Follow The Gold To China - Jim RickardsBy Daniela Cambone of Kitco News
Wednesday June 24, 2015 16:22
(Kitco News) - China's quest to get the yuan recognized as a reserve currency by the International Monetary Fund (IMF) could trickle down to affect gold, says Jim Rickards, best-selling author of Currency Wars and The Death of Money.
Rickards explains that there is a current peg between the U.S. dollar and the Chinese yuan, "the currency wars are being fought around the world, but there is a sort of a lull in the fighting between the U.S. and China right now." Rickards explains that since the U.S. has veto powers at the IMF, China is on its best behavior. "We define best behavior as not cheapening the yuan," Rickards says. The short-term ramification is that the dollar-yuan peg will hold throughout the year.
"The Chinese are not undercutting the US - so the dollar may maintain that value," he says, adding that the higher U.S. dollar could keep gold prices suppressed. Rickards does foresee the dollar eventually correcting. "The strong dollar is killing the US economy, this is part of the currency wars... [A]ll this is the opposite of what the Fed wants - the Fed wants more growth, nominal growth and real growth, and the only way to get that is a cheap dollar."
China is also expected to receive approval from its central bank for a yuan-denominated gold fix, with a potential for an announcement as early as next week. As to whether this would make the London fix less relevant, Rickards says, "yes." "For the time being the gold market is still in London but one need to follow the gold, - the gold is going to China," he says.
As for the situation in Europe, Rickards does not foresee a Grexit, noting it is primarily a political situation and not economic. The debt-restructuring situation in Greece will continue to unfold as it has these past five years he says. "There will be no Grexit, no one is getting kicked out, nobody is quitting and that doesn't mean that everything is fine in Greece, there can be a lot of financial disruptions but none of that is the same as Greece leaving the euro."