I read somewhere that China is playing chess while the US is playing checkers. China did have to raised its interest rates today due to inflation which is partly the reason gold and silver are down, that's the explanation anyway. This writing from a newsletter is interesting:
</font>Gold
Forecaster Weekly E-Mail Snippet</font>
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The coming flood of Yuan and Chinese Gold Demand</font>
By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch</font> </font>
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While
China is taking a greater portion of our financial attention on a daily
basis, it seems to us that the sheer size of China and its continued
growth has not been factored into the world economic perspective, even
now. </span></span></span><b style="">One
of the consequences of profit driven capitalism in the past was the
relocation of manufacturing from high-cost, developed countries to the
lower cost country of China. </span>U.S. corporations
that did that, have enjoyed
better-than-ever profits, but in the process have educated new, Chinese,
lower-priced competition that will overwhelm us all in the future. </span>The enrichment of China and its arrival on the world scene will surpass the U.S. </span>as the largest world economy by 2020 at the latest [we would not be surprised if this happened even before 2015]. </span>This will trigger a financial tsunami that will change they way we think and invest.</span>[/b] </span></span>
</span></span><b style=""> </span>[/b]The Internationalization of the Yuan â€" Progress report</span>
The Chinese government has allowed the Bank of China Ltd's to allow trading in Yuan for the first time
in the U.S. </span>Individuals
can convert up to $4,000 a day without limit for now, on the amount of
money businesses can convert, so long as they're engaged in
international trading, the report said. </span>We at the Gold Forecaster have been following the steady progress of the internationalization of the Yuan since it began. </span>The
goal that seems likely to be reached sooner rather than later will be
for the Yuan to be a competing global reserve currency. </span>Effective
immediately, Bank of China's U.S. individual customers can now open a
Yuan denominated savings account with a $500 equivalent minimum balance.
</span>The bank also offers certificates of deposit in 6-month and 1-year terms with a minimum of $1,000 equivalent. </span>Now watch the rush. </span>We don't believe that those who do it hoping to experience an appreciation of the Yuan will see that. </span>But such investor objectives will create a huge demand for the Yuan.</span> </span>Account Opening procedures</font></span>
</span>For
interested subscribers, the account opening procedures are simple--
there is an application form, a W-9 tax form, and a signature card.
Applicants are also required to provide a government-issued ID and one
other form of identification such as a credit card, employee ID card,
insurance card, etc. </span>You do have to show up in person. </span>Businesses
can also open Yuan accounts with a $5,000 equivalent minimum and
requisite entity paperwork like Articles of Organization, etc. </span>At
this time, Yuan cash cannot be withdrawn from the account. The bank
does provide currency exchange services between dollars and Yuan at its
Chinatown branch in New York; current limits are up to $4,000 per day,
and $20,000 per year.</span> </span>
The Yuan replacing the U.S.
dollar</font></span>
</span>China is doing this as part of a long-term plan to make the Yuan become a fully-convertible competing global reserve currency. </span>Many
sovereign nations are holding Yuan in reserve instead of just dollars,
and Chinese cross border settlement is now frequently being transacted
in Yuan instead of dollars because of new clearing and settlement
platforms that have been established in Hong Kong. </span>After Yuan exchanges are established in the U.S., Europe will be next. </span>Then as we forecast, China will price its goods in the Yuan and then pay in Yuan.</span> </span>Please note that each seven Yuan purchased will replace one U.S. dollar on the international foreign exchange. </span>Each contract priced in Yuan will replace the previous use of the U.S. dollar in those transactions. </span>We believe the change will be rapid now. </span>The belief that the Yuan should be stronger than the dollar and will be some day will accelerate the move to the Yuan. </span>The potential switch will look more like a tsunami than a flowing tide. </span>The concept that this will take a decade is far off the mark. </span>China must have prepared itself for this day very carefully and prepared its
banking system for this flood to swamp the world's foreign exchanges. </span>Do not be surprised if by next year we will all be familiar with the Yuan in our own lives.</span> </span>Taking
this further, the impact on the U.S. dollar exchange rate has to be
bad, for the dollars no longer used in international trade will come
home and add to the home money supply. </span>Maybe there will be no need for QE3? </span>As
to the growth of the Chinese foreign exchange reserves, the more the
Yuan replaces the dollar, the slower the flow of dollars into Chinese
reserves. </span>It won't be a huge step for European trade to by-pass the dollar either. </span>We
believe that the attrition, the real reduction of the role of the U.S.
dollar as the sole global reserve currency has now begun! </span>Brace yourself for a major set of changes in the global economy going forward.</span> </span>
There
are many ramifications that we have not covered here, because of lack
of space, but will cover in our newsletters for subscribers in future
issues.</span>
</span>Chinese gold demand</span>We have previously discussed the way Chinese gold demand will impact the gold price via imported gold. </span>Even we have underestimated that demand. </span>Right now, the demand for physical gold in China is surging. </span>The premiums for gold bars for spot delivery jumped to their highest levels in two years there. </span>Both nations are experiencing food inflation in particular, as
well as the rising levels of general inflation. </span>If
this is a consequence of urbanization taking productivity away from the
countryside, we expect the government will rectify that quickly without
using monetary means. </span></span>But
overall gold demand is not a response to inflationary pressures there,
but the rising capacity as well as rising numbers of middle class
investors turning to one of the two prime investment mediums, bank
deposits or gold. </span>We expect this to rise rapidly in this country of 1.4 billion people who are rapidly being enriched.</span></span>
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