The U.S. “blinked” yesterday by granting China (and others) a 6 month extension of “sanctions” being levied for trading with Iran. Sanctions were scheduled to begin yesterday where anyone trading for oil with Iran were supposed to be locked out of the SWIFT payment transfer system.
I wrote maybe 2 month ago that “locking the world out” of the SWIFT system was akin to playing Russian roulette with all 6 chambers loaded. China has been quite busy over recent months making deals with their major trading partners to make trade settlement in Yuan or in their trading partner’s currency to ensure that SWIFT cut off would not stop trade.
This really is big news folks because what started out as a “threat” by the U.S. has turned out to be an expose’ of the Dollar’s Achilles heel. Yes I am sure that China’s trade would have been disrupted to some extent but the decline in demand for Dollars would (and will in the future) have torpedoed the Dollar unlike any event seen before. This “blink” shows that our fearless leaders finally have figured out the errors of their logic, what would have been a broken leg or arm requiring maybe 6 weeks to heal for China turns out to not be worth pointing a fully loaded gun at our own heads.
So we didn’t pull the trigger so all is well, right? No, the damage is done and our bluff was called, this rabbit is not going back into the hat no matter how hard we try. The SWIFT system has already been “skirted” by multiple side deals where countries plan to settle in their own currencies. This is the same thing as when a banking system actually goes down, yes trade and business slows but deals are still made and settled in barter. I don’t know what the logic was that excluding anyone from the SWIFT system was such a big stick but it surely isn’t and now can no longer used for any leverage. While China was touring the globe and doing deals (buying up resources), they were making these alternative settlement deals AND just so happened to purchase the LME which, oh by the way, will be moved to Hong Kong.
I do want to mention something that was questioned and even laughed at for months now, June 27th. Does this day ring a bell? June 27th was the day that Jim Sinclair said would be an inflection point for the Dollar where the world would be changed forever. Well, the 27th came and went, yet to the average snoozer and probably most of the whiners who wrote in, in total panic to Mr. Sinclair, the world is still here and nothing has changed. Well, the world has changed and the U.S. no longer has the financial big stick called “SWIFT” to wield, we wasted it and it now resembles wet spaghetti! Is the Euro up because Europe has figured out how to “save itself? Did they really come up with a plan? No, the one minor detail as it always is and has been is, “where is the money coming from”. Coincidence that Gold is up $50 today? I think not, Gold is depressed yes and deserves a wicked bounce, that is the nature of cycles but I find it very hard to believe that Gold is “up because Europe is not going to collapse”. First off, if Europe does collapse in a heap, Gold will explode in value as Euro capital will accrue into Gold’s value. I personally think that Gold’s move today is in response to the Dollar’s Achilles heel being exposed.
Was Jim Sinclair correct about June 27th? I think that this time he has split the many of his previous bullseye calls right down the center like Robin Hood. His $1,650 Gold call was off by a whopping 6 months even though he made the call 9 years earlier! This time he missed by a day because it took roughly 24 hours for the world to figure out that the “SWIFT bluff” not only turned out to be a bluff but turns out to be a MAJOR shift in power from West to East. China no longer needs the SWIFT system yet we HAVE to have it to create (false) Dollar demand. This, while at the same time COMEX is losing it’s importance as the LME moves to Hong Kong with contracts that can be trusted.
Let’s see what happens from here but it looks to me like THE bottom in the precious metals is in which is another way of saying the top is in for the Dollar. It will be interesting to watch how much Treasury supply will need to get soaked up by The Fed in the future as the “not so SWIFT” bluff turned out far differently than whatever warped logic had forecast. Gold will be taken up and out of the system (too expensive for individuals to buy) by Central Banks as the need to replace balance sheet black holes comes to fruition. The policy responses from the West have become totally amazing, we have made it far too easy for the East.