is it dawn or dusk?
Good morning and welcome to a Fantabulous Friday the 13th! Whoa… I just love days like today. Steely Dan greets me this morning with their 1974 hit, “Rikki Don’t Lose That Number.”
The New York Spot Prices showed weak gains yesterday with Gold closing up $2.00 settling in at $1,293.10, Silver was up $0.08 to $17.23, and Platinum had the biggest gains up $6.00 to $937. In overnight trading Gold lost $0.90, Silver lost $0.03, and Platinum has gained $1.00. Let’s see how things progress when the New York Market opens.
Folks, today is not about precious metals. Gold, silver, and platinum take a backseat in this blog to another commodity – oil. Why you ask? Because as I opened up today’s news, all I’m finding is reports that tell me our world, as we’ve known it, since 1974, is about to be changed forever.
CNBC “China will ‘compel’ Saudi Arabia to trade oil in yuan – and that’s going to affect the US dollar”
Bloomberg “China, Saudis to Discuss CIC, CNPC Investment in Aramco IPO
WSJ Saudi Aramco Is in Talks to Buy PetroChina Refinery Stake”
These are just a few of the articles that are discussing the building relationship between China and Saudi Arabia. Relationships aren’t a bad thing, right? I mean, if China wants to play ball with the world, and they play fair, what’s the big deal?
Well, you’re right. But we’re in sort of a pickle because of the past 43 years. Back in 1974, inflation was soaring, the stock market had crashed, and the U.S. economy was in a tailspin. The lines to buy gasoline, if it was even available, were at least 50 cars deep. Remember even and odd days based on your license plate? The Nixon Administration had a goal to neutralize crude oil as an economic weapon. Of course, thanks to the Johnson Administration who was pro-Vietnam War and wanted "The Great Society," we had begun to really create a widening deficit, so we needed help to finance an ever increasing debt.
As written by Andrea Wong a few years ago for Bloomberg, “The basic framework was strikingly simple. The U.S. would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.”
Fast forward to 2017. The U.S. economy has grown sluggish and fat. Our debt has far outpaced our income and now, with virtually no way to ever pay it back, the entire world is seeing us as a bully and an overweight has-been. Saudi Arabia has to pay attention to China! The Chinese economy and thus their demand is fast dwarfing ours. Couple that with the Shanghai Oil Exchange where the yuan is backed by gold and you can say goodnight to the petrodollar.
So as I watch and read, I’m seeing all of this happen so much faster than I anticipated. This brings me to today’s news. If James Rickards is correct, China will not succeed in creating an open economy (one that is open to trade and capital flows) because of what he terms the “Impossible Trinity.” An open capital account, a fixed exchange rate, and an independent monetary policy. His belief is that we’ll see a maxi-devaluation of the Chinese yuan. Let’s hope Mr. Rickard is correct. For our sake. For our children and grandchildren’s sake.
In the meantime, we need to get our government to quit spending futures before the past is all that remains.
Well, I’ll let that be it for today. Go out there and make a difference! See ya’ll later!
*Disclaimer: Precious Metal Musings™ is written for entertainment and news purposes only and should not be used in making purchases and/or sales of precious metals.