Last October in ‘As Good As Gold’ I referenced China’s long-term intention to replace the United States as the world’s global superpower. China has a lot of work to do. As part of the process, China needs to provide an alternative to the US dollar as the world’s reserve currency. China is making some progress in this regard. Since 2016, renminbi volatility versus gold has declined sharply and in recent weeks, the currency has rallied sharply relative to gold. The renminbi experienced quite a difficult end to 2018 but as the new year turned and the currency reached the lower support range versus gold that has been set over the last three years, the renminbi rallied sharply… and gold is no slouch this year. Are policymakers now managing the renminbi versus gold to provide international investors with a credible alternative to holding USD’s? This unfolding trend of lower volatility in renminbi versus gold is worth paying attention to. If China is signalling that the renminbi is as good as gold, the investment implications will be significant.
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