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A couple of topics for you today that are connected, obvious, yet not understood or even contemplated at this point. First, have you ever wondered why the names of many fiat currencies refer to “weight”? Such as the Peso, Peseta, Lira, or Pound amongst many others? This is similar to the names of various roads, like “Saw Mill Rd.”. It was named that because years ago there was actually a sawmill down the lane. These fiat currencies with “weighty” names started out as receipts for either gold or silver. They were convertible into a specific amount of metal when presented at a bank.

In essence these currencies were representations of physical metal since they were redeemable but far easier to carry around due to the lack of weight. In today’s jargon, paper currencies that were redeemable in specie were “derivatives” of the metals themselves. Then as time went on, the redeemability was cancelled and the currencies became true fiat, unbacked by anything except the credit worthiness of the issuer.

Over time, ALL currencies have become fiat and these currencies steadily devalued. I would ask, how can anyone have the thought these currencies can gain value versus gold or silver over a long period of time if they were originally spawned as derivatives? Can a derivative ever become more valuable than that it originated from? The answer of course is no and should be followed by another question; can a monetary guarantee from any government ever be more ironclad than that of physical metal itself?

Next, we know for a fact Russia, China and other nations have been accumulating gold for years now. Why? I can assure you it is not to “trade” for profit to accumulate more fiat. They fully understand their own issued fiats and those of other central banks were at best only derivatives historically and not even remotely a derivative of gold now. Now, they are only poor joking derivatives of the various central banks and in no way a store of value.
One of our readers passed this commentary regarding a Zerohedge article along yesterday to us;

“This graph is pure transparency to those who understand the Chinese. Whether in trade agreements, military power, or their economic goals, they never show their hand.

Some estimate they are holding 20,000+ tons of gold.

I believe they will shock the world with twice that (40,000 tons).

That will be the day everything changes and it will be by their design.

Does anyone truly believe Russia doesn’t know this ?”

Think about what is said here and truly what it means? When China does fully announce their gold holdings, they will most likely not make the yuan convertible into gold. Their gold holdings will simply act as a backstop for confidence in the currency. As Jim puts it, the gold hoard will act as the Hope Diamond around a woman’s neck as she walks into the room. No one will really look at the woman, so whether she is homely or not does not matter, only what is around her neck …and this would be China’s gold holdings and to a lesser degree Russia’s.

We are talking about “financial warfare” here. Russia and China fully understand the fraudulent nature of Western fractional reserve banking and finance. They understand how and why the West will fail and have been acting to accumulate gold as buffer against (or in place of) any dollar holdings. They have set up trade deals, lending/credit and clearing facilities, and treaty’s of all sorts with many nations. Put simply, they are making ready for the coming failure of the West!

Putting this together, China will be moving the currency pendulum back toward derivative status. As mentioned, I do not think the yuan will become convertible because if it was convertible …conversion is exactly what will happen. Instead, they will use their gold holdings as a sign of fiscal and monetary responsibility. Though not truly a derivative because no direct connection to their gold, the yuan will be favored versus other fiats because of the held gold. If you understand that we are currently at war, financial war, then you understand “why” foreign nations are accumulating gold. The old saying “he who owns the gold makes the rules” will apply here.

To finish, if you are waiting for gold to break out above the five+ year trading range before you position yourself, good luck! As a nation, we will be completely screwed without gold holdings because our dollar will be shunned internationally as one issued by a central bank with paltry if any actual gold holdings. China will mark up the price of gold making their hoard mighty …and making it very difficult for anyone ever to catch up if trying to pay with fiat and no Hope Diamond around their neck!

Standing watch,

Bill Holter

Holter-Sinclair collaboration