The latest reports prove what we’ve suspected for years: China is scrambling to get out of the dollar, primarily by selling their U.S. Treasuries, and move to the safety of Gold. Vince Miller explains why in this week’s Market Report.
Mark Alyn: This is the Market Report, with Vince Miller from the Birch Gold Group. Hi, I’m Mark Alyn, and today we’re going to talk about gold and China. We received an email from William Carter from Seattle, who asked about gold and China. China’s in the news a lot because they are buying up gold right and left.
Vince Miller: Yeah, that’s absolutely right, Mark. According to the World Gold Council, China could increase its gold supply by twenty percent by 2017. As a matter of fact, in 2013, China surpassed India and is now the world’s number one gold buyer.
Mark Alyn: Wow. So that means that they import more gold than any other country.
Vince Miller: That’s right. And the question that I get a lot from listeners and when I talk to people is, “Well, that sounds great, but what does that mean to me? What does that mean to – I’m a construction worker, I am a CPA, I’m an attorney; what does that mean to me and my portfolio?” And the real concern that we have with China is that China has begun to limit through exposure to the dollar, and they are beginning to sell foreign currencies, especially the dollar, and they’ve begun to buy hard assets. Essentially, they’ve been on a spending spree selling off the dollar and replacing those dollars with hard assets; basically, China has gone into the movie theatre, yelled, “Fire!” creating a sort of global panic. But it’s not really too big in the news over here in the United States, it’s not really talked about.
Mark Alyn: And as they do that, that drives the value of the dollar down.
Vince Miller: That’s right.
Mark Alyn: Driving inflation up, and at the same time, driving the value of gold up further.
Vince Miller: Well that’s absolutely true, what you see happening is when you have a country like China, who is such a big consumer or big holder of U.S. debt. Basically, China is the number one foreign holder of U.S. debt. That’s really the concern. And what happened at the end of 2013, back in November 2013, China basically came out and dropped a bombshell on the world. And it wasn’t really picked up here in the United States, but of course this is what we do, so we knew about it, but basically, the central bank in China had decided back in November that it is no longer in China’s favor to accumulate foreign exchange reserves. And during the third quarter of 2013, China’s foreign exchange reserves were valued at approximately 3.6 trillion dollars. Of course, the biggest chunk of that was U.S. dollars. Now, basically, what’s been happening for years is China has been accumulating dollars and working hard to keep the value of the dollar up and the Yuan down. Now, one of the goals China has been – one of the goals of the past has basically been China wants to keep their products less expensive in the international marketplace.
Mark Alyn: And that’s why we, in the United States and the rest of the world, keep buying everything from pharmaceuticals to kitchen products. I mean, it’s just amazing what’s produced in China.
Vince Miller: Well that’s absolutely correct. And the problem with China now making, devaluing or selling off the dollar and moving into other assets besides debt or besides U.S. currency is, of course, what that will ultimately do is devalue on a global scale, devalue the price of the dollar. I mean, have you ever walked into the 99 cent store and have you ever wondered, “How do they make any money on this?” Well, it’s because it’s been cheap for us to buy this stuff.
Mark Alyn: They may have to change that to the $2 store.
Vince Miller: It might go to the $2 store. That is the concern. You know, and in terms of what’s happening here at home, the real concern to the average American and people that we talk to every day here at the radio show here, or here on our show, is, you know, the number one export from the United States in terms of total volume is scrap metal. Okay? Remember Cash for Clunkers?
Mark Alyn: Right.
Vince Miller: Okay? Well, basically, what that was is the government’s way to give you a tax credit so they could accumulate more scrap metal. And who do you think we sell that scrap metal to?
Mark Alyn: We sold it to China.
Vince Miller: That is probably the biggest buyer of our scrap metal. And, of course, what do you think we buy from China?
Mark Alyn: Everything!
Vince Miller: That’s exactly right, and that’s the concern. And in the past, we had this sort of symbiotic relationship where China would buy the debt, we would buy our stuff from China; but now, China is starting to see that the dollar is losing its value, the Federal Reserve is printing or is buying up debt with QE3, they’re pulling back. You have the Dow Industrial Average right now at record highs, gold is cheap right now at a 3 and 3.5-year lull. Best entry point into the metal market. So it’s no wonder that you see, you know, countries like China moving from paper assets into hard assets. Of course they’re going to buy gold. Why? Because it’s at a 3-year low! My economy professor back in college used to always say this, my economist class he used to say, “If you don’t remember anything from this class, you remember this,” and I never forgot it. He says, “The rule of thumb on Wall Street is that you sell overvalued assets and you buy undervalued assets.” And the sentiment that I’m getting when I’m talking to people every day is that the Dow is at a record high. That they’re seeing profits on TV but not in their portfolio. That their dollar is losing value at the grocery store. Right now, groceries in 2014 are up 19% in 2014.
Mark Alyn: Vince, you told me some really interesting historical facts about gold from about 2,500 years ago.
Vince Miller: Mark, I’m a history buff. But the one thing that I would tell you is in the last 2,500 years, there’s probably been thousands of currencies. Thousands of denominations and currencies and so forth. But gold and silver have remained to be the main source of currency that has lasted throughout time. All the way back to Biblical days, when 2,500 years ago, when King Nebuchadnezzar ruled Babylon. An ounce of gold would buy 350 loaves of bread. Guess what? Today, an ounce of gold would buy –
Mark Alyn: 350 loaves of bread?
Vince Miller: That’s right.
Mark Alyn: Amazing.
Vince Miller: 350 loaves of bread today.
Mark Alyn: So even though we have had inflation, we’re starting hyperinflation, gold, the value of gold remains the same.
Vince Miller: That’s right. Mark, today gas is at a 13-month high. If you’ve been to the gas station this week?
Mark Alyn: Yes.
Vince Miller: My goodness.
Mark Alyn: It’s ridiculous.
Vince Miller: So, the trend that I’m noticing is we’re seeing the most conservative investor. People who historically made lots of money in other sectors like the stock market, like the real estate market, have even hedged into other more conservative types of place to protect their money. It seems to me, from what I can gather, is that they seem to be pulling out of these market sectors altogether. One of my clients recently told me that he just went to Costco, bought a gun safe, and his goal was to fill it up with as much physical gold and silver as he can get his hands on, and he wants to become his own central bank. I think the sentiment is very clear, both from central banks around the world, when you see the move from major financial powers like China selling off dollars to buy hard assets. Of course, gold being at the top of their consumer list. When you see local institutions like the University of Texas, a couple years ago, buying one billion dollars in physical gold, when you see a few years back you see Northwestern Mutual Insurance buying four hundred million dollars worth of gold, they’re not doing this to make money, Mark. They’re doing this –
Mark Alyn: Why are they doing it?
Vince Miller: Because gold is a defensive move. It’s to protect and preserve buying power against devaluation. That’s the reason why you buy gold.
Mark Alyn: You mentioned that, you know, food prices have gone up 19%. Gas prices at just about a record high, from what I can remember.
Vince Miller: Right.
Mark Alyn: Just under – In Southern California, where we’re based, it’s just under $5 a gallon. It’s ridiculous!
Vince Miller: Mark, I went through the drive-thru the other day with my daughter, who is 17, okay? And when she was 3, a happy meal at McDonald’s cost $1.99. A cheeseburger at McDonald’s cost $0.50. The other day, it cost a dollar.
Mark Alyn: That’s amazing.
Vince Miller: So, what we’re seeing here now, is you’re seeing groceries up 19%, you’re seeing gas prices at a 13-month high. Medication is more expensive. We’re exporting jobs because it’s too expensive for American companies to manufacture here in the United States. We’re buying everything from China. U.S. corporations – Apple, Microsoft – they’re keeping huge profits off-shore to avoid taxes to bring that money back in the United States. The Federal Reserve is basically printing up and buying more today than ever before. This current administration has accumulated more interest and more debt than almost any other presidency in history.
Mark Alyn: We also see that magic word, “inflation.” And I mean, just after World War II, we saw people in Europe – it didn’t happen in the U.S. – but in Europe, they take wheelbarrows full of money, of local currencies – Italy, France – they take it into the market to buy a loaf of bread.
Vince Miller: Yeah. And there was a time when foreign countries stopped taking the U.S. dollar from our government to, of course, for us to pay our debt. And we were paying our debt in gold.
Mark Alyn: And we don’t do that anymore.
Vince Miller: No, we don’t.
Mark Alyn: So, how do we protect ourselves? How do we protect our portfolio? How do we protect ourselves from pending hyperinflation today?
Vince Miller: Mark, that’s a good question. What I would do is get on the phone right now, and I would call a Gold Specialist over at the Birch Gold Group. I would get on the phone and I would – first of all, I’d want to get our gold guide and silver kit. And I would want to get that off to you right away. I would call us and I would get on the phone and I would talk to one of the experts here and let them begin to explain. Now, if you’ve never bought gold or silver before, or if you’ve been thinking about it for a long time, this is probably the best time in 3 and a half years for you to buy. Like I said before, the metals are at a three-year low. It’s the best time in three years. I hear this all the time: regret, regret, regret. I hear people say, “Vince, I wish I would’ve bought gold ten years ago. Fifteen years ago.” Whatever.
Mark Alyn: The best time is now.
Vince Miller: That’s right.
Mark Alyn: Start. You’ve got to start someplace.
Vince Miller: Mark, the best day to plant a tree was twenty years ago. The second best day is today.
Mark Alyn: Today.
Vince Miller: That’s right.
Mark Alyn: Listen. We want you to give Birch Gold Group a call. 800-355-2116. That’s 800-355-2116, and if you have a question, by the way, you can also email us at [email protected] – [email protected] Vince, thanks a lot for being with us today. We’ll be back on our next broadcast. I’m Mark Alyn; thanks for tuning in.
Vince Miller: Thank you, Mark.
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