Nice cover-up for what this program is really needed for … The US Treasury to buyback bonds that nobody wants via QE to avoid the insolvency of the US Government …
This is a proven plan for lower government debt that was used in the 1940s … It proved you can decrease US debt by printing trillions of dollar while holding interest rates down via QE …
It works but will drive inflation much higher …
The message from the Treasury shows that this time is different for long-term interest rates …
Inflation, massive new issuance, and Foreign selling will force interest rates higher, until the US is forced back to QE to holds interest rates down while letting inflation soar …
Strategies to stack profits while inflation crushes consumers buying power.
- Accumulate physical gold … Hard Assets Alliance is a reputable dealer for precious metals.
- Dollar cost average strategy to accumulate iShares Treasury Inflation Protected Securities ETF (Ticker: TIP) … When you own the TIP ETF your principal is increased as inflation increases via monthly dividend distributions.
- Trade High Yield Corporate Bond ETF (Ticker: HYG) with a bearish bias.
- Hold bullish option strategies in oil ETFs including SPDR Select Sector Energy ETF (Ticker; XLE) and SODR Select Sector Oil & Gas Exploration ETF (Ticker: XOP)
Recession plus inflation (stagflation) forces major credit defaults and bankruptcies. In my opinion we are just months away from this stage and this will be the trigger for the Fed to shift to QE, which will open the door to even greater inflation.
Finally, join me on Wednesday night at 7pm when I will reveal more details and specific trade ideas you can deploy to crush it as investor flows are reallocated to capitalize on a multi-currency dominated global trade environment.
Until Then …
Live and Trade With Passion My Friend,
Griff