Sound Money Campaign investigates the trail of gold moving from West to East. While many financial writers have noted the increasing amount of gold that is traveling from Western markets to Eastern governments, few have noted the reason why this might be happening. Many have pointed to a big picture possibility but fail to name facts to back up their hypothesis. There are differences between foreign currency and western fiat currency that need to be explored if one wants to understand what is happening and why.
East vs West
Western banks and governments have given up the idea that gold itself will ever become a viable currency again. They cling to the entire smart money policy and the idea that a fiat monetary regime will sustain them for generations to come. Eastern financial markets, such as China look at gold in a whole new way. The Marxist philosophies still hold that gold is a currency. Is there a currency war? Not if you look at from the perspective of Western banks. Because Western banks do not see gold as money, they do not see the loss of gold as the loss of money. This is why you cannot walk into a Bank of American branch and buy gold. Banks make their money from money, and since they do not see gold as a currency, they do not see it a tool from which they can make interest or fees.
Gold is Currency
When you think about china, think about the open markets. To the Chinese people, gold is still currency. To the Chinese banks, gold is a currency. If you are given the choice to trade your bad apple for a new, beautiful apple would you? Of course, you would. That is very much how Eastern governments and banks view gold, as the good apple. They have spent decades collecting western money, and now they have the opportunity to trade that worthless money for gold. There is no value in the U.S. dollar if the U.S economy continues to get worse. When the dollar was strong, the Eastern Governments wanted the U.S Dollar, and thus they bought bonds. Well the bond market is not all that great these days.
Return of Investment
Why would you invest your money into a U.S Treasuries Bond that takes a long time to mature and at the current rates of return is not offering very much return for the time of investment. In Short, The ROI is bad. The ROI on gold; however is still good. When the Chinese government sets out to encourage the people of China to purchase gold, it helps the Chinese economy by reducing the trade surplus. The more gold that China holds the better off China is especially in difficult times. Gold is finite.
If Western currencies fail, and there is not a lot of gold left in the West, then China wins. The time of new gold discoveries has past. Peak gold sets upon the world like a greedy child who just ate the last cookie. What is left to governments is the gold that is already mined. Sound Money Campaign sees that the movement of gold from West to East as a threat to every market in the West.
