Thursday, April 10, 2014

Why Gold Is Higher Today -- China and Russia

Gold is up to $1,318 as I write this. What's behind the move? The general consensus is that minutes from the Federal Reserve's policy meeting suggested officials will be cautious on increasing interest rates. Certainly, the news sent the dollar lower -- and you'll remember my chart on the dollar from early yesterday morning.

But if the Fed news is the main driver of gold's move, why didn't gold take off yesterday, after the minutes came out?

The Fed may have something to do with it. But I believe the main answer lies in China.

China’s exports unexpectedly fell in March -- down 6.6% from a year earlier. Imports fell 11.3% at the same time.


And remember, this is on the heels of a terrible month in February. China’s exports fell 18.1% in February from a year earlier, the biggest drop since the global financial crisis.

So obviously, China is in a slump. The question becomes, what will China do about it?

Premier Li Keqiang said the nation will roll out more policies to support growth while avoiding stronger stimulus.

But what many suspect is that the central government will slash the reserve requirement ratio (RRR) for banks, and tell them to start lending -- or else!

In other words, we could see a flood of liquidity come on to the market. And that could be tremendously bullish for commodity prices.

The Russian Part of The Equation

One more thing. The Russian central bank has changed its logo into a Golden Ruble, according to articles on Silver Doctors and In Gold We Trust.

Officials stated: Golden Badge of the Russian national currency, officially adopted by the Central Bank of Russia, will symbolize a sign of stability and security of the ruble gold reserves of the country.
Why did this happen? Part of the US response to the Russian takeover of Crimea is sanctions on Russian banks. This included Visa and Master Card refusing to conduct non-cash transactions through Russian credit cards.  It  worsening outlook on the banks and raised the potential of suspension of rating actions.

This ticked off the Russians the way cutting off anyone's credit cards would. 

So, on friday, Russia's Central Bank announced that it will only work in Russia, and only with rubles. Russia now set on creating a new national payment system (NPS) to replace Visa and MasterCard.

And it's brandishing gold as its symbol. That's a big F-U to the Western powers, and to the New York banking elite in particular.


  1. China's trade figures are down 6.6% yoy in March because last year's March trade figure was grossly inflated with fraudulent accounting. The entirety of the shortfall is a 44% yoy drop in exports to Hong Kong. This year's March trade data to Hong Kong is on trend with the longer-term slow upward trend. This is all noted in the article you linked to. See the lump in that chart for early 2013?

    China can't simply jack up lending because they've hit a ROI wall and they know it; new lending hasn't provided any economic boost for years. Plus there's a massive rollover of debt happening this year; I doubt anyone's going to want to issue any more until they have a better handle on how much existing debt is going to have to be written off.

  2. The article said the drop in March was "partly" due to last year's figures. I still think China is slowing down. I take no pleasure in that. But it seems obvious.