The world is dumping US Treasuries.
You might be thinking, why is this important to us here in South Africa? Well, if you are a gold or silver investor, it is pretty important.
On 15/2/22 I wrote an article “Silver To Gain On Us Dollar Demise“. I discussed the danger of US Treasuries being sold by China and Japan who are the worlds biggest holders of US Treasuries. This will cause an outflow of US dollars to Japan and especially to China. This will start to weaken the US Dollar and of course we all know if the dollar weakens, the gold and silver prices start to go up. This is why the dumping of US Treasuries is important to us gold and silver investors. This process has now started and will accelerate going forward.
The graph below shows how foreign investors are selling US Treasuries.
The graph to the left clearly shows the beginning of the sell off of US Treasuries. When n country’s treasury bills starts to sell of, the interest rate on these bonds start to rise. The reason for this is that buyers demand a higher return as they perceive the risk to buy these bonds as risky. Higher interest rates of course means higher interest rate repayments which the US can really not afford at this time with the mountain of debt they have. It is interesting that an article published on Kitco describes the huge volume of gold been bought by China recently. In January China bought 15 tonnes of gold bullion. From 2002 to 2019, China bought 1,448 tonnes of gold bringing their total gold reserves to 2,025 tonnes. Now you know here the money is going that China gets from selling US Treasuries.
The US Dollar index measures the strength of the dollar against a basket of world currencies like the Euro, British Pound, the Japanese Yen and some other currencies. The weakening of the US Dollar means other countries are losing faith in the US to pay back it’s sovereign debt which does not bode well for the US Dollar at all. It is estimated that for every 1% value the dollar loses, gold and silver will go up by 4%. The US dollar which have always been shielded heavily by being the preferred (reserve) currency for international trade is losing it’s status. Already oil, which have always been traded in US dollar, are being traded in other currencies in Europe. I fully expect this trend to continue going forward.
We are living in very uncertain times. Financial, political and geographic scenarios are changing daily which makes it very difficult for us to plan. My only recommendation is to assemble a number of world experts and follow them regularly. Just don’t forget to do your duo diligence on each person you want to follow. Not all experts are equal.
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