Financial Sense Home l Broadcast l WrapUp l Storm Watch l About Us l Contact Us
|
GOLD AND RMB Last night in Vancouver, my casual sushi dinner for two came to CAD $81 (USD $84). Seven years ago, the same dinner would have cost CAD $60 (USD $42). In Dollar terms, foreign goods and services have more than doubled in price in fewer than seven years. This is not some economic index based on hedonistic mathematical or substitution theory, this is based on my hotel, taxi, and food bills from Bali to Bangkok, and from Toronto to Rio. Make no mistake, the Dollar, with unlimited supplies, has an intrinsic value of zero. This fact has been incessantly broadcasted recently by global banking figures as they are ready to “inject” unlimited “liquidity” to stave off any crisis ranging from the subprime market collapse, derivatives, to recession. It is only natural that the price of goods goes up when money is printed without abandon. And you wonder why money aggregate figures are no longer reported by officials, citing cost of compiling such data. One can hardly understand the real impact of a depreciating currency until he travels abroad. Given that fewer than 15% of the US population has passports, it’s no surprise that the alarm has not been sounded loudly yet. Domestic price inflation on goods has been kept relatively at bay thanks to a suppressed Chinese currency (RMB), however in my opinion that is about to change. Oil is an integral part of our daily living, and the US public often voice complaints about the high price of oil. However, many overlook that just as much money is spent on Chinese made goods as is on fuel, day in and day out. Given the extent of the US trade deficit with China ($150 billion per year), there is no reason for RMB not to appreciate 50% against the Dollar, which is what Euro and Canadian dollar did from their 2002 low against the dollar.
So far RMB is up a modest 10%.
For a US family that spends $300 to $500 a month on Chinese goods, a further 40% appreciation of the RMB will translate into a $100 to $200 monthly cost increase. I spend at least $500 a month on Chinese goods, and to me, the logic of asking the Chinese to revalue their currency upwards is no different from asking the Saudi’s to jack up their oil price further, which is no logic at all for a US consumer. Holding Dollars is like playing musical chairs. When the music stops, the one holding the most Green IOUs, loses. a. With a rapidly sinking Dollar vs. western currencies, the Dollar’s supreme image is now very wobbly. b. Having built up a war chest of USD 1 trillion, the Chinese need no more Dollars to shore up confidence in its own paper within the international arena. Combining these two factors, the Chinese government will likely loosen the RMB peg to the Dollar at a faster pace, and we expect a minimum of 20% appreciation in RMB over the Dollar (i.e 5-6 RMB to 1 USD) in the next 12 to 18 months. Gold is international money, and will follow the RMB’s suit and climb to over $1,000/oz over the same period. This gold target is a conservative estimate given that other commodities from oil to copper have all quadrupled from their lows this decade. Gold’s low was $250/oz in 2001. Gold and the RMB’s rise will be the final chapter to the Dollar’s status as the world’s reserve currency, and the end to an era of low priced Walmart goods made in China. Welcome to the American Peso.
Please visit GoldMau for instant market alerts and stock updates. CONTACT
INFORMATION |
