Chinese Yuan threatens US dollar collapse

Petro Chemical  |  2011-01-28 07:42:08   |   By

The average American will now be able to enter a bank and invest in the yuan. This is a signal about the very grave danger of a US dollar collapse into new lows. China wants to expand overseas with its huge foreign capital reserves and it needs basic commodities to fuel its rapidly developing global economy.

By Jeb Handwerger
Last week President Obama met with Chinese President Hu Jintao. The dinners are now over and the guests have left with their goody bags. What a tasty take-home they are. Reading between the lines it was Dylan who wrote: “You don’t have to be a weatherman to see which way the wind is blowing.”

  1. Cheaper Dollar Opens Door for Chinese Investments in North American Natural Resource Companies covered China’s new move to make the yuan a world currency.

  2. Boeing (BA) has signed a pact to give the Chinese our aircraft technology secrets. 

  3. We have agreed to share nuclear secrets with China.

  4. US and Chinese energy companies announced a variety of partnerships to share information. Involved companies include Alcoa (AA), Duke Energy (DUK), Chinese Power Investment Corporation, and Shenhua Group.

  5. General Electric (GE) announced a joint venture to China’s Shenhua Group to sell clean-coal technologies.

  6. The Chinese are entering the US sports apparel field and challenging Nike (NKE) and Adidas. 

  7. China has entered the retail banking industry where US citizens can invest in the yuan.

The truth is that China and the US realize that they need each other to survive. The US markets are celebrating the 60+ international deals in which China has agreed to buy some of our best technologies and secrets.

Everyone is leaving home happy except investors in precious metals and mining stocks. In October and November, major institutions sold their positions into the hysteria of QE2, where a major amount of retail and momentum traders entered into metals. At that time a lot of the fund flow was to basic commodities such as uranium, rare earths, copper, wheat, oil and gas, and potash. Now the major gold stocks are on sale and I believe we will see a reentry into gold miners and gold and silver bullion as it returns to long-term multi-year support. Major gold stocks such as Goldcorp (GG), Newmont (NEM), and Barrick (ABX) are reaching oversold levels not seen in the past two years at a time that they will be producing hefty returns and returning possibly large dividends to shareholders.

Profit-taking is a natural process in a bull market that shakes out short-term traders and provides opportunities for long-term traders and institutions to add or initiate positions. Gold has done it every six months for the past two years, since all the bailouts and central bank actions began. Don’t be too surprised if gold reverses back into the limelight as investors hedge against further sovereign credit defaults out of Europe and within US states and municipalities.

One of the most important deals highlighted above is China's expansion into the US retail banking business, which shows the country's international interests in expanding its economic presence and promoting the yuan as a major reserve currency. China signed a deal that would acquire retail bank branches in the US for the first time. Now US residents can transfer their savings from cheap US dollars to the strengthening yuan, encouraging savings. According to the deal, China will allow the US dollar to devalue to fund record-breaking deficits if China is allowed entry into the heart of American capitalism -- its retail banking industry. China’s financial institutions are in a much stronger position to acquire failing toxic banks after 2008’s financial crisis.

China is attempting to purchase more silver and gold to  support the yuan against other debt-ridden and weak currencies. In fact, this year it has purchased up to five times what it has been buying in previous years. It has also started funds to invest in ETFs and has just opened a branch in Toronto, the epicenter of resource companies.

The US dollar will continue to decline so that the US can pay its debts and provide the funds to bankrupt states and municipalities. China in turn will get access to the North American Financial Markets.

This move could be the beginning of a major trend of Chinese financial institutions migrating into the US to expand their global presence. I expect major deals to occur this year, which may be very lucrative for natural resource investors as China has shown an aggressive interest for foreign supplies of precious metals and basic commodities.

This major deal of entering the retail US banking market was the most important event to Chinese officials. China needs to expand its presence globally. It is rapidly developing into the Western Hemisphere and this move is a first step in developing the yuan as an international currency.

The average American will now be able to enter a bank and invest in the yuan. This is a signal about the very grave danger of a US dollar collapse into new lows. China wants to expand overseas with its huge foreign capital reserves and it needs basic commodities to fuel its rapidly developing global economy. This could be the beginning of several major steps that could make gold and silver soar. Now mining stocks and bullion are providing interesting opportunities.

Courtesy: goldstocktrades.com