Re-shuffling the World's Reserve Currencies

Re-shuffling the World's Reserve Currencies

Dear Readers,

Did you notice it yesterday? There was a piece of critically significant financial news, which occurred while the headlines were on the House of Commons and Syria.  I’m not saying the situation in Syria isn't critical too. I believe it is. As we discussed last week, within Syria and Turkey, we see Russia and the U.S. Administration going head to head behind the scenes.  For more on this please read: Are We Really Heading Towards WWIII?

But yesterday, something else happened - something which will completely affect the projection of Gold and Silver.  Yesterday, China was accepted into the basket of World Reserve Currencies!  We’ve been saying it for many months now.  Yesterday’s quiet announcement by the I.M.F. won’t come into physical affect until October 2016. So what does it mean?

Until now, there has only been four currencies in the basket of World Reserve currencies; the U.S. dollar, the U.K. pound, the Euro and the Japanese Yen.  They held a share of  41.9%, 11.3%, 37.4% and 9.4% respectively.  As you can see, the U.S. dollar and the Euro held the biggest share.  We have been discussing for years how fragile both those fiat currencies really are.  So, if the Chinese currency is going to be added, where will it fit?  If it is to gain, who will lose?  The answer will shock you, as it does me, as it doesn't make sense. The greatest loser from that list is the Great British pound.

In October of next year, the Chinese Yuan will join the exclusive club of a World Reserve currency and will have a 10.92% share in the "basket" of currencies.  To make room for this; 

  1.         The U.S. dollar share will drop to 41.73%
  2.         The U.K. pound will drop to 8%
  3.         The Euro will drop to 30.93%
  4.         The Japanese Yen will drop to 8.33%

Amazingly, an article released by Reuters today on this story starts with the headline, “Landmark decision" and then continues with the noted criticism that, "The yuan will have a 10.92 percent share, in line with expectations, after a review of the weightings formula for the SDR that also cut the euro's share by more than 6 percentage points.” Reuters then explore an entire paragraph which they title, "Euro Makes Room" and deflect attention, or naively completely miss the elephant in the room, by focusing their attention on the  Euro's drop of share in the basket to make room for the Chinese currency.

So I set about a small experiment.  If you subtract the percentage drop in each World Reserve currency’s share in the basket which China will “steal” when it enters the basket, and then turn that drop into the percentage each nations previous position was eroded, the results are eye-opening: 

  1.         The U.S. dollar will lose just 0.4% of its currency share
  2.         The U.K. pound will lose a breath-taking 29.2% of its world reserve currency share
  3.         The Euro will lose a significant 17% of its currency share
  4.         And the Japanese Yen will lose 11.4% of its currency share
  5.         And China will gain 10.9%.

It’s not often I’m stumped as to the rationale for political and financial decisions.  But this one has me thinking.  We all know the U.S., the Eurozone and Japan are completely bankrupt. And we all know China is the strongest economy in the world, because they are a producer-export nation, not an importer-debt burdened nation.  But am I being blinded by my own patriotism or is the U.K. economy is much worse shape than I believe? Or is there something else at play? It almost seems to me that the percentage swings are in an opposite relationship to the actual ill-health of each currency listed; not including China.

The motivation for China to join the World Reserve Currency basket is stated point-blank in the article and agrees in its entirety with our previous blogs, where I clearly explored the Chinese desire to replace the dollar with the Yuan and to move the hold of global super-power from West to East in the coming years: "Ultimately China would like to see, as a number of countries would, the dollar end its reign as the global reserve currency," said Malcolm Polley, chief investment officer at Stewart Capital Advisors.” 

The second greatest loser in terms of World Reserve Status is the Euro Zone. In every way, this is not a surprise.  Only last week I made a note of an alarming BBC article entitled, "Europe recession could be permanent." It's alarming, not because we don't know this, or haven’t known it for years, but because if the BBC are finally putting it out there for the mainstream masses, it means it may be about to play out.  Again, there was bad news for Britain it seemed. This BBC article seemed to point to the U.K. being the weakest player in Europe, as regards job skills training to grow the economy:  "The report found that the UK's in-work training had fallen by 4 percentage points since 2008 - the largest decline for any EU country." Whether this report is accurate or not I have no idea.

Against this backdrop, while researching this week, I came across some very interesting Physical Gold and Silver stories that may inspire you to buy some more. Three particularly grabbed my attention:

1)   An elderly gentleman in America has amassed over $1.5 million in Physical Gold and Silver in his home.  

In his sixties, he was unfortunately just keeping it around the house and quite literally under the mattress.  "The man’s wife and son discovered a treasure trove of gold and silver coins and bars taking up the entire underside of a king-size bed."  (The Wall Street Journal) This event highlights the need to collect reasonably, to store securely and to make sure you have insurance cover. Bleyer can help you with both secure storage or providing insurance grade fire-proof home safes. Bleyer Bullion is a specialist and leading supplier of fully insured gold & silver storage in the UK. We offer secure storage for your gold at one of two UK LBMA (London Bullion Market Association) approved security transporters and custodians of precious metals. Unlike other companies offering storage, where you own a percentage of a larger bar, you own your own bars, stored with us.

Gold and Silver Storage with Bleyer: 

When regarding home storage, we advise you to make provision so that relevant parties know your wishes should anything happen to you, regarding your holding – this applies in any event but is much more down to trust when you self store. Bleyer is a proud partner of Securikey safe products and we now offer a comprehensive range of home storage options with substantial cash and valuable insurance ratings.   For more details on your storage options with Bleyer, please click here.

2)  A level-headed piece in The Market Oracle explored the importance of knowing the long-term trend in Physical Gold and Silver, particularly in view of the price loses over the last year.  “We have been telling readers to avoid the long side in futures for the past few years. We are also on record for advocating the purchase of physical gold and silver at any price, and all purchases made in the past few years are likely in the red. While true, that is not the issue in owning the physical for the reasoning is totally different. Physical ownership is more a form of insurance against the failure of the fiat Federal Reserve Note, aka the "dollar."  Reference was made to holding physical gold and silver as a form of wealth preservation. Some, perhaps even many may think their wealth is not being preserved very well for those purchases made since the PM peak, 5 years ago. This is true, in absolute terms when using a fiat currency as one's measure.  It is a testament to the ability of the globalists to keep a price lid on both gold sand silver, mainly through the US central bankers."  

We at Bleyer have long been writing about this exact point and often discuss it in the office. How is it that the price of Physical Gold and Silver can be suppressed for so long, while the fiat system is somehow still standing? "Few believed the financial Ponzi scheme could be stretched as much as it has. What we all have learned is to realize the importance of a fiat trend, as well as a market trend. When the fiat trend ends, the doors may close for the ability of one to buy more physical gold and silver, and the purchases made, even currently showing a loss in value, will be a saving grace after a temporary price disadvantage. Do not be discouraged and continue to buy more as one can. All fiats fail, and the only difference this time around is the grossly exaggerated extent to which fiat has managed to survive. It also indicates that once the fiat "dollar" fails, and there are more and more cracks showing up in its ability to maintain its world reserve currency status, the move for physical gold and silver will also be favorably exaggerated to the upside.” (The Market Oracle, Gold and Silver: The Value of Knowing the Trend)

And I liked this last story because this C.E.O. of a large company wasn’t just storing Gold, Silver and food for himself but for his 1,500 staff:

3) “Boss of online retailer has buried $10m in gold and silver in Utah hideaway. The boss of online marketplace Overstock.com has revealed he has stashed away $10million in gold and silver in the Utah wilderness as part of a back-up plan to survive any collapse of the U.S. financial system. CEO Patrick Byrne has also amassed three months' worth of food and other supplies for his staff so that the website, based in Salt Lake City, can keep functioning should the nation's major institutions collapse.” (The Mail, November 2015)  What a boss!

In conclusion, this week I’ll quote from Mining.Com, a website serving the Gold and Silver mining companies and investors. It often produces commentary pieces that are straight from the source and closest to the real physical worth of Physical Gold and Silver. Simply put, author David Levenstein concluded yesterday what we have long been saying too, “Many individuals are perplexed about the current low gold prices especially with all the madness in the world. It just doesn’t make sense.  While the U.S Federal Reserve (Fed) has backed off from printing money, the other major central banks continue to print. While sovereign debt around the world continues to explode, most countries still have stagnant growth. The quantitative easing experiment has failed to stimulate any economy but has pushed prices of equities, bonds and property artificially high, just as Bernanke said it would, giving many individuals the illusion of greater wealth. But, this has only benefited the small minority of people on this planet, while the majority has suffered from an enormous transfer of wealth. This massive transfer of wealth has been caused by the major central banks that have dropped interest rates to record lows and in some cases to negative, thus penalising the savers and favouring the speculator. And, geopolitical tensions and domestic unrest are increasing almost daily. In such an environment owning some gold and silver makes a lot of sense.  Gold is Money and it is essential to own some of the physical metal.”

Call Bleyer now on 01769 61868 or take a look at our wide range of products, including many ideas for that unique Christmas gift.  As always, check out our Special Offers page regularly for the latest reduced prices on a select range of Physical Gold and Silver bars and coins.

We hope you all have a good week. 

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