Yuan Now Official, Yet Dollar Still Soars. Here’s Why

Larry Edelson

Monday morning the International Monetary Fund (IMF) admitted the Chinese yuan to its international basket of reserve currencies, which comprises the U.S. dollar, the euro, the Japanese yen, the British pound and now, the Chinese yuan, or renminbi.

Yet, the U.S. dollar still reigns supreme and continues to appreciate in value.

So much for all the pundits calling for the death of the dollar when the yuan gained official reserve status!

So what does it all mean? Will the yuan eventually kill the dollar?

I’ll answer those two questions with one simple reply: There is — in no uncertain terms — no way the dollar will ever be overthrown by the Chinese yuan, or any other currency for that matter.

In fact, per Bloomberg and according to the IMF itself, the new official reserve basket will have the composition you see in the bar chart here.



Click image for larger view

As you can clearly see, the euro, yen and the pound will be impacted the most, not the U.S. dollar.

In fact, after official trading of the yuan as a reserve currency begins — not till Oct. 1, 2016 — the U.S dollar’s share of the IMF basket will fall from 41.90% to 41.73% …

A tiny decline of just 0.17%. How is that ever going to destroy the dollar?!

The IMF yuan decision is just a symbolic move
to recognize the rising status of China.

That’s all it is. Period. Even when it comes into effect 10 months from now, it won’t make a dent in the dollar. It can’t. In order to have a major impact, China must also have a major, multi-trillion-dollar equivalent international sovereign bond market — so investors, including countries who want to hold yuan in reserves — can earn some interest.

But China does NOT have a deep, international sovereign debt market. So it’s unlikely any major institutions, governments and central banks included, would want to park much money in the yuan.

On top of that, the yuan accounts for a mere 2% of global payments and foreign exchange transactions …

Compared to the U.S. dollar’s 45% share of payments and 87% of foreign exchange transactions.

Instead, it is far more likely that
the biggest loser will be the euro.

That should be clear to anyone who has even the slightest awareness of what is happening to the global economy.

It’s simple: While the U.S. economy is muddling through, Europe — the region with the second largest share of the reserve currency basket, the euro — is crashing and burning.

So who in their right mind — individual investor, financial institution, government or central bank —

Would want to keep money in the euro, or for that matter, switch from the euro to a still unproven, new reserve currency whose shares of global transactions and trade is a mere 2%?!

Not going to happen. Bottom line: The euro is likely to suffer the most from the yuan becoming a reserve currency … while the U.S. dollar overall will still remain king of the hill.

That’s a no-brainer when you think it through and ignore all the fear-mongering out there about the dollar dying someday.

Hence, for now and for the foreseeable future as deflation retains the upper hand on the global economy, STAY in U.S. DOLLARS … and do NOT buy the hype that the dollar is going to crash and burn.

That time will come, but it will not be because of the yuan or anything else. It will most likely come in late 2017 heading into 2020 …

As investors all over the world begin to question the credit worthiness of Washington, after the government debts of Europe and Japan collapse first.

Lastly, I want you to still keep your eyes glued on gold and silver. A wee bit of a rally here is all that is needed to set the precious metals up for one more new leg to the downside and potential major lows …

From which a major new rally should begin.

Best wishes, as always …

Larry

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Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 48

Gregg Nowfel December 2, 2015

Larry I have about 20% of my net wealth in precious metals. Most purchased at higher prices than today's prices. Will I ever see profit on this part of my portfolio? I look at this as an insurance if all hell brakes loose and I can afford to double down when the time is right. I am sure there are a lot of your subscribers in this same position that would be interested in what you believe on this issue.

George K Naliyan December 2, 2015

I am also in the same boat I am accumulating on dips(below $1100) to average out when it breaches $1100

orin hiatt December 2, 2015

I am in the boat too.

margie cocco December 2, 2015

I would like to know your opinion to buy gold and silver for my daughter's ira's and also if I should invest gold and silver for my personal accounts. thanks

Elmer Schmieder December 2, 2015

Larry this was the best news from you today.All we have been hearing by all the experts has been the dollar is crashing. Keep up the good work.

George K Naliyan December 2, 2015

Very well forecast

Hilton December 2, 2015

Larry, how do you justify continued sustainability in a currency backed by a printing press and the world largest ever debt burden ?

Perry holmes December 2, 2015

Larry is one of those whom are propping up the US dollar so that they can buy back gold at cheaper prices when the Dollar does fall they will sell the gold at an higher price for an huge proffet

Beth December 2, 2015

I agree with Hilton...How?

ian December 2, 2015

Beth and Hilton,cos everybody is printing like hell;and guess what the $ is still the best looking pig in the sty.

Carolyn December 2, 2015

I have built up cash reserves along with an account in Hard Assets that was recommended some time ago. I do not have any precious metals. What percentage should I hold and where do I store it? I considered Salt Lake City and/or combination of some storage at home? Not sure if some should be outside the country too? Confused about this issue, but ready when you issue a buy.

don December 2, 2015

hard assets alliance is not listed with the BBB should I be concerned

LenG December 2, 2015

I love starting the day with a bright smile & humor. Thanks, Len

Bill December 2, 2015

Thanks for all who submitted questions, I like to read the questions put to Larry as it stimulates the grey matter. Larry, is there a central source where one can read all comments? Thanks, for your service. Bill

Alfred December 2, 2015

Larry what about the DOW you said it would slingshot down and scare the dickens out of everyone, but then that would only be a head fake and you were going to buy the bottom and be rich while everyone else would be confused. So far you've been totally wrong, is it time to buy the DOW?! Getting very frustrated with your advice. Also Armstrong has changed his forecast to "likely" commodities will rally, what happens if you're total wrong about Europe collapsing, gold soaring with oil due to cycles of war? Will you revamp you're forecast too?

Jenny December 2, 2015

Lar - when DOW goes to 31K what will be the hottest sector? Will Wall Street pump health due to all the sickly baby boomers retiring?

Edouard D'Orange December 2, 2015

He answered you in his column, if you read it. 1) the dollar is strong now and won't be replaced. The underlying message to me is that the other currencies are weak, so weak that the dollar stays on top. 2) he says that the time will come when the dollar will weaken, but that won't happen until late 2017-2020 when investors question the U.S. creditworthiness.

John K December 2, 2015

It's not just the dollar alone, but it's value in relation to the euro and yen whose economies are collapsing.

Chuck Burton December 2, 2015

Larry, it may be early to buy gold miners, but could you give us a short list of miners that are in healthy financial condition, with good mineral resources, and likely to be good choices for the next upturn, so that we might be prepared. If you just tell us one or two companies, they may jump as most of your subscribers pile in, but then fall and disappoint for awhile. Not quite pump and dump, but almost. Also, something similar for Chinese stocks available on U.S. exchanges that are likely to take off by next November with the IMF action. I am interested in holding stocks for awhile, not in and out trading.

David December 2, 2015

I have been trying to be patient as Larry suggests in buying Stocks, Gold and Silver, I do hold about 10% of my funds in the physical metals, but I also have sold Puts on SLV, FCX, SLW and RGLD at what I interpret as good value and what I think are around where Larry's buy prices for the precious metals will be. This way I earn some income and 'control' my urge to do something. I should add that I do have about 70% in cash and equivalents.

healeydriver December 2, 2015

Your analysis fails to recognize that China uses dollar today for buying energy and commodities, but after the Yuan is applied as a reserve currency China will shift to using Remnimbi....and when that happens your graphs will shift enormously. Seems to me like your logic is flawed.

David December 2, 2015

My understanding of Larry's forecast is that China will eventually surpass the USA and he is a Bull on China stocks, he has two small positions in Real Wealth, I don't but I did sell Puts on FXI which expired worthless, so I kept the premiums. He is only bullish on the $ and 'nearly' US stocks through about 2017. He believes the European economy, followed by the Japanese will collapse first followed by the US when the sovereign debt class hits the last 'safe haven' i.e. us.

Gerry Caden December 2, 2015

I hear what you are saying about reserve currency status of the US Dollar vs the Yuan But I believe something totally different will bomb out the US Dollar. The unsustainable US deficit coupled with the continuing policy to simply print dollars is, I believe , a weight to much for the value of the dollar to support,even in the medium term. I am disappointed your analysis did not include this ,not so hidden,danger.

David December 2, 2015

Gerry, Larry specifically addresses the 'Debt Bomb' and the price all countries, including the US will have to pay, he just believes that we will be hit last, his forecast is later in 2017.

Bud December 2, 2015

Larry is projecting what will happen, not what should happen. Don't forget, the fools that most human beings are, will more firmly believe in governmental direction as the crises escalate. Just look at Germany in the 30s and 40s.

Dean Striker December 2, 2015

I'm with Hilton. The stock market levels are measured in fiat dollars which are meaningless. When the Great Global Collapse finally arrives this government will be OUT of Business. All fiat currencies will become worthless. Thus we hold comparatively little cash and our reserves are held in silver coins. We will probably crank our house for some considerable cash which will be quickly reinvested, never in "paper" stocks or other such fiat, but in solid items to be held in hand. Man is brainwashed to believe that being Governed is somehow good, which having long proven that only pure liberty has the hope for the survival of mankind.

Martha December 2, 2015

I think you are off.The fiat dollar is about to drop.The yuan actual has 10.7 percent in basket.You are about to see emerging countries make a major appearance in a new market of asset backed currency-TRN and USN.gold and silver will go down a little further then the sky is the limit and don't put it in futures (paper).The sdr basket may be sooner than you think and you can actual trade the basket.China and the BRICS have a few more "tricks" up their sleeves.

$1,000 gold December 2, 2015

you can now buy stocks like apple and facebook hanging on a rack by the checkout line at walmart. the credit card shaped device called stockpile will surely be a big seller this year at xmas. think of the implications of this. if someone offered to pay me in bitcoin, i'd pass. what a pain it is to use bitcoin and its safety and value is dubious. but if someone offered to pay me with a stock card from stockpile, i'd accept it. i know companies like apple and facebook have real value and are back by real assets. the yuan and the dollar are backed by the same thing bitcoin is - nothing. so i doubt the yuan or the dollar will be the default currency of the future. we're going to have many choices of payment in the future. things will change greatly by the time the yuan could ever rise to the level of becoming a default currency.

$1,000 gold December 2, 2015

you're a loser.

$1,000 gold December 2, 2015

do you really want to play games again, troll?

$1,000 gold December 2, 2015

i'll show you a good time.

$1,000 gold December 2, 2015

i know who you are.

John December 2, 2015

What a pity these good comments never get a reply . Seems a waste of time

$1,000 gold December 2, 2015

no problem at all, john. you just confirmed at least someone reads them, and even knows they're good, by golly!

Motty Perel December 2, 2015

To Hilton and Beth. I am not any authority in money matters. I try to learn from what I read. I would be happy if Larry were to respond to my guess below. I am curious if my guess is true. Since money arrived as a means of exchange, it was ultimately backed by labor. For example, clean air at pleasant temperature was always free at springtime in the field. In order to breathe air of such quality in your apartment in the midst of an industrial city, you have to pay for your air-conditioning equipment and for electricity to run it. There is labor involved in producing them. Gold hidden below surface cost nothing, it is free. The value of gold bullion comes from the labor involved in finding the gold below surface, extracting it from there, separating it from its ore, and finally melting it into the bullion. Those who find more efficient ways to do all this, make a profit. Printed money backed by the gold (essentially, backed by the labor spent to produce the bullion) carries the same buying power as the bullion it is backed by. For the time being, let's simplify matters for educational purposes by not involving fractional backing of currencies. After President Nixon pulled the golden carpet from under the US dollar and as other countries rushed to do the same with their currencies, new money began entering circulation not immediately after being printed (or entered into some banking account by a keyboard), but after being loaned by a bunk to a borrower, who has taken an obligation to pay it back after an agreed time and with interest. In this time, the borrower spent labor, his personal labor and/or the labor of his employees who produced and sold this labor for money that is paid back to the bank, thereby backing the borrowed money with labor directly, without the mediation of gold. Interest (extra labor) paid by the borrower is supposed to compensate the bank for inflation during the period before returning the money, as well as profit to the bank for its operation. From this explanation, we may come to the conclusion that backing money by gold is not necessary. The need for backing money by gold comes from the fact that once gold is in the vault, it is stable; the labor that produced this gold is already spent. In contrast, money borrowed from a bank is not generated yet at the time of borrowing. Uncertain economic conditions, improper choice of product or service by the borrower, loss of a job by the borrower may cause him being unable to return his loan to the bank in time. If the bank takes and sells the borrower’s collateral for a price equal to the loan, the bank is OK, the loan is paid back and this loan created non-inflationary money. But the borrower became poorer. His employees may lose their jobs. The economy suffers. Inflation comes from a borrower who spent the loan and the bank was not able to recover it. It comes from government spending that is not intended to generate new value. Generally speaking, gold backing of money keeps the economy stable. Money, which is backed directly by labor, whose creation is conditional by the economy itself, is not stable. This is how gold is a hedge against instability. Even today's money, which is not backed by gold, is backed by productive labor sold to customers, rather than by a printing press. Trouble starts when the labor is not productive and/or it is not sold to customers; worse still, when there is no labor to back the buying power of the printed money.

Bud December 2, 2015

Your last paragraph is just a little off. The present fiat dollar is backed, not by labor, but by used labor, which is valueless also.

randy December 2, 2015

ya edelson, gold is having a real nice rally today! what a crock!

David December 2, 2015

Randy, Larry gave a sell signal on Gold in 2011 and his current advice is to buy below $975 or when he gives a Flash Alert, which he hasn't yet, where did you get that he is advising us to buy Gold now ?

Bill December 2, 2015

So much for all the pundits calling for the death of the dollar when the yuan gained official reserve status! cast ya mind back to 2009 Larry,. and it was you that called the death of the dollar!,.

$1,000 gold December 2, 2015

many large countries have successfully inflated their way out of debt. just like many of us bought an expensive home decades ago and went from a huge debt to a minor expense through the power of inflation. btw, the deficit is under control and we’ll soon be running at a surplus, a feat the experts also said was impossible just a few years ago. likewise will happen with our huge debt someday.

jrj90620 December 2, 2015

"Lastly, I want you to still keep your eyes glued on gold and silver. A wee bit of a rally here is all that is needed to set the precious metals up for one more new leg to the downside and potential major lows …" Potential major lows?Looks like Larry is backpedaling again,so he can say he's never been wrong on gold.Seems like his recent prediction,of a major bottom for gold,is another bad prediction.

Watcher December 2, 2015

I feel kind bad for anyone still following Larry's advices. I have been listening to Larry since July, 2011 and honestly and truthfully speaking this man has done not a single forecast right. each and every one of his forecasts since I've been following have been completely wrong. used to be a member of his real wealth back in 2012, I had to cancel after 1 year. This man first forecasted gold's bottom in Fall 2013, between October 3 and October 6, 2013 to be precise. Ever since he's been jumping from one date after another showing fake charts from his so-called models. The story has been the same with stocks forecasts too. Now days I just read his report for pure entertainment. Nothing against the man, I'm sure he's a good guy, but forecasting the market is not for you Larry.

$1,000 gold December 2, 2015

troll control seems to be working. don't feed the troll, larry. :-)

PeterW December 2, 2015

Nations, as well as People, have a long memory. Now we have the BRIC, ASEAN, AIIB, and now CIBS. Further their is no Guarantee that China will join the IMF. It appears that the US Banking system is fining China, but so far China has refused to pay. Further if China does not join the IMF, i believer that it will be a disaster for the West, especially the US.

orvin December 2, 2015

1.01814 usd/chf down yuk bare knuckles

orvin December 2, 2015

dollar down vs swiss pair yuk

orvin December 2, 2015

start soaring 3pm 12 2 15

orvin December 2, 2015

next up date??? reminds me of a broker 50 years ago...send fresh funds !!