China and Gold

While Federal Reserve is pumping 40 to 60 billion fiat dollars into the economy and Ben Bernanke calls gold "tradition" and "an awful big waste of resources" to mine, the Chinese are loading up with the wasteful tradition.

There are two important reasons why any of this matters. First, the scale of China’s gold initiative is unprecedented in world history. This alone should make us take notice. Second, China is signaling that the currency wars of the past decade are changing. Soon, the battle will be influenced by gold. Here in the West, we cling to the notion that our experiment with floating exchange rates and unreserved currencies will somehow save the day. We forget that it was only 41 years ago, when the US suspended dollar-gold convertibility, that our current system was born. China suffers from no such delusion. It is voting with its wallet that the experiment has failed. It is preparing for the demise of the US dollar.

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