De-Dollarization Escalates: Gold Better Than US Debt?

We recently spoke about Jim Rickards “Axis of Gold” here. This article outlined why astute investors should increase their gold positions. Now we see some of the biggest key economic players moving to do the same by selling large amounts of US Treasury Securities and moving into gold.

As reported recently on Zero Hedge, the US Treasury Department report for April (published on June 15) revealed that Russia sold $47.4 billion out of the $96.1 it had held in Treasury bonds (T-bonds). In March, Moscow cut its Treasury holdings by $1.6 billion. In February, Russia had already reduced its bond portfolio by $9.3 billion. Other holders did it too. Japan sold off about $12 billion, China liquidated roughly $7 billion. Ireland ditched over $17 billion.

The tariff wars unleashed by Washington stirred fears that financial markets may be in for a rough ride with American treasuries dumped by some partners, including such major holders as China and Japan, each holding over $1 trillion in bonds. Russia has cut its holdings in American securities following numerous rounds of sanctions imposed by Washington against Moscow and amid the ongoing trade wars between the US and its allies and partners. This is all an ominous warning for Washington. 

This recent action may be starting to show that the supremacy of the US dollar is not as solid as many people believe. A sell-by date as a global reserve currency may be looming as the broader process of de-dollarization is gradually gaining momentum.

Moscow and Beijing are quietly making significant agreements to move away from the American currency. On June 8, their leaders signed an agreement to raise the share of trade settlements in national currencies. Last year, nine percent of payments for supplies from Russia to China were made in the Russian rubles. In October 2017, China launched a payment system for transactions in the renminbi and the Russian currency. The launch of the petro-yuan allows Moscow and Beijing to use national currencies for settlements. China and Japan started direct trading of their currencies as far back as 2012 to hedge the risk of the dollar's fall in the long run.

On the back of all this, a growing chorus is starting to sing the tune of the age-old benefits of gold for stability in the times of such fundamental shifts to the established global order. Stanley Druckenmiller, the billionaire investor, believes that this is the time when “all you need is gold and all other investments are rubbish”. Top money managers are also recommending gold. Other countries have also started repatriating their gold reserves from the US to ensure they are not left behind, just in case the momentum sharply increases.

If the US bond market is about to experience an unprecedented drop in demand as the other big players move to alternative solutions and the dollar starts facing an uncertain future, gold is going to become an increasingly outperforming asset throughout the escalation of the transition. Only time will tell, but there are clear warning signs the “American century” is coming to an end.