Sunday night China allowed its currency to weaken against the U.S. dollar bypassing the psychologically important level of 7 yuan to the dollar. In India, the rupee also weakened against the dollar as Jammu and Kashmir went into forced blackout by the government and the rupee moved past 70 to the dollar. The real story, however, is not the large movements in yuan and rupee against dollars but rather the movement of all currencies against the ultimate universal currency; gold.
As you can see from the chart below gold has climbed approximately 17% vs the Chinese yuan and the Indian rupee. This is a large currency move and it’s only the beginning of August.
For thousands of years gold has been used as currency and a store of value around the world but nowhere is this history more intact than in Asia. In 1997 during the Asian currency crisis, many Asian countries saw their currencies severely devalued against the U.S. dollar. Many citizens in the East have learned over and over again that physical gold outlasts paper money. While the 1997 crisis may not be familiar to many of our younger readers in the West, in Asia, the memory remains painful in the minds of those that lost wealth and those that have rebuilt it since.
A lot of other things have changed since 1997 as well. For example, many geopolitical experts have been forecasting that we are moving to a multi-polar world that includes Asia rather than a unipolar world driven by the United States. The population density of Asia and the growth of the middle-class is nothing less than awe-inspiring. With such rapid growth comes increased savings and many people prefer their savings to be in a currency they trust like gold rather than a local government bond.
As we’ve noted in past newsletters, several governments are aware of their citizens’ propensity to save in gold and are looking for ways to facilitate it. Most notably is Mahatir Mohamed, who was the Prime Minister of Malaysia during the 1997 Asian currency crisis. Dr. Mahatir recently spoke at the 25th International Conference on the Future of Asia and proposed that the Malaysian ringgit be fully backed by gold.
In China, the government has made a focused effort to become a major player in gold trading. Their efforts have been successful because China is now the 3rd largest gold trading hub in the world, transacting nearly $10 billion dollars worth of gold daily and that’s based on 2016 data from the World Gold Council as shown in the image below. Imagine what 2019 must look like?
In 2020 China will host the China Gold Congress at the China National Convention Center in Beijing. The focus on gold is only going to grow.
As French writer Jean-Baptiste Alphonse Karr famously said,
“the more things change, the more they stay the same”.
The world is changing rapidly and because gold stays the same it will forever remain the trusted currency to take us forward.