Transcription
China's secret plan for gold has been revealed as they're now planning to go to a fully gold-backed global currency. And that's why the PBOC just executed their biggest buy since 2023, despite the fact that gold is now down 25% from its January peak.
And what if I told you that in the short term, they're intentionally crashing gold just so they could buy it up on the cheap? Wait until you see the proof. And if you don't believe me, I've got one chart that, if you're bullish on gold, it's going to frighten you. Let's dive in.
Because bullion held by the People's Bank of China rose by 480,000 troy ounces, making the purchase the biggest since October of 2023, carrying their buying streak for 20 straight months. And again, this is all happening despite the fact that gold continues to drop. And yet, the reason behind is rising inflationary risk as a result of the Iran war and a hawkish tone from the Federal Reserve have raised expectations for rate hikes, which are negative for the non-yielding metal.
Meaning we should expect gold to continue to go down if the Fed hiked rates. Which puts into question, why would China be buying on the way down? Why wouldn't they just wait for the bottom? Well, it's because they need all the gold they can get. In fact, major banks, including Goldman Sachs and Deutsche Bank, have lowered their year-end forecast for the metal. And why would they be doing that? For one very good reason: to get you to sell, to get everybody to sell their gold so China can buy it all up and launch a global gold-backed currency.
In fact, the latest survey from the World Gold Council in June shows that more central banks than ever expect to increase their reserves in the coming year. So the question is, is this being driven by economic reasons, or is it being driven because of what China's doing? The answer is, it has a lot to do with China, and in a big way.
Because Hong Kong begins trial operations of a new gold clearing system, and this is exactly what it's designed to do: is to set up a gold-backed reserve currency so people can transact in gold. Forget paper currencies. They're just going to be part of the conduit, and this is going to give people assurances on their money when that is going to change everything completely with the dollar. And what this means is, it's set up to become a significant bullion trading hub with price-setting power, and that is going to put them in a powerful position. People are going to want that currency because it's going to have value, something we're not used to with fiat currencies right now.
And yet, they're telling us the goals, of course, is to build a highly sophisticated institutional gold trading market at Hong Kong, which includes significantly strengthening our gold storage and refining facilities in the coming years. So the question is, why isn't gold going up on this news? It's very simple. They want it to go down because they don't want to pay a premium for it. They want to get everyone flushed out. And that's why you're hearing the investment banks saying, "Look, gold is going down. You need to sell it because the Fed's going to hike rates."
Does it start to make sense why China's commercial banks started banning speculation on gold? It's to get people out, to get the price down before it goes straight up. And long-term prospects for the precious metal as an alternative store of wealth is the driver behind this because people are getting tired of fiat currencies. In fact, arguably, one of the problems with China's economy right now is the dollar, and they want to move away from that as fast as possible. And giving people a gold-backed option is likely going to bring a lot of people to use the new currency. It's going to offer a comprehensive suite of services ranging from gold deposits and withdrawals, and here's the evidence, to transaction settlements for over-the-counter market. Meaning that instead of trading in dollars, which again is the current global reserve, people are going to be able to trade currencies backed by physical metal. And to do that, you've got to have a ton of it. And if you want it, the best way to buy it is when the price is down, not up.
In fact, 11 financial institutions are represented on the clearing company's board, including JP Morgan, HSBC, and UBS, as well as five Chinese banks. And what they're going to have to do is ramp up gold storage capability in Hong Kong to 200 tons fairly quickly. So, does it start to make sense now? Do you understand why the banks are telling you, "Look, we want you to sell gold. Why does the price chart look like gold is going lower?" Because they want everybody out of it so they can buy it all up in a big way.
Now, before we get into those gold charts you absolutely must see, I want to take a moment and introduce you to our sponsor of today's show, Aegis Critical Energy Defense Corp. You can find them on the CSC in the symbol QESS and on the OTCQB under the symbol QESSF. And they're Canadian innovators powering the future of AI data centers, ports, and defense with quantum-secure energy systems that are ready to roll out right now. Now, I sure appreciate if you take a moment, support our sponsor. Click that Yahoo Finance link in the pin comment or description below. Check them out. Stay tuned to the end of the show for more information.
And gold's multi-year bull run ground to a halt earlier this year as the war in the Middle East triggered a surge in energy prices and stoked inflation fears, raising the likelihood that central banks will raise borrowing costs, a headwind for non-yielding bullion. In fact, that was the driving reason because here we're facing an energy crisis. One that's likely, at the minimum, to lead to the next recession, perhaps to several different financial crises all over the different global economies. And yet, everybody right now is turning bearish on gold. All the investment banks, they want you to sell. But the real reason now, you can see, has everything to do with launching an entirely new currency.
But is there any chance that the Fed's going to raise rates? Well, according to New York President John Williams, he said expects falling energy prices to drive a drop in overall inflation over the next few months, while reiterating that the central bank's policy is in a good place for now. Now, he is absolutely right here. And in the short term, we see two-year yields rising, suggesting the Fed should raise rates. But as energy prices cool off, we may hear from Powell by the end of the month saying that he's not going to raise rates. If he doesn't raise, that is going to be bullish for the metal in a big way.
Now, a handful of major banks have lowered price forecasts in recent weeks on gold again to drive the price down. But look at this. Their year-end estimates remain above the current spot price and are bullish in the long term on prospects for reserve diversification. What's the key words there? Reserve diversification. So now you're seeing it happen. They want to drive price down in the short term because they need China and all these other central banks to buy up the gold. And once they do, the price is going to skyrocket by the end of the year and then on from there. And of course, what will be behind that? As the global economy slows, what are we going to see from central bankers? They're going to continue to cut rates.
But let's talk about this from the price chart perspective because are these banks right, or is this a potential huge buying opportunity? Well, let's turn to my trade screen here. This is GLD. This is the largest traded gold ETF. And there's a couple things I want to look at here on this chart. One, you see this red line right here on your screen? This is called the one-year volume profile. This is where most of the shares are traded over the last year. And what that acts as is a level of both support and resistance. Support where people buy. Resistance where it breaks below and they sell.
Now, there's two other lines I want to look at here. One is this kind of diagonal purple line here. And what does this look like? Is a topping pattern. You've got a left shoulder, a head, a right shoulder right in here, and a break of that trend line has caused price to drop. Now, the risk is, if it continues to drop from here, there isn't a lot of volume supporting this. But if you want to do it on a horizontal line, look at this. You've got support here and support again, suggesting if this rolls over, price is likely to go down even more. And so you start to get the picture that people, from a technical perspective, are likely to start selling gold.
But how far down could it go if this plays out? Well, here's the shocking part. Now, if you do a measured move from your trend line to the peak, then you flip that line upside down. Well, it tells you where it's going to go. For GLD, it's telling you right down to 310, which is where you see most of the support over the last 3 years holding up. But that is only the beginning. Because if you like the horizontal line, you think that's a topping pattern on how that plays out, this is going to shock you. Because if you take it from the peak to the center of that line and flip it upside down, now you're seeing GLD all the way down to 230. You're talking roughly wiping out several years or more price gains before it takes off.
Now, I know you're saying, "Wait a minute, Steve. There's no way that can happen." But I want you to see why has price been going down. Do you think it has anything to do with just central bankers? So, why has it been driving out? Why are people selling it? Well, let's take a look at the dollar because you're saying there's no way this can play out. But look at this. If indeed this is a bottom pattern in the dollar, and we're not confirmed on that yet, but it looks like a strong indication, what happens if the dollar was supposed to break out from here? You've got a shot of burning this thing up to 108 and then maybe even up to 114. And if this plays out, it means gold is going to come crumbling down. Of course, all the way down. China is going to be buying it up like crazy. But from a technical perspective, a lot of investors would be unloading on the way down. And that's exactly what these investment banks in China wants. And you could see why now.
Because they need a ton of gold. Because they're going to launch a gold futures contract. Because here we can see they're already looking at revitalizing their US dollar gold futures. But that's not the big news. They're looking at a development of a new yuan-denominated futures contract with delivery spot from the Shanghai Gold Board. And what do you need to do that? You need a ton and ton of gold. And of course, what that means is China is going to have to get it. And how are they going to get it? They're going to be selling dollars.
Now, why does selling dollars matter? Because I want you to think about the Japanese yen carry trade. If the dollar goes down, the yen goes up, that whole trade blows apart. Next thing you know, the equity markets come crumbling down. Investors start selling everything. Again, if you think this is far-fetched, look at this. The foreign portfolio holdings of US long-term Treasury securities from China's mainland. Well, look at this. Somewhere right around, say, 2017, what happens? They're offloading Treasuries in a big way. And what are they doing? They're getting dollars. And what are they doing with their dollars? They're dumping them. Why? Because they want off the global reserve system of the dollar. They think it's holding their economy back. The problem is, there's no alternative. But there's about to be, and one backed by gold. And again, the only way to get enough of it, drive the price down and buy it up cheap.
Because earlier, Hong Kong invited some central banks to participate in the clearing system, targeting countries already engaged in Beijing's Belt and Road Initiative to supply institutional clout that would enhance the city's credentials as a bullion hub. So there's your evidence. They're going out to other central banks. Their trading partners are saying, "Look what we're doing here. We want you to get involved because this is going to get rid of the dollar." And China's central bank will keep increasing the allocation of national foreign reserves to Hong Kong. Again, more evidence. If you're going to be launching a global reserve currency backed by gold, what else are you going to need beyond gold? You're going to need all those other currencies to trade and move money around. And so, you can see inviting central banks in, getting investment banks to call for gold to go down so people will sell, and then building up foreign reserves outside of the dollar.
But again, a lot of this is keyed around getting people to sell gold. And remember, just two weeks ago, what did we find out? China's banks, they banned speculation on gold. But now, look at this. China's biggest ETF is now a gold fund. National team is starting to retreat. And the gold ETF hasn't been immune to market swings either. Its value has fallen, and investors are pulling money from the fund. So, you can see it makes perfect sense. People love to buy things that are high and rising, but they don't want to hold things that are falling. So, you can start to see this with a coordinated effort. Get everyone to sell, buy this stuff up cheap, and then make a ton of money on the way up.
But as I started the show out, is this economic driven? Is this maybe just a case of they do want to stay on the dollar system, but they were going to buy gold in the interim? Well, let's take a look. Because Saudi Arabia sells oil at a discount for the first time since the COVID crash as China demand collapses. So maybe what they're looking at here, and I want you to think of this in a dollar reserve system. If the economy is crashing, what do you need? A hedge. Gold does that pretty well. And then after that, what do you do? You sell the gold to get one thing that you need to buy things on the open market. It's called dollars. And keep in mind, this is exactly how it typically plays out.
But the scale of China's oil demand collapse has been so dramatic that Chinese policymakers are reportedly examining whether this historic slump reflects a temporary response to the elevated global prices or a more structural shift in consumption patterns. Well, what it indicates is China's economy is starting to crash. And that's exactly why they're buying gold. That's why consumers wanted to buy gold, but the PBC was saying, "Hey, no, we don't want you to drive prices up because we're trying to keep our government intact. We're trying to launch an entirely new currency here." And Saudi Arabia has made big reductions to its main crude oil prices for buyers in Asia, selling barrels at a discount for the first time since it embarked on a price war of 2020. So what this is suggesting again is China's economy is weakening far faster than they want to admit.
But what does this mean for the markets? Well, hang tight because the last two times it sold great at a discount or during the price wars of 2020 and 2015. Let's go back in history. And here you can see clearly when they're selling at a discount that's shown in red. And now it's starting to happen again. But let's look at what happened to the markets because everyone's saying the markets now have to go up. And you remember I flipped my view and I said, "Link the path is down." Well, look what happened in 2015 to 2016. The markets had a double-dip bottom. They indeed went down. How about in 2020? The markets did go down. But what about bond prices? Well, check this out. In 2015 to 2016, well, they went up and a whole bunch. And how about in 2020? Well, we obviously know they went up then, suggesting that the path right now that the probabilities are suggesting that we're going to see stocks likely to go down and interest rates to go down with it. Of course, that means that gold is likely going to have a huge turn because remember, if interest rates go down as central bankers are cutting, it's bullish for gold.
But as we look at this chart of the S&P 500, everybody's saying it's looking like it's going to break out to the upside, that this symmetrical triangle is simply just a continuation pattern. But when you look at what's going on with China, the global economy, and why they're trying to drive gold prices down, in fact, if they do that and they start selling dollars and Japan is selling dollars, what's going to happen? It's going to blow up that entire yen carry trade and take the markets with it.
So now you know China's secret plan about gold is to drive prices down so they could buy it up and launch a new global reserve currency. And when that happens, well, we're going to see gold take off like an absolute rocket. But something else we think is a rocket about to take off. That's our sponsor for today's show, Aegis Critical Energy Defense Corp. You can find on the CSC symbol QSS and on the OTC symbol QSSF. And the world's exploited with AI data centers and electrified ports that need insane amounts of reliable, secure power. But traditional systems, they just can't keep up with cyber threats, extreme environments, and sky-high demands. Enter Aegis Critical Energy Defense Corp. Because they're building a full technology platform, not just one product, with high-performance energy storage, intelligent management, and game-changing quantum cybersecurity. Their Powerlex 261Q is Arctic-ready, fully certified for North America, and already deployed in the US. The thing delivers resilient power where it matters most: defense, ports, and those massive AI facilities. And they just nailed major North American certifications and completed their first US commercial deployment with a Fortune 500 customer in Indiana through partners like Seel, New Energy, and GG Ventures. Quantum-secured, plug-and-play, and hitting the ground running. And they're already selling and delivering.
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