Our Own Worst Enemy

  • Malaysia and China: A new Asian currency?
  • Jim Rickards on “a huge two-way trade”
  • The U.S. dollar’s diminishment
  • “Precious metals streak higher” (three strategies)
  • Baseball, brevity and brewskis… The only cobalt mine in America… And more!

“Malaysia and China have had discussions about forming an Asian unit of currency,” says Paradigm’s macro expert Jim Rickards.

“According to reports on April 4, Malaysian Prime Minister Anwar Ibrahim stated that China was receptive to a proposition for establishing [an Asian Monetary Fund],” says Forbes India, “as the region prioritizes reducing its dependence on the U.S. dollar.”

Or, as Alex Lo said at the South China Morning Post, reducing exposure to U.S. policy “gangsterism.” 

“Malaysia is a big export-oriented economy,” Jim adds. “They’ve got oil, tin, palm oil, manufactured and high-value goods and much else besides. The announcement that they’re working with China on a dollar alternative… I put a lot of weight on that.

“They’ve been working on an alternative currency for over a year; they’re getting close to unveiling something.”

So the gradual march toward de-dollarization continues…

“When talking about the end of the dollar,” says Jim, “there is a critical distinction between the dollar’s role as a payment currency and the dollar’s role as a reserve currency.

“I’m not suggesting you ignore one or the other,” he asserts. “You have to focus on both. But the analysis is completely different, and people often conflate the two.

“A payment currency? When it comes to trade between nations, I tender a certain currency. If you accept it, I give you the money, you give me the goods. So it’s all about reciprocity.”

One current example: “Russia’s buying high-tech and manufactured goods and some military hardware from China,” Jim says. “China’s buying energy (oil and natural gas), agricultural output and weapons from Russia.

“You’ve got a huge two-way trade there,” Jim says. “And Russia’s paying yuan.” (Note: Team Biden froze Russia’s ability to pay with U.S. dollars… So yeah. More on that in a moment.)

Although Russia was banned from using the international payments platform Swift last year, “Russia does have access to the Cross-Border Interbank Payment System (Cips), China’s alternative to Swift,” the Financial Times says.

Trade between the two countries rose 34%, to a record high in 2022, or around 1.3 trillion yuan ($190 billion).

On the opposite end of the trade: “China’s paying rubles,” Jim says, for Russian goods.

Once again, on the topic of China making moves…

“The [yuan’s] share of trade finance has more than doubled since the invasion of Ukraine,” the Financial Times says.

Swift data “shows that the [yuan’s] share by value of the market [has] risen from less than 2% in February 2022 to 4.5% a year later.”

Granted, that number doesn’t seem like a lot, but that percentage puts the yuan within spitting distance of the euro’s share (6%) of global trade settlements.

“Both are, however, still a tiny fraction of the dollar’s share,” FT notes. “This stood at 84.3% in February 2023, down from 86.8% a year earlier.”

Nonetheless, “This is a substantial move,” Bank of Singapore economist Mansoor Mohi-uddin confirms. “It’s hard to think of anything else that could be behind this steep change other than what’s happened with the war in Ukraine.”

You don’t say…

“Whether payments in Russian rubles, Chinese yuan, Saudi Arabian riyal, Brazilian reais or anything other than dollars,” says Jim, “you’re looking at the diminution of the role of the U.S. dollar as a payment currency, and the rise of a lot of alternatives.

“Are countries turning their back on the dollar as a payment currency?” he asks. “Absolutely. Confidence is eroding… and it’s mainly because of the United States. 

“Until recently, there hadn’t been a powerful reason to get away from the dollar,” he notes. “But we sort of started it with stupid sanctions.

“A lot of the rejection of the dollar comes from this simple calculation: Oh, you Americans froze the assets of the Central Bank of Russia (at least the ones you could get your hands on, i.e., not gold)? What happens when you don’t like us? So why don’t we get away from the dollar as fast as we can to minimize the damage?  

“And I’ve said this to the Pentagon, the Treasury and the Fed,” Jim adds. “I’ve spent a lot of time with the military and the intelligence community. I’ve told them: ‘I don’t think other countries can destroy the dollar, but we can do it ourselves. We are our own worst enemy.’”

And that includes destroying the dollar’s reserve status, too. Just give it some time.

“The role of the dollar as a reserve currency is much stickier than the role of a payment currency,” says Jim.

We examined this topic extensively last week, but it bears repeating: In order to have a reserve currency (not actual currency deposits, but dollar-denominated securities such as U.S. Treasury notes)…

  • “You must have a huge bond market with all different maturities (from 3-week bills to 30-year bonds)
  • You need an orderly auction system, making the market liquid
  • Above all, you need a rule of law,” Jim says.

“There’s no alternative out there,” he says. “China, Russia and others won’t come close to reserve-currency status for a long period of time.” At least 10 years, Jim estimates, for China’s yuan, for instance.

“The dollar as reserve currency is not under immediate threat,” he explains. “No other currency will dislodge the dollar anytime soon. But if it does topple — for reasons mostly self-inflicted — the world will go to gold. That’s it, just gold. You can’t freeze it. You can’t seize it,” he says. “Gold is the alternative.”

“Precious metals are streaking higher,” says Paradigm analyst Greg Guenthner, “and serious investors need to wake up and pay close attention.

“Gold futures continue to build on this reignited rally, gaining as much as 12% off the March lows as the yellow metal finally vaults above the mythical $2,000 mark.

“As I noted earlier this year, gold has never posted a monthly close above $2,000,” he says. “Yes, April is still young! But if this momentum continues, we should watch for gold to finally get over the hump.

“The question is: What will you do to profit from the move?

“Physical gold is an obvious choice for the longest time frames,” Greg says, “as well as an ‘insurance policy’ against any impending macroeconomic doom.

“But if we do see an extended impulse move in the metals, you’ll also want exposure to miners and other gold-related names through equities.

“Here are three ways to get started…

“The best way to gain exposure,” says Greg, “while limiting your risk to individual earnings blowups or other issues is through the VanEck Vectors Gold Miners ETF (NYSE: GDX).

“GDX is currently consolidating above the critical $33 pivot after rallying 30% off its early March lows…


“If your projected hold time is more than a few weeks, pauses like this above $33 offer excellent buying opportunities.”

More risk tolerant? “You might want to opt for call options on GDX — or even a breakout miner if you’re feeling frisky,” Greg says. “There’s also another option: the Direxion Gold Miners Index Bull 2X Shares (NYSE: NUGT). This is a leveraged fund that will move twice as far as the miners index — hence the 2X.

“The main caveat with NUGT is that it’s for trading purposes only,” he says. “Do not attempt to buy and hold this (or any) leveraged fund! Wait for the next breakout and plan a holding time of a few days to a couple weeks to squeeze the most gains out of your trade.”

Finally… digital gold. “No, Bitcoin isn’t gold,” Greg concedes. “But I do think it could benefit from the broader ‘anti-dollar’ narrative shift we’re seeing in the market right now.

“The move might have already started,” he says. “Bitcoin has consolidated at and above $28K for nearly a month following its own explosive breakout above $25K back in March.

“Will the next move break $30K and produce another $10K-plus run? It’s possible. Maybe add some digital gold to your pocket just in case…

“Those are just three ways to play gold’s rally,” Greg concludes, “but there are plenty other opportunities out there.” 

Precious metals continue to surge today: Gold’s up to $2,023.70 per ounce and silver’s firmly above $25. Then there’s this…

Don Tweet

Hmm… Filling out the rest of our commodities notes, oil is up over 2% to $83.30 for a barrel of West Texas crude.

Turning to stocks, two of the major U.S. indexes are sinking into the red. The Nasdaq’s getting hit hardest, down 0.60% to 11,970, while the S&P 500 is down 0.20% to 4,100. And the Dow, at 33,705, is just barely positive.

Meanwhile, flagship crypto Bitcoin is down about 1%, slumping just under $30K. But Ethereum is having a breakout day: up almost 8%, over $1,900.

For the major economic number today, the Consumer Price Index (CPI) data for the month of March clocked in at 5% year-over-year, down from 6% in February.

To wit, “Biden celebrated a $1.40 decline in gasoline prices from last summer and a monthly decline in food costs,” The New York Times reports, “while continuing to say the government must do more to slow inflation.”

Yeah, about that…

Jim Tweet

“Part of why the inflation picture is so blurry right now is that there are so many pieces moving in so many different directions,” NYT says. “Energy prices of all kinds fell rapidly in March, for example… used car prices continued to decline, while airfares soared [+4%].”

“Thanks to the pitch clock, the action is moving much faster at Major League Baseball games,” says an AP article. And what might be good news for baseball fans’ attention spans… might spell bad news for beer sales.

While many MLB ballparks put the brakes on beer sales at the end of the seventh inning (there is no official rule, by the way), because of shortened game times, ballparks are revisiting their procedures.

“At least four teams — the Arizona Diamondbacks, Texas Rangers, Minnesota Twins and Milwaukee Brewers — have extended alcohol sales through the eighth inning this season,” the AP says. “Others, like the Miami Marlins and New York Mets, still have seventh-inning cutoffs, but haven’t ruled out changes.

“At least one team, the Baltimore Orioles,” — Let’s go, O’s! — “already sold alcohol through the eighth inning, or until 3½ hours after first pitch, whichever came first.” (Heh, don’t try to calculate that after you’ve had a few beers.)

Since baseball is all about the stats: So far this season (admittedly, we’re only a couple weeks in), game times have been down, on average, 31 minutes.

However, if the minor leagues are any indication — which employed the pitch clock last year — GM Kevin Mahoney of the Class A Brooklyn Cyclones reports “no dropoff in concession sales even with shorter games.”

“I don’t read our local newspaper anymore for obvious reasons,” says a reader in Idaho. “While waiting in a checkout line, I noticed a headline about the new cobalt mine near Salmon, Idaho — a two-hour drive from me.

“I went home, googled the article and, sure enough, it closed just after completing construction. I am still waiting to read about it in one of your arsenal of newsletters… Anyone have insight?

“Love The 5!” 

The 5:Australian mining company Jervois Global stopped short of completing the only cobalt mine in the U.S., in fact. The company cites low cobalt prices and U.S. inflation as reasons for suspending the Idaho Cobalt Operation (ICO) outside Salmon.

“The value of cobalt has declined in the past year, from about $40 per pound in May 2022 to about $17 last month,” according to the Missoulian.

The company says: “Jervois expects to complete construction of and commission ICO when cobalt prices recover,” adding that the company expects “Western cobalt purchasers will increasingly prefer to buy from sources with Western ESG credentials, such as ICO.”

Thanks to our reader for bringing this “critical metal” story to our attention. We’ll keep you posted.

Enjoy the rest of your day! We’ll be back with another episode of The 5 tomorrow…

Best regards,

Emily Clancy
The 5 Min. Forecast

Emily Clancy

Emily Clancy

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