Gyroscopic Investing

It isn't any secret that China wants to displace the dollar as the world's reserve currency. If successful, this move would bring reality home to a lot of U.S. politicians of both parties who, until now, naively believed we could "spend our way out of the approaching debt crisis."

As Kipling wrote: 

It is not learning, grace nor gear
Nor easy meat and drink,
But bitter pinch of pain and fear
That makes creation think.

Along these lines, there is speculation that China, already the world's #1 gold producer, is greatly boosting its gold reserves in preparation for dethroning the dollar:

http://finance.yahoo.com/news/mystery-c ... 00151.html

If this happens, we PPers will thank our lucky stars that we already have a stash of gold, at least until the U.S. pols start confiscating it to punish us "wicked rich folks."

I'm not sure I understand why accumulation of a large amount of gold would be necessary to declare oneself as the world's issuer of a reserve currency that is in no way backed by or even related to gold.

Isn't the objective to start a new currency backed by gold? I hope they make my gold holdings go up.

Simonjester wrote: become a new world's issuer of a reserve currency that is in no way backed by or even related to gold... but on an unrelated note we have a big stock pile, wink wink nudge nudge...

Pointedstick wrote: I'm not sure I understand why accumulation of a large amount of gold would be necessary to declare oneself as the world's issuer of a reserve currency that is in no way backed by or even related to gold.

I'm not sure I understand why you think that their reserve currency would not be related to gold.

currency wars

Libertarian666 wrote:

Pointedstick wrote: I'm not sure I understand why accumulation of a large amount of gold would be necessary to declare oneself as the world's issuer of a reserve currency that is in no way backed by or even related to gold.

I'm not sure I understand why you think that their reserve currency would not be related to gold.

Well, I don't think ours is. Rather, it's based on our global military dominance and international economic power, both of which the leaders of China desire as well. A huge pile of gold in conjunction with a weak military and a small economy doesn't seem like it would get you any closer to being able to issue the world's reserve currency; the reverse is a different situation.

Pointedstick wrote:

Libertarian666 wrote:

Pointedstick wrote: I'm not sure I understand why accumulation of a large amount of gold would be necessary to declare oneself as the world's issuer of a reserve currency that is in no way backed by or even related to gold.

I'm not sure I understand why you think that their reserve currency would not be related to gold.

Well, I don't think ours is. Rather, it's based on our global military dominance and international economic power, both of which the leaders of China desire as well. A huge pile of gold in conjunction with a weak military and a small economy doesn't seem like it would get you any closer to being able to issue the world's reserve currency; the reverse is a different situation.

As Al Capone was reputed to have said, "You can get a lot more with a kind word and a gun than just with a kind word." Similarly, you can get more with a huge pile of gold as well as a strong military and a big economy than just with a strong military and a big economy. That goes double if the big economy is totally dependent on borrowing money from the people with the big pile of gold.

Libertarian666 wrote: As Al Capone was reputed to have said, "You can get a lot more with a kind word and a gun than just with a kind word." Similarly, you can get more with a huge pile of gold as well as a strong military and a big economy than just with a strong military and a big economy. That goes double if the big economy is totally dependent on borrowing money from the people with the big pile of gold.

Can you explain how the big pile of gold acts as the gun?

Currently all countries have started to reserve their gold and also the central banks are buying gold. This might be a sign of gold prices to reach high in near future and China is no exception to it.

Pointedstick wrote:

Libertarian666 wrote: As Al Capone was reputed to have said, "You can get a lot more with a kind word and a gun than just with a kind word." Similarly, you can get more with a huge pile of gold as well as a strong military and a big economy than just with a strong military and a big economy. That goes double if the big economy is totally dependent on borrowing money from the people with the big pile of gold.

Can you explain how the big pile of gold acts as the gun?

No, the military is the gun, and the gold is the kind word (valuable currency).

According to Kenneth Hoffman China’s interest in gold may be because they are trying to make yuan more international and it could be a possible reason why they are so much into gold.

goodasgold wrote: If this happens, we PPers will thank our lucky stars that we already have a stash of gold, at least until the U.S. pols start confiscating it to punish us "wicked rich folks."

China has to reveal its gold reserves to have the yuan be a reserve currency for the SPDR at the next IMF meeting in October.  They are now suspected to be #2 in gold reserves after the US.

Their yuan-dominated payment transfer system will be live in October as well.  It's a competitor to SWIFT which is how USD payments flow around the globe.

Along with the burgeoning wage inflation, the USD is on borrowed time.  Next stop: double digit inflation rates within 5 years.

I recently read an article, in which demand for gold in china for the first quarter of 2015 was around 213.2 tonnes. Nine percent less than the previous year. But still high!