The US-China tariff war is not about the price of any particular gadget or car. It’s all about raising the value of the Chinese currency, the renminbi which is the official currency. The yuan is the basic unit of the renminbi like the US dollar.
Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer are pushing the Chinese to raise the renminbi value by 20 percent. This will raise the price of all Chinese exports across the board.
The Chinese are open to the idea with two important caveats. They are telling the US to stop suppressing the price of gold and allow it to find its natural price. Of course the US could not agree to that flat out since it would uncover the fact that they are holding down the gold price. So a work around on language is being constructed.
The second Chinese condition is to change the dollar-dominated global currency. They are looking at creating a basket of currencies and commodities to replace the dollar for global trade including crude oil.
The basket would contain the dollar, euro and the renminbi as well as oil and gold. This would appear to be a game changer that no US president could take. It would immediately cripple the US bond market, since no country would need to buy as much debt to fortify the dollar’s value.
Is this why we are seeing the US one-month bill fetching a higher yield than the US 10-year note? The US bond market has had an inverted yield curve since the tariff tiff exploded earlier this year.
So what to make of all this? While the parties agree in substance to the agreement, timing is the key.
There will be no resolution with China until after the 2020 presidential election, since any global reset will cause large economic pain.This is why we will see rate cuts this year to somewhat soften the blow.
In the mean time we should see the price of gold slowly appreciate as governments in the know start buying gold at bargain prices in the anticipation of a $1,000 surge when the agreement is announced.
Further confirmation I am told is that gold sellers are not offering bulk purchases now for many buyers and if they do it is with a healthy premium.
Sounds as if the Dec. 15, 2018 drop has some backing.
Gold shall destroy FED.