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What will happen in the world after many countries sell their debt and sell gold back home?

bwchinesewx @ 2019/12/19

According to the latest international capital flow report released by the US Treasury Department in December 17th (the US Treasury position will be delayed for two months), although the domestic market's rebound in US debt demand is mainly based on the demand of private investors avoiding risks, the global central bank institutions with a national background show a net sales status. For example, in October, the central bank institutional investors sold a total of $27 billion 700 million, and for the 14 consecutive month, they reduced the US debt, and the total sales volume was nearly 348 billion dollars (the following figure).

Among them, China (mainland) has been holding up the US debt for 5 months in a row for the first time in a row. The current position has dropped to its lowest level since April 2017 to 1 trillion and 101 billion 600 million US dollars. Not only here, but Germany has started to sell $11 billion 500 million from April this year. In addition, Brazil, Britain, Switzerland, Belgium, Canada and Australia are all reducing their holdings. For example, in October alone, the 30 largest creditors of the US debt market only increased in Japan, Luxemburg, Switzerland and Ireland, including Germany, Britain, Canada, Saudi Arabia, Belgium, the Republic of Korea, Italy and Switzerland, and 18 other US debt holders were reduced to varying degrees. The trend of going to the US debt market was very obvious (the data refer to the following figure). The largest number of debt holders in the United States, including the 1 trillion and 101 billion 600 million largest holders of debt in the United States, were in October.

The latest figures also show that Russia and Turkey are no longer included in the list of major holders of US debt, regardless of the cost of selling US bonds. We note that since August, the yield of us 10 year treasury bonds has fallen by nearly 180 basis points, leaving the rate of 75 basis points of the Federal reserve three times behind. The US 30 year treasury bond yield has dropped to below 2% for the first time, the first time ever recorded, and the first time in 11 years, it has fallen below the 3 month LIBOR interest rate (the specific data is referred to below).

This means that the US dollar debt deficit will not be well hedged if the global central banks are spreading the US debt sell-off.

In response, Zerohedge, the US financial website, said Russia seemed to be preparing for the future loss of the main reserve currency, and sold nearly 94% of the US debt to replace non US assets such as gold, Renminbi and the euro. For example, in the Russian central bank's external assets, yellow gold and Renminbi together accounted for more than 30%. As of November, Russia's official reserves had reached 2250 tons, and it has become the largest gold buyer in the global central bank for several consecutive months.

At the same time, at present, the world financial market is also undergoing a profound thing. This is the fact that many central banks of the world are lifting the trend of gold in the US while reducing their holdings of US bonds. The BWC financial network team noted that these countries have highly similar to those mentioned above.

For example, in addition to Russia, many countries including Germany, Poland, Romania, Turkey, Italy, Belgium and Switzerland have completed or planned to move gold back to China. In recent months, there have been some central banks who may not be attracted much attention by the market. For example, the Central Bank of Poland, Kyrgyzstan and Hungary, as well as the Central Bank of Indonesia, Thailand and Philippines, have begun to enter the market to buy. Why do many countries throw American bonds or transport gold back to China?

That's because, after the US financial crisis in 2008, according to the analysis of Mark Gold Wei, senior policy director of the US federal budget Commission, the US economy may have permanently entered a trillion dollar deficit era. According to Matthew Turner, a well-known investment bank analyst, Washington regarded the US dollar as an economic weapon and consumed people's trust in the reserve currency of the US dollar.

Judging from the latest news, it seems to be confirming this analysis. In December 15th, US Treasury Secretary Stephen Mnuchin rejected the argument that the US authorities are weaponry of the US dollar through trade restrictions on other countries, and stressed that "the United States did not weaponry the US dollar", but he admits that you may not necessarily use the US dollar, but we have the right to impose restrictions on those who use the US dollar. Over time, if we don't pay attention, people may consider using other currencies. "

The global central bank holds a comparative trend chart of US Treasury bonds and gold.

In other words, multinational buying or early shipment of gold is not all for investment. Mainly after hedging the US dollar, after the expiration of the shelf life, there is a demand for centralized currency exposure. Therefore, from this point, the decoupling of the US dollar from the gold is in itself a description of the loss of the US dollar credit, because the anchor target of the US dollar issue is not gold but the scale of the US debt, but things have not ended here.

In recent years, the resumption of the gold standard and the de dollarization is a wave of waves, which is used to express the worries about the existing dollar circulation logic and the affirmation of the gold currency attribute. This shows that in the background of many countries, such as China and Russia, are pushing forward the exchange settlement of the domestic currency and the market can be settled by the US dollar, the economic strategic role of gold will become more and more obvious, which will provide a guarantee for the future or mastering the gold pricing power.

The latest news shows that, as the core of China's gold market, the Shanghai gold exchange is on the way to gain the right to price and speak in the international gold market. According to the information provided by the Shanghai futures exchange, in December 14th, the whole market practice of RMB gold option has ended. RMB gold options will also be formally traded in December 20th, and RMB crude oil futures will be the starting point. The introduction of gold options will further enhance China's influence in the international gold market.

Then, once China and Russia get enough gold, what will happen in the world financial market? In this regard, Singapore's premier gold trader Ronan Manley said that gold accumulated in Russia and other countries can be seen as part of the settlement of the dollar dominated international commodity transaction. In other words, multinational buying or early shipment of gold is not all for investment, and the main purpose is to hedge the US dollar after the expiration date.

This means that if China and Russia and other countries get enough gold and start playing their role, it will become a strong card against the dollar and become a strong backing for RMB internationalization. In fact, many countries such as China, Russia and India are also stepping up mining or acquiring physical gold reserves to prevent the sudden collapse of the dollar dollar, and Russia has always regarded gold as a wealth and monetary power independent of the external financial market system.

In this regard, the chairman of First Mining Gold gave us the best explanation. He thought the reason is obvious. I am sure that when the world really needs to solve the super debt deficit of the United States, the financial market may reset or link everything to gold. As Jim Rickards, the author of the currency war, describes, gold is like an illegitimate child of the global monetary system. Although the Federal Reserve does not want to acknowledge its existence, it still knocks. (end)