Petro-Yuan Sees Success in Trade, Decline in Dollar
The petro-yuan was officially launched on March 26, 2018. Over the last two years, I spoke at many advisor seminars and workshops throughout the country, and in each one I covered this subject. During those two-hour workshops, I invested over 30 minutes talking about the imminence and weight of this change, explaining how and why the launching of this platform will result in the demise of our petrodollar.
Typically, when I bring up this topic in normal conversation, I receive an eye roll or the response, “So what? That doesn’t affect me.” With the U.S. media barely covering the story, many Americans are unaware or unconcerned, but this news is getting major international attention for good reason – it affects all of us.
Some U.S. news agencies have covered it, with Reuters reporting, “China’s launch on Monday of its crude futures exchange will improve the clout of the Yuan in financial markets and could threaten the international primacy of the dollar.”
The article quoted Hayden Briscoe, head of fixed income at UBS Asset Management, who said, “This is the single biggest change in the capital markets, maybe of all time.”
For those of you who do not have prior knowledge or have not heard about the petrodollar trade, let me briefly enlighten you. The petrodollar trade was created back in 1974, three years after Nixon removed our gold standard by “temporally suspending” it (though we are all aware that today it is still “temporally suspended”). Nixon secured treaties and agreements with the then-Saudi Prince, and they became known as the petrodollar trade. In short, Saudi Arabia and the U.S. came to an agreement that any oil purchase conducted through them from any and all nations would have to be in U.S. dollars. In exchange, the U.S. helped Saudi Arabia with infrastructure and military support.
It is obvious that this treaty is a major reason why our government chooses to print and spend the U.S. dollar with little or no restraint. This is also the reason why we have a national deficit of $21 trillion and over $175 trillion in unfunded liabilities. Take the petrodollar away, and we no longer have countries to buy our debt, which finances our spending problems and shortfalls.
Remember what happened to Muammar Gaddafi in Libya and Saddam Hussein in Iraq? Both of these individuals attempted to bypass the petrodollar by creating a gold-backed dinar. If they would have been successful in that creation, we would have seen the dollar deteriorate much sooner. Why do you think the U.S. is placing all of these recent tariffs on China? Our government announced the tariffs two days before the Shanghai Exchange opened.
I spent over a quarter of every seminar in the last two years discussing this because of the reality that we cannot stop China. That became clear this last week.
Realize this: in the wee hours of Monday, March 26, the Shanghai exchange began, and during the first hour of the trade being opened, there was over 1 million ounces of physical gold exchanged for oil. Reports show that most all of the major oil producers dipped their big toe in the water during this last week, with all deeming it a great success.
If that much physical gold is being moved, what is that going to do to the price of physical gold and subsequently silver? If that much currency is being traded in oil and it is not our U.S. dollar, what effect is this going to have on our purchasing power?
On March 29, Goldman Sachs Bank USA issued a note to all of their clients saying, “This week, the success of Shanghai’s crude futures was indirectly promoting the use of the Chinese currency.”
Goldman Sachs is already issuing alerts and warnings to their clients. Are you going to be doing the same?
The question comes down to this: how do we protect ourselves and our clients? Our buying power here in the U.S. is going to continue move lower. We lost over 14% of our USD index in 2017 and that was only from the anticipation of this exchange launching.
In the coming months and years, it is extremely probable that gold and silver will rise significantly. However, we need to look at gold and silver as wealth stabilization and insurance. Gold and silver prices move with our U.S. dollar and this case will be no different. If the world continues to shun our dollar, logic tells us that the dollar will continue to slide like it did last year.
Contact us to learn more about how to properly educate your clients with true insurance – wealth insurance. We provide all the necessary training and will help youtalk to your clients about precious metals. With all the market volatility and now the petro-yuan, clients are starting to hear the buzz again on precious metals. They should be talking to you about gold and silver and not a non-licensed broker.