The US hidden card against Russian and Chinese gold reserves?

By Jaime Ortega. 

Precious metals are undervalued compared to the US dollar because the US runs trade deficits which keep the artificial price of the dollar high making it the world reserve currency.  The US dollar remains the most liquid fiat currency in the money supply given its popularity and tangibility, easy to exchange in any market, its trade volume is second to none.

The goal of the US dollar was to tare the popularity away from silver and gold so trade could centralized and manipulated by a central bank that could issue new loans to investors in exchange for higher interest rates.

Gold and silver are both speculative assets but serve as units of accounts. Precious metals cannot be centralized since they cannot be created, they can be mined and dugout the earth. Any major central bank knows precious metals are a kryptonite to paper currency since gold and silver have historically remained the survivors of economics bust and booms.

Whether or not the Federal Reserve holds gold reserves in its vaults it’s a question of speculation and rumors. But for the US to remain competent in the market where outside players like Russia and china have acquired precious metals to devalue the US dollar, it most hold assets in its vaults whether or not it has gold and silver.

There is one asset class that can compete with precious metals and that is precious stones. If gold and silver are scarce assets, gems and diamonds are scarcer. Little is known about the price volatility of stones relative to the artificial value of US notes, since unlike precious metals they are not traded in an exchange and rarely listed on indexes. A table full of precious diamonds might be worth a basketball court of Russian and Chinese precious metals.

In my opinion the US might hold a vast reserve of precious stones used as special insurance to hedge risk aversion against a comeback of precious metals – the kryptonite of the money supply – that would weaken the artificially bloated US dollar.  Gold can only compete with other asset classes relative to its scarce value within its market volume, including its historical appreciation rate, which means diamonds could easily overtake gold prices if investors jump from debt to equity markets during a credit crisis. Historically, the purchasing power of diamonds in exchanges is far greater than that of any precious metal known to man. In fact, diamonds are the most stable asset class in the world with the least volatility in price fluctuations relative to inflation.

If the US bond market collapses to the value of Chinese and Russian bonds pegged by precious metals, the US could issue the debt to its investors with precious stones as it underlying asset would skyrocket once the US dollar devalues. Such tradable exchange would mean that a devaluation of the US dollar, would be an appreciation of the nominal value of precious stones worldwide which would be many times greater than that of gold.

If a new exchange for precious stones was created it could potentially destabilize the speculative price of precious metals and halt the rise of crypto-currencies, hurting both gold-silver prices and Bitcoin. The only way the US could avoid a total meltdown of its currency, is by pegging precious stones with the total money supply in circulation and use contractionary monetary policy to shrink bank created money into a one thousand year bond of debt of repayment pegged by precious stones — or the promise it would dig for more diamonds in during the life spam of the long term debt — ending the Federal Reserve power to create interest.


What Next?

Recent Articles