We’re ONLY TWO DAYS FROM China’s Oil-For-Gold Contract KILLING THE PETRODOLLAR?
We’re ONLY TWO DAYS FROM China’s Oil-For-Gold Contract KILLING THE PETRODOLLAR?
“It will allow for the large-scale exchange of oil for gold…China’s “Golden Alternative” to the petrodollar…It goes live on March 26.”
by Nick Giambruno of International Man
Not long ago, there was a popular joke in China that went something like, “Who is Xi Jinping?”
The answer was, “The husband of Peng Liyuan,” the famous singer Xi is married to.
Today, Xi is China’s president. He leads 1.4 billion people. And he’ll likely be the most powerful person in the world soon.
As I mentioned last Wednesday, Trump’s new steel and aluminum tariffs are part of a larger, escalating battle between the US and China.
China is rapidly displacing the US as the dominant global power. This shift is inevitable. China’s economy will be twice as large as the US economy by 2030.
This leaves the US with limited options…
- It could kick back and let China displace it as the most powerful country in the world.
- It could start a military war with China.
- And it could push the current trade battle into an all-out economic war against China.
I think a full-blown economic war is the most likely. Under President Trump, it’s all but certain.
That said, the Trump administration seems to underestimate China’s position—in both the short and long term.
For decades, the US has been able to exclude virtually any country it wants from international trade. Right now, if one country wants to trade with another, it basically needs US permission first.
That’s because (for a short while longer) the US dollar is the world’s most important currency. The US Navy also dominates the world’s oceans, controlling most major shipping lanes.
But China is building a new international system. Eventually, it will let China and its trading partners totally bypass the US.
And, as I’ll explain shortly, a key piece is set to fall into place on March 26…
History’s Biggest Infrastructure Project
The New Silk Road is the centerpiece of China’s new plan.
In the coming months and years, it will include high-speed rail lines, modern highways, fiber optic cables, energy pipelines, seaports, and airports. It will link the Atlantic shores of Europe to the Pacific shores of Asia.
China expects to have its New Silk Road fully up and running by 2025.
This is history’s biggest infrastructure project. The whole point is to completely re-draw the world economic map. If it’s successful—and it most likely will be—China will dominate Eurasia.
President Xi announced the $1.4 trillion plan in late 2013. When it’s done, a train leaving Beijing will be able to reach London in only two days.
Keep in mind, the Chinese are careful long-term planners. When they make a strategic decision of this magnitude, they totally commit.
Take their road system, for example. Between 1996 and 2016 China built 2.6 million miles of road, including 70,000 miles of highway. In just 20 years, it built far more highway than the US has in its entire existence.
In other words, the Chinese get things done. They have the political might—along with the financial, technological, and physical resources—to make the New Silk Road happen. With iron-willed President Xi at the helm, I have no doubt they’ll pull it off.
Not long from now, the New Silk Road will help China unseat the US as the world’s dominant global power and totally upend the geopolitical paradigm.
But before that happens—within the next couple of weeks, actually—China is introducing a way for anyone who buys or sells oil to opt out of the US-dominated global monetary system.
Why the Dollar Is Different Than the Peso
Most investors know that oil is the largest and most strategic commodity market in the world. As you can see in the chart below, it dwarfs all other major commodity markets combined.
Every country needs oil. And, for a short while longer, they need US dollars to buy it. That’s a very compelling reason to hold large dollar reserves.
This is the essence of the petrodollar system, which has underpinned the US dollar’s role as the world’s reserve currency since the early 1970s.
Right now, if Italy wants to buy oil from Kuwait, it has to purchase US dollars on the foreign exchange market to pay for the oil first.
This creates a huge artificial market for US dollars.
In part, this is what separates the US dollar from a purely local currency, like the Mexican peso.
The dollar is just a middleman. But it’s used in countless transactions amounting to trillions of dollars that have nothing to do with US products or services.
Since the oil market is so enormous, it acts as a benchmark for international trade. If foreign countries are already using dollars for oil, it’s just easier to use dollars for other international trade, too.
In addition to nearly all oil sales, the US dollar is used for about 80% of all international transactions.
This gives the US unmatched geopolitical leverage. The US can sanction or exclude virtually any country from the US dollar-based financial system at the flip of a switch. By extension, it can also cut off any country from the vast majority of international trade.
The petrodollar system is why people and businesses everywhere in the world take US dollars. Other countries have had little choice about it, until now…
China’s “Golden Alternative”
China does not want to depend on its main adversary like this. It’s the world’s largest oil importer. And it doesn’t want to buy all that oil with US dollars.
That’s why China is introducing a new way to buy oil. For the first time, it will allow for the large-scale exchange of oil for gold.
I’m calling this new mechanism China’s “Golden Alternative” to the petrodollar. It goes live on March 26.
Ultimately, I think people will look back and see the Golden Alternative as the catalyst that killed the petrodollar.
Here’s how it will work…
The Shanghai International Energy Exchange is introducing a crude oil futures contract denominated in Chinese yuan. It will allow oil producers to sell their oil for yuan.
China knows most oil producers don’t want a large reserve of yuan. So producers will be able to efficiently convert it into physical gold through gold exchanges in Shanghai and Hong Kong.
As of March 26, countries around the world will have a genuine, viable way to opt out of the petrodollar system. Now is the time to position yourself to profit.
Gold Will Soar
With China’s Golden Alternative, a lot of oil money will flow into yuan and gold instead of dollars and Treasuries.
I think the price of gold is going to soar.
China imports an average of around 8.5 million barrels of oil per day. This figure is expected to grow at least 10% per year.
Right now, oil is hovering around $60 per barrel. That means China is spending around $510 million per day to import oil.
Gold is currently priced around $1,300 an ounce. That means every day China is importing oil worth over 390,000 ounces of gold.
If we assume that just half of Chinese oil imports will be purchased in gold soon, it translates into increased demand of well over 60 million ounces per year—or more than 55% of gold’s annual production.
Of course, China won’t be the only country using the Golden Alternative. Anyone will be able to.
The increased demand for gold is going to shock the market. That’s why I think the price of gold will soar.
As the petrodollar dies, gold will be remonetized… and China will be another step closer to displacing the US.
- Matt1dVery good article. The dollar put us in a great position, and our leaders weaponized / wielded it excessively and continually to bully the entire world. I'm afraid (?) China is about to put an end to it with a very well thought out plan. If not China, it will be someone else before long.Reply5 Likes
- FaranginkoratMatt17hYes, we threatened Russia and others for decades with sanctions that might include not being able to move money through SWIFT. Guess what? Russia announced recently that they have set-up an alternative system to SWIFT.Reply3 Likes
- HopesndreamsLeader1dYah I'll be surprised if anything changes right away, I've been anticipating this happening for 8 yrs, id expect a trade war, and real war before the price of gold takes offReply4 Likes
- Biggy DHopesndreams1dWhat this is is actually a door opening for all other countries to also make the change from the dollar... NO More King Kooper dollar rules the world. This will be the start of something BIG... And Bad for us americans and dollar holders...Sad to say but its the truth... The world has realize we exported our bad spending habits and inflation to others in the world for a very long time.Reply3 Likes
- FaranginkoratBiggy D17hExactly, the root of all this is the continuous current account deficit, some 40 years now??Reply1 Like
- StevenBiggy D12hBig and Bad indeed! Your fiat currency proud politicians and bankers will take their countries to war with the gold and silver bug nations. They can not and will not permit virtue to triumph over vice.Reply3 Likes
- _silver10hRight now China isn't allowing any gold to leave it's shores so I not sure how countries can get the gold instead of YuanReply2 Likes
- Faranginkorat1dSo, I am expecting that our current long position will do very well this coming week, even better than it did last week. We will be adding to gold longs on the TFEX when Asian markets open, and then adding silver based ETF positions when NY markets open for Monday trading. And if my IB account goes active, hopefully something more leveraged than USLV as well early in the week. Continued:Reply1 Like
- JOHNLGALTLeader1dEditedThanks Zero Hedge for finding these articles for us. From Z.H. "Focus on what Marty Zweig had to say, and pour yourself a strong one as you do!" Marty starts around 6 minutes in..." https://youtu.be/2MyToTwag34Reply1 Like
- JOHNLGALTLeaderJOHNLGALT1dThe above is from this article............. https://www.zerohedge.com/news/2018-03-24/david-rosenberg-it-was-black-friday-black-monday"...it was Black Friday before Black Monday... watch this memorable clip from the legendary Louis Rukeyser's...Reply1 Like
- BrazosAggieJOHNLGALT11hSaw that clip from ZH as well. A VERY well timed, relevant piece of advice to anyone still in this casino called the stock market. Wonder what Louis' thoughts would be on today's situation - like I really need to guess!! Always loved WSW....Reply1 Like
- Dale ryan1dThinking it will be dollar and gold for oil side by side affecting of course the value of dollar as gold may be the choice for some. About china being the biggest economy, i believe it is already taking into consideration monetary valuation w china having a devaluated money thus artificial smaller economy.Reply
- CentralTexan1dLoading up on military govt media complex, Ratheon etc. Time to back up the truck to get sum additional shiny phyzz. Make love not war. Peace out🤠Reply
- Ron D.Leader1dIf this event were happening and the world was a happy place for real and not just in the mainstream news, then it might be a nothing burger however in this powder keg we live in, I believe this move will be like a match being put to a pile of kindling, (sorry, from Maine). It will look like a small fire initially but will build very rapidly and at some point it will become un-extinguishable and simply have to burn itself out. When the fire is out, there will be no insurance left to buy.Reply
- FaranginkoratRon D.1dI am presently outside Houlton, Maine, deep in the forest of my 85 acres, next to a wood stove that is my only heat. It is a quarter-mile to the dirt road out front! There are no other houses in sight! There are LOTS of deer, moose and bear here, and they all taste great!!! See moreReply
- Ron D.Faranginkorat54mMe too! In the Maine woods, wood my only heat and no house in sight. Wish I had 85 acres though but I'm workin' on it!Reply
- Jack Frost1dAlright alright alrightReply
- Faranginkorat1dSo, in conclusion and summary, I am optimistic that we will see higher PM price increases this week. If so, however, I suggest you look closely at the big picture when deciding why and what your strategy should be to maximize your personal gain from it. In particular, note that if the "Cartel" shorts into rising prices, as they have ALWAYS done for the last 6 years that I have watched this, that the end result will be another price smash cycle. COT won't even hint at an answer to that until next Friday, and the following Friday might only begin to tell the story. See moreReply
- Faranginkorat1dI hypothesize that the "Cartel" have abandoned the normal correlation in gold and silver positioning as there is no silver shortage. I have read recently that there are 1.1 billion ounces in and around London, up 18% YOY, but no comments on gold. Maybe deliverable gold is in short supply, but silver is not? Maybe there are huge (sovereign) orders pending in London waiting for the next price decline, and the Cartel can't manipulate gold prices lower to cover more shorts without triggering orders for physical that they don't want to, or can't fill?? See moreReply
- Faranginkorat1dCuriously, there are strange things afoot. Two-thirds of COMEX gold contracts to be delivered this month remain open, and there are only three business days left to clear them. Why????? Shorts have storage and capital costs that continue until delivery, and NO compensating benefits of waiting past the first delivery day. See moreReply
- Faranginkorat1dNow let's look at the timing. It is exactly 10 years since Bear Stearn's collapse forced huge silver and gold short positions onto JPM, as the government pushed this acquisition hard. Maybe there was a 10 year exclusion to normal trading regulations granted to JPM so they could deal with those short positions without government funding????? And maybe such an agreement ends this month?? See moreReply
- Faranginkorat1dAnd then we have the start of what the MSM is calling a trade war. And we have a new Fed chair who knows what a bubble is and doesn't like them, unlike his last three predecessors. And we have a President that the deep state would like to pin something big on to get rid of. I am trying to keep this short, trust me. See moreReply
- Faranginkorat1dI suggest reading my posts below in sequence starting with the one on the bottom. Maybe Half Dollar would string them together and make a feature article out of them??Reply
- Faranginkorat1dLooks like the pieces I wrote are in no particular sequence below. That will make them tough to follow.Reply
- Harvey OrganFaranginkorat1dBoy, and I thought my posts were tough to follow.Reply
- FaranginkoratHarvey Organ1dOn the old site format, it could have all been one post and would have been easy to follow. With the limited size of each post now, it must be in several pieces, and then the order of them got scrambled, not sure why. Maybe HalfDollar will put them back together into a feature article??? Bottom line, however, is being long this week.Reply
- Ed_BFaranginkorat1dEditedMaybe try numbering each chapter? :-) "I am trying to keep this short, trust me." Please, don't bother. This is good stuff, so the more the better.Reply1 Like
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