This past week, the International Monetary Fund put down the U.S. dollar via its yearly External Sector Report. They argued that the American currency is now overvalued. As if this were not bad enough, Reuters reported that the IMF also claimed that “nearly half of global current account balances are now excessive, adding to growth risks and trade tensions.” At the same time, the global economic monitoring agency argued that China’s yuan currency is “in line with the fundamentals.”
These are warning bells for you that the dollar (in which practically all of your retirement assets are denominated) is under attack. Now is the time to consider what assets go in a Regal IRA. You also need to familiarize yourself with the IRA rollover rules and regulations. It will be too late to start trying to move your IRA over to a Gold IRA and then to start buying the kingpin precious metal once the dollar has already declined significantly.
Dollar Strength of the Last Few Months Skeptically Scrutinized
Over the course of the last few months, the dollar has rallied substantially. Late in the last week, it roared ahead to nearly reach the year old high. Mario Draghi of the European Central Bank helped to drive the euro lower when he revealed that the governing committee of the European Central Bank will not likely raise interest rates till the summer in 2019 at the earliest. Naturally it knocked the euro down against the dollar.
It makes sense with the interest rate in the euro zone remaining at zero. Draghi further shot the euro down by admitting that he does not anticipate that the central bank will¬† reduce its amount of bond purchases in September or close out the program in December as many analysts had expected.
The actual dollar strength has proven to be versus the currencies of the emerging markets. This is causing problems as it piles pressure on to the inflation rates that are already rising. Countries like Turkey, Brazil, Indonesia, and Argentina are bearing the brunt of this rising dollar-exported inflation.
So far the leaders of these EM’s have held off from increasing their interest rates. Doing so would aid in battling rising inflation and bolster their currencies that are weakening. Sitting out the tough choices is only making matters worse for them. Yet it is hard to criticize them when the head of the European Central Bank just did the same thing.
Other Analysts Agree with the IMF Attack on the Dollar
Mainstream economists have already weighed in on the dollar rally and whether or not it has legs. TD Bank’s Bart Melek brought this up at June’s precious metals conference held in Singapore. He forecast that the dollar will weaken and gold will rally next year in 2019, with:
“As time moves on, there’ll be less and less reasons to get into the US dollar, which will likely reverse some of the flows. We do ultimately think that as we move into 2019, the US dollar will weaken, which is a very powerful fuel for the gold complex.”
The IMF leveled the greatest attack against the greenback though. It argued that the dollar has become overvalued versus medium-term time frame fundamentals. They see it as too high by from eight to sixteen percent. This professional opinion only encourages international investors to sell dollars.
The IMF did not stop there. They concentrated on current account deficits and surpluses as well. According to the IMF External Sector Report, Germany, China, South Korea, Sweden, the Netherlands, and Singapore all possess surpluses that are too much. Reuters also weighed in and cited the IMF in claiming that the nations with overly high current account deficits are the United States, Turkey, Great Britain, and Argentina. These countries borrow excessively, the IMF argues.
Meanwhile China is Adding to Its Gold Reserves By An Undisclosed Amount
If the U.S. dollar suffered from such a decline, then gold would likely increase in value proportionally (as it is first valued in dollars before other currencies). The Chinese know this, and for various reasons they are constantly adding to their gold reserves. This chart below shows their gold reserve updates over the last 20 years:
An interesting twist on this story is that China only occasionally updates its official reserve totals on its gold They have not announced any increase to their hoard dating back to October in 2016. Yet a number of analysts are suspicious that the Chinese have continued to build their gold holdings over the last two years. The argument is that the Chinese have simply hushed up on their true totals.
Precedent for this action on the part of the Chinese definitely exists. Consider that back in 2009, the People’s Bank of China ceased its gold hoard reporting. Six years later in June of 2015, they announced that their gold reserves had massively increased by 57 percent out of the blue. This rocketed China well past Russia to take the slot of fifth biggest owner of gold in the globe.
Over the next year and several months, the Chinese central bank continued to routinely announce gold reserve additions. The total gold holdings in China increased substantially by an additional 185 tons throughout the subsequent 16 months. Then the central bank of China went quiet again.
As this continued, other countries were also increasing their gold reserves substantially. Russia, Kazakhstan, Turkey, Kyrgyzstan, and Mongolia all significantly boosted their total national gold hoards. The Russians managed to leapfrog past China again to regain the coveted fifth biggest slot for gold holders internationally.
Why Would These Countries Hoard Gold Instead of Traditional U.S. Dollar Reserves?
These gold-hoarding nations all have one big theme in common. Each of them wanted to gain greater independence from the United States dollar. It offers them a higher level of economic and thus political autonomy and stability as well. Gold also provides the Chinese and Russians a strategy for toppling the dollar as world’s primary reserve currency.
Now it is hard to imagine that the Chinese have suddenly ceased building up their impressive gold reserves back in 2016. This is especially the case as the rivalry between the U.S. and China has been bubbling to the surface for years now. The unfolding trade war between the U.S. and China is only the latest reason for the Chinese to increase their gold reserves at the expense of dollar asset holdings.
Bloomberg runs articles that speculate on the PBOC continuing to secretly add to their gold stash. One article reminds you that:
“A potential trade war with the US that threatens growth, simmering tensions on the Korean peninsula, and this year’s slump in gold prices are reasons to buy.”
The Chinese have all the reason in the world to be secretive about their gold holdings these days. They know much better than to tip their hand to their enemies.
What Is Good Enough for the Astute Chinese Makes Sense For You Too
Gold will play a huge part in the Chinese and Russian strategies to regain control over their economic and geopolitical independence from the United States and its globally still-dominant dollar-settled trade. This is why you have to believe that the Chinese are still growing their gold reserve aggressively, if quietly.
You should take the example of the Chinese to heart. They are never selling gold, only buying it. This is because¬ gold offers insurance and protection during market turbulence better than any other historically proven asset ever has. Time to think about the best gold storage options for your precious metals. Now you know why you need a Regal IRA.