Gold, Vaccine, and Chinese Renminbi/US Dollar

2 min read

“Gold prices rose through and $10 above the $2000 per ounce level in London trade Tuesday (Aug 18), peaking $65 below early August’s record spike ($2,075 on Aug 7) …”

“Silver meantime outpaced gold prices once more, rising back above $28 per ounce after breaching that level for the first time in over 7 years less than 2 weeks ago …” (BullionVault  Aug 18)

The recent breakthrough-class ‘spike’ of the precious metal prices is a warning sign for the USD. Quite a number of analysts have been speaking of either an end of USD bull run (Insight, Aug 5), or crash (Bloomberg, June 14), or collapse (Investopedia, Apr 12) this year.

Despite the over-printing of the USD and the possible US default (caused by a domestic hyper-inflation), the major argument for the unshakable USD supremacy is that the world needs it as a generally acceptable and stable currency.

This need, however, may shrink faster than expected because of the COVID-19 pandemic.

Although many types of vaccines will be available very soon, it should not be a surprise to anyone that the first dose to be used in many developing countries will come from China since Beijing may offer it at very low price or even free of charge. But the story will not end here.

In the future, firstly, new born babies also need the vaccine. Secondly, if immunization is required annually due to time limit of its effectiveness, or the virus’ endless mutations, such a health-related long term connection between China and the Third World can be further solidified.

Furthermore, given the strong competitiveness of the ‘China price and quality’, other made-in-China hygiene and medical supplies, as well as the vaccines for flu and the like, will also become the essential trade items in between. Once the Third World’s heavy reliance on the Western countries’ medical products (since the WWII) vanishes, the scale of change can be enormous.

The more the developing countries purchase the Chinese products, the more likely Beijing can set the price in RMB.  The more international trades are settled by RMB directly, the less the need for holding USD for reserve will be.

There may not be a dramatic change to the USD dominance, but its peak has been over. The price of gold is perhaps the best indicator for reference.   Once the gold price breaks $3,000, I suggest you to prepare for a USD crisis.

The opinions expressed are those of the author, and not necessarily those of China News.

Tony Simon

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