Central bankers have been on a massive gold buying spree led by Russia and China. One must remember that not only is Putin ex-KGB, but he is also an economist and holds a black belt in judo. Judo teaches you to use your opponent’s momentum to defeat him or her, and that appears to what Putin is doing. He has this administration running circles, by the time they figure out what he is up to, it is too late to do anything. Putin and China can see that the writing is on the wall that the days of U.S holding the top spot are numbered. Our economy is in shambles and only appears to look strong because of the hot money that is holding it up. Regarding illusions, it is a perfect illusion and for now, the masses have bought it, but Russia and China have not.
Putin is also aware that the average life span of a super power is 250 years, and the U.S has been in this position for 240 years, so it is running out of time. Hence, he is using the strong dollar to buy up cheap, valuable gold. Russians are advanced chess players they plan several moves ahead; that is why the West has had such a hard time figuring out what Putin’s next move will be. When the western media states that Russia’s reserves are falling, they forget to mention that the reserves are in dollars and what Russia and China are doing are getting rid of their worthless dollars and replacing them with gold.
IMF data (International Monetary Fund) shows that the Russia and China have been among the biggest net buyers of gold for eight years in a row. Last year countries purchases close to 590 tons of gold accounting for 14% of annual global gold bullion demand. Smart nations like Russia and China are using these low prices to load up on gold and divest from the dollar. They understand that this economic illusion can last for only so long before reality strikes.
The chart below illustrates how Russia’s reserves of gold have soared over the years. Putin is planning for a day when the U.S is not the dominant power anymore. When the dollar is finally dethroned, the end will not be pretty.
The number of bilateral deals bypassing the dollar continues to soar. The opening of the AIB (Asian infrastructure bank) and with the Yuan being accepted into the world reserve currency club, the path for the dollar is definitely downhill.
Game Plan
Both China and Russia make for great long-term investments. In Russia Yandex NV (MCX:YNDX) and VimpelCom (NASDAQ:VIP) are examples of two good companies investors can open positions in; in China, we have Alibaba Group Holdings Ltd (NYSE:BABA), China Mobile Ltd (NYSE:CHL), Huaneng Power International Inc (NYSE:HNP), etc. Most importantly, it would be prudent to hold a position in gold bullion. You can use declines to open new positions. We would not aggressively jump into gold bullion unless you have a lot of extra cash lying around that is not being used. Gold is still not fully out of the woods yet as the trend has not turned positive yet. It has a solid wall of resistance to overcome at $1350. The monthly close above $1200 is a move in the right direction.
A multi-polar world order is emerging. The U.S can either embrace this new trend or be crushed by it. Once a trend is in motion, there is nothing that can stop it; the best you can hope to do is to slow it down. Sadly that is the current path the U.S has opted for; perhaps the next administration will be wiser.