Gold Speculators Go Net Short – First Time Since 2001! Did Gold Turn the Corner on 8/24?

At about the time I was talking to Michael Oliver last week on my radio show, gold August futures were trading at about $1,200. At that time, Michael’s structural momentum work told him that if gold rose about 1% the lows would most likely be recorded. Come the end of this week, as the illustration above shows, that’s about what we got today. On that same contract, gold closed the week at $1,212.30, or 1.025% since around 3:15 PM NY time last Tuesday.

Is Dollar Hegemony Nearing Its End?

I think it is amazing how America takes for granted that foreign countries will always accept the dollar, which is an intrinsically worthless unit of account created out of thin air. It is especially amazing that we think countries that America is seeking to strip their sovereignty from would always blindly buy U.S. Treasuries that are used to fund a military that threatens countries we declare as enemies, such as China, Russia, Iran, and very possibly in the near term, Turkey, among others. And even our European partners are now getting more than a little upset with the U.S., hurting it economically, trying to force it not to trade with Iran after the Obama agreement paved the way for them to do so.

This morning I received an email from my friend Jeff Dahl in Vancouver with a link to a story suggesting that Russia and China are ready to play hard ball, economically speaking, with the American Deep State. In an article in the International Affairs Magazine Deputy Foreign Minister Sergei Ryabkov is quoted as saying, “Russia will definitely respond to Washington’s latest sanctions and, in particular, it is accelerating efforts to abandon the American currency in trade transactions. The time has come when we need to go from words to actions, and get rid of the dollar as a means of mutual settlements, and look for other alternatives.

Actually, several years ago during the Obama Administration when the U.S. started with sanctions and threatened to boot Russia out of the SWIFT system so it couldn’t move money around the globe in trade, we drove Russia into the arms of China, even if those two countries are by nature adversaries. One way to get around dollar trade was to convert to a petrodollar system such that countries like Russia and Iran could sell oil to China, not for dollars but directly for gold via the International Board of the Shanghai Gold Exchange. The exchange has a 100% physical .9999 gold contract. My friend David Jensen advised me that contrary to what Alasdair has claimed on my radio show, gold can be exported directly in exchange for oil in China through this 100% gold contract, which is located in an International Free Trade Zone. So while it is true that China does not allow exports of gold from China, the exception to that is by way of this International Free Trade Zone contract.

David pointed out to me that The Shanghai Gold Exchange International Board lets CNY holders convert yuan into gold bars and export the bars from China. The stipulation is that gold must be sourced internationally, not from China. David notes that this is a market with a very low number of transactions, but the tonnage is increasing as we approach the first contract maturity in September. Separately, David thought that it may not be a coincidence that one day after the U.S./China trade and/or monetary economic talks failed, Trump promised to buy the sovereign debt of Italy, which country just happens to be the second-largest holder of gold in Europe.

Just a coincidence? Who knows? But China has let it be known it also wants to get out from under the dollar. Its energy needs match well with a resource rich Russia and an oil rich Iran. Secretary of State warned neo cons that if the Iranian agreement were rolled back, U.S. dollar reserve currency status would be in jeopardy. Now we see growing discontent from Europe as well. Regarding independent news stories regarding the petro yuan, David Jensen tweeted a number of links, including this one from CNBC: Needless to say, if China starts to pay for all its oil with gold, it could send the price of gold off on a tear! If Iran sells 1M bbl/day to China and receives gold bar settlement, that gold demand = 20% of global gold mine supply. But the point to keep in mind is that this isn’t fake paper gold like what is traded on the LBMA and Comex but actual physical gold. It could be dynamite!

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.