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China to buy Oil with gold backed Yuan

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China to buy Oil with gold backed Yuan

Unread postby AgentR11 » Sat 02 Sep 2017, 10:58:58

The trick here is that the Yuan converts to physical gold on Chinese Exchanges; so you can either sell your oil in Yuan, and use the Yuan to buy Chinese stuff; of if you have too much Yuan, you can convert it to contracts for physical gold.

Apparently this mechanism has been in the works for a while; but looks like they'll pull the trigger on it by end of year.

Now, they aren't saying the word "Russia" here, and the news is mostly covering Saudis wanting to sell some in Yuan; but my belief is that because both Russia and China maintain massive gold reserves, that this is designed to ease the purchasing of Russian energy when the time comes that Russia is completely excluded from dollar markets. Since such things take a long time to mature, its a wise move to get it up and running long before its needed.

http://oilprice.com/Latest-Energy-News/World-News/China-Readies-Yuan-Priced-Crude-Oil-Benchmark-Backed-By-Gold.html

In the end, it won't end dollar dominance; but it will end the ability to use that dominance to starve out competitors.
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Re: China to buy Oil with gold backed Yuan

Unread postby ROCKMAN » Sat 02 Sep 2017, 11:40:17

Agent - Interesting...thanks. Any word on the amount of convirmed gold China has?
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Re: China to buy Oil with gold backed Yuan

Unread postby GASMON » Sat 02 Sep 2017, 11:44:56

They have got lots of Tungsten :-D :-D

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Re: China to buy Oil with gold backed Yuan

Unread postby Outcast_Searcher » Sat 02 Sep 2017, 11:53:53

As usual, this is a non-issue. With liquid foreign exchange markets trading roughly $5 trillion in currency value a day, you can hold your money in Yuan or any other major currency all you want. Then you can trade to whatever currency you need to buy oil a second or a minute before you buy the oil.

Same thing with the petrodollar. There is an accounting issue and an on-the-books issue.

But if you would rather hold Euros, or Yen, or Yuan, or whatever, unless the foreign exchange markets go away or become unreliable, the whole currency meme is at most, a MINOR inconvenience for any competent entity with financial means.

The fact that this keeps being reported and commented on as a significant issue, IMO, tells me how much attention we should pay to the vast majority of the armchair economic forecasting that goes on via the internet, via bloggers and comment websites.

Note -- I'm not forecasting anything here -- I'm simply pointing out a huge and obvious market and mechanism that essentially makes the whole risk of holding currency "X" over time disappear via endless convenient hedging choices.
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Re: China to buy Oil with gold backed Yuan

Unread postby AgentR11 » Sat 02 Sep 2017, 12:05:02

Outcast_Searcher wrote:Note -- I'm not forecasting anything here -- I'm simply pointing out a huge and obvious market and mechanism that essentially makes the whole risk of holding currency "X" over time disappear via endless convenient hedging choices.


Agreed, it is mostly an accounting issue; but it is fundamental to the efficiency with which Russia and other countries that are sanctioned, and China can trade outside of SWIFT and Western currencies. Russia being the most interesting to me as they are both an energy and food calorie exporter.

I don't do the "risk of holding" argument at all; just noting the increasing float like characteristics of the Yuan and the increasing ease with which the two can clear and settle outside the Western system. Risk of holding is only really an issue if a national bank is trying to set its currency's rate of exchange with buys and sells; instead of focusing on growth, inflation, and liquidity.

It will take time still, but we are losing a lever of coercion as it happens. Maybe that's a good thing in the long run, I dunno, remains to be seen.
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Re: China to buy Oil with gold backed Yuan

Unread postby ROCKMAN » Sat 02 Sep 2017, 15:09:17

Agent - Posted a response that hasn't shown up. But if the numbers are to be believed China increased gold reserves almost 60% in just a couple of months in early 2015 compared to 4Q 2014. And then 80% higher then 4Q 2014 by 2016. Interesting they started buying as prices were falling. Until they had bought so much: by 2016 about a 20% increase in price. And prices still high now.

Regardless of its plan to back its currency China's buying spree made them a very nice profit.
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Re: China to buy Oil with gold backed Yuan

Unread postby AgentR11 » Sat 02 Sep 2017, 17:59:18

it occurs to me that this isn't the traditional notion of "backing a currency with gold". The exchanges sell gold in Yuan in China; but 1 Yuan is not meant to be equal to some fixed amount of gold; but rather the market sets the price on the exchange. So if you wanted to end up with gold, you'd sell your oil in Yuan, and then immediately buy the gold contract; but if you held your Yuan, it would be worth a different amount of gold day by day as the price of gold changed over time.

It'll be interesting to see how it plays out into next year, and to see how committed they are to the idea of wanting BRICS free of dollar coercion.
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Re: China to buy Oil with gold backed Yuan

Unread postby dissident » Sun 03 Sep 2017, 07:19:51

Bit talk about Uncle Scam being able to corner Russia with sanctions. Uncle Scumbag better be prepared for 7 million barrels of oil per day coming off the market if he tries to push too far. That will screw him and his minions so hard they won't know what hit them. In case it is not clear, Russia can deal with the loss of oil and gas exports (which are less than 8% of its GDP). Russia recently paid down $220 billion of its dollar foreign debt over a couple of years. That amounts to -7.4% per year GDP growth in both years. The reason that Russia's GDP is not down 15% is because of import substitution.

NATO pundit morons look at Russia's export profile to evaluate its economic diversification. These retards somehow miss that Russia has one of the smallest import levels of any country. But logical deductions are too hard for irrational, foaming at the mouth haters.

https://www.awaragroup.com/blog/russian ... s-warfare/
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Re: China to buy Oil with gold backed Yuan

Unread postby Cog » Sun 03 Sep 2017, 07:42:40

Russia doesn't even qualify as a first world country. They are a blip on the world economic stage. Without their oil exports, they starve. The state of New York has a larger GDP than the entire country of Russia. Russia has nukes which is the only reason we let them sit at the same table as the USA.
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Re: China to buy Oil with gold backed Yuan

Unread postby AgentR11 » Sun 03 Sep 2017, 10:10:23

Cog wrote:Without their oil exports, they starve.


This is just a blatant falsehood; Russia produces more oil, AND more food than it uses. It does import things they don't grow, in the same way the US does, but they are flavor items, not food security items.

That they export both food and fuel, is what makes this Chinese effort so interesting.
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Re: China to buy Oil with gold backed Yuan

Unread postby Outcast_Searcher » Sun 03 Sep 2017, 17:28:31

AgentR11 wrote:
Outcast_Searcher wrote:Note -- I'm not forecasting anything here -- I'm simply pointing out a huge and obvious market and mechanism that essentially makes the whole risk of holding currency "X" over time disappear via endless convenient hedging choices.


Agreed, it is mostly an accounting issue; but it is fundamental to the efficiency with which Russia and other countries that are sanctioned, and China can trade outside of SWIFT and Western currencies. Russia being the most interesting to me as they are both an energy and food calorie exporter.

I don't do the "risk of holding" argument at all; just noting the increasing float like characteristics of the Yuan and the increasing ease with which the two can clear and settle outside the Western system.

I agree that the risk of holding isn't necessarily the primary issue for many countries. However, I often see doomers (not just here) proclaiming economic doom for the US if the petro-dollar loses its dominance. So my point about "risk of holding" is that it completely trumps this argument, of it giving the US some sort of major "advantage" in the dollar being the preferred currency.

(To the extent the dollar is the preferred currency for many, it's because despite the US having some glaring problems, who else are you going to trust to have a relatively stable currency over time AND have major global scale. (Europe? China? I have my doubts).)
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Re: China to buy Oil with gold backed Yuan

Unread postby Yoshua » Mon 04 Sep 2017, 04:06:35

China seems to try to establish it self as the trading hub in Asia where everything can be traded in yuan. China has to offer the possibility to change the yuan into gold since the yuan isn't fully convertible currency.

I see it as part of their New Silk Road project, that is ment to connect the Eurasian continent with fast speed rail and a maritime silk road that will connect all the ports on the Eurasian continent.

Russia has been saying that they are not strong enough to be a global power, but that they are strong enough to choose who will be the global power. The Russian foreign minister said about the comming world order that " If you wish, you can call it the Post Western World Order".

Now...maybe they are a bit over ambitious. Or perhaps they just see this as plan B when the American "empire" implodes.
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Re: China to buy Oil with gold backed Yuan

Unread postby Cog » Mon 04 Sep 2017, 05:04:48

Russia's actual ability to influence events always falls short of their claims to do so. China has its own special demographic and oil supply problems. I'll stick with the USA as the premier super-power for the remainder of the century.
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Re: China to buy Oil with gold backed Yuan

Unread postby Yoshua » Tue 05 Sep 2017, 06:30:23

I still wonder what would happen to the dollar if it's disconnected from oil. Would the dollar be massively devalued? Would the US economy experience hyper inflation? Would the Etp Models MAP be blown away? Would it cause massive financial disruptions around the world? Would the US economy tank?

I wonder if Russia and China really know what they are doing?

Jim Rickards calls China a communist nation that is playing with capitalism. He compares China to a 3 year old with a loaded gun: There will be some damage!
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Re: China to buy Oil with gold backed Yuan

Unread postby Cog » Tue 05 Sep 2017, 07:46:22

No
No
No
No
No
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Re: China to buy Oil with gold backed Yuan

Unread postby AgentR11 » Tue 05 Sep 2017, 08:10:02

Yoshua wrote:I still wonder what would happen to the dollar if it's disconnected from oil. Would the dollar be massively devalued? Would the US economy experience hyper inflation? Would the Etp Models MAP be blown away? Would it cause massive financial disruptions around the world? Would the US economy tank?

I wonder if Russia and China really know what they are doing?

Jim Rickards calls China a communist nation that is playing with capitalism. He compares China to a 3 year old with a loaded gun: There will be some damage!


I doubt anything interesting will happen to the dollar as a result of China trading in Yuan; that's not something they would want anyway. The point isn't to hurt the dollar, but rather keep it strong while simultaneously disconnecting its ability to be used as a coercive force. Its a very hard trick to achieve.

As to China and Russia, yeah, I think they know what they are up to; but its a very specific thing, and they may not even do much of the Yuan / Gold swap; as they each have lots of stuff to buy from the other, and the ruble is already at true float. The gold contracts simplify the settlement process for the banks, given that the Yuan is still not able to safely float.
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Re: China to buy Oil with gold backed Yuan

Unread postby Yoshua » Tue 05 Sep 2017, 10:15:02

Jim Rickards is a finance expert. He was invited by the Pentagon to take part in financial war games. He took the side of Russia and China. He created a currency backed by gold and sold Russian oil only in that currency. He won the war.

About this yuan oil gold deal he commented: RIP Petrodollar.
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Re: China to buy Oil with gold backed Yuan

Unread postby Yoshua » Sun 10 Sep 2017, 06:26:18

This graph shows a trader's DEATH CROSS, a crossing of the 50 month moving average below the 200 month moving average for the very first time in history!

http://farm5.staticflickr.com/4375/3695 ... 86c4_b.jpg
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Re: China to buy Oil with gold backed Yuan

Unread postby Yoshua » Sun 10 Sep 2017, 07:31:46

The Petrodollar might be dead anyway. There is perhaps just too much stress to a currency that is linked to an energy source which value is is falling like a stone.

Chinas attempt to link oil to the yuan might do in the Chinese miracle economy?
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Re: China to buy Oil with gold backed Yuan

Unread postby AgentR11 » Sun 10 Sep 2017, 10:57:17

Yoshua wrote:Chinas attempt to link oil to the yuan might do in the Chinese miracle economy?


Just to be clear, they aren't trying to hold the Yuan to a specific amount of gold or a specific amount of oil; but rather allow them to be freely convertible at open market rates. So, if anything, this is another slight move towards float like characteristics for the Yuan which is still subject to government control on the value side.

In the end, they have to pay for oil with something, and using Yuan or gold contract to pay for it seems less harmful to their economy than continuing to use dollars while a madman is in office threatening to embargo all trade every time something doesn't go his way.
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