Jim Rickards: The Four Main Catalyst For Gold

By alexadmin,

The Federal Reserve would like to continue “normalizing” interest rates. But the most recent economic data simply does not justify it.

On Sept. 29, the August core PCE year-over-year (YoY) inflation figure was released. And the data came in exactly as I expected. YoY inflation for August was just 1.3%, down 0.6% from the January reading of 1.9%. That marked eight consecutive months of flat or lower readings.

Needless to say, the Fed is miles away from their 2.0% target. They’re actually moving consistently in the wrong direction.

Second, the September employment report came out the Friday before last. A Reuters survey of economists had expected the economy to add 90,000 jobs in September.

How many did it really add?

Not zero, but less than zero. The economy shed 33,000 jobs last month. This was the first time in seven years that the U.S. economy lost jobs.

Now, that may be partly due to the recent hurricanes that struck Texas and Florida. But coming on top of the weak inflation data that also came out, it will certainly give the Fed more than enough reason to hit the “pause” button on a December rate hike.

But incredibly, right now markets are giving a nearly 90% chance of a rate hike in December based on CME Fed Funds futures. That rate will drop significantly by December 13 when the FOMC meets again with a press conference. (There’s another meeting on November 1, but no one expects any policy changes then).

Once the market wakes up to the real state of play, probably in late November or early December, the current trends will suddenly reverse. You’ll see the dollar down and gold, euros and bond prices up.

On that score, one of the largest and most conservative wealth managers in the world, Pictet Group, based in Geneva, Switzerland, offers a very constructive view on gold.

Pictet’s strategist, Luc Luyet, says that the Fed will be on hold for the rest of 2017 and most of 2018 because of U.S. disinflation and the failure of President Trump to deliver on his growth agenda. I agree.

With the Fed in easing mode, the dollar will weaken and the dollar price of gold will remain strong. This is a fundamental case for gold that does not take into account other positive vectors such as geopolitical shocks from North Korea or outright assaults on the dollar from Russia and China (see below for more on these).

When a conservative institution like Pictet Group has a kind word for gold, you know the rest of the institutional world will not be far behind.

This all makes the next few weeks an excellent entry point for gold and gold mining stocks. You have a chance to take advantage of weakness and position ahead of the rally to come when reality sets in.

Another tailwind for gold is the continuing nuclear standoff with North Korea, as I hinted at above.

There is no doubt that North Korea and the U.S. are on a collision course and headed for war unless North Korea relents, which seems unlikely, or the U.S. acquiesces to North Korean possession of nuclear weapons, which is also unlikely.

At this point, it’s almost certainly too late for negotiation or diplomacy.

The U.S. only has two choices now. The first is to do nothing and learn to live with nuclear blackmail from North Korea. As I said, that is unlikely. The second option is to attack, probably within the next six months, to destroy the Kim regime and its weapons programs.

Trump will go for the attack option.

You don’t even need to ask what will happen to gold prices in that scenario. They’ll skyrocket and then much higher from there as the repercussions begin.

This is just another reason to acquire physical gold and gold mining stocks if you don’t already have them is now.

Another key gold story last week was a report that China has upped its estimate of proven gold reserves to 12,100 tonnes. This report was the source of a lot of confusion among those who follow China, Russia, gold and the status of the U.S. dollar.

Some readers took the word “reserves” to refer to China’s official gold reserves held by the People’s Bank of China and its off-the-books sister entity, the State Administration of Foreign Exchange (SAFE). That’s incorrect.

China’s official gold reserves are about 1,800 tonnes, but may be as high as 5,000 tonnes once off-the-books gold is counted. Some think it’s even higher.

But the report refers to “proven reserves,” which is a geologic (and engineering) concept familiar to the mining community. Basically, it’s an estimate of how much gold is buried in the ground in China and could feasibly be mined at current prices with current technology.

12,000 tonnes is still a lot of gold, but it will take 10 years or more and billions of dollars to dig it up and refine it. Even at 1,000 tonnes per year (double China’s current rate of production), this only increases gold supply about 0.5% per year. That would happen in conjunction with a diminution of gold output from traditional sources such as South Africa.

So increased Chinese gold production may replace diminished South African production, but it does not signify a major increase in global production. It’s worth noting, but not a game changer.

Still, the timing is curious because it comes just two weeks after China launched its oil-for-yuan attack on the petrodollar, with the yuan backed up by gold available from the Shanghai Gold Exchange.

In order for the oil-yuan-gold deal to be credible, China needs to show that it could deliver physical gold to the exchange without touching official reserves. This report makes it clear that China will have ample internal gold supplies for years to come. This adds credibility to its plan to price oil in yuan convertible to gold.

If China relied exclusively on gold imports, it could be strangled by gold sanctions aimed at China by the U.S. and its allies such as Canada and Australia. Instead, China looks ready to go it alone with its own gold. That’s a very big deal and one more nail in the petrodollar’s coffin.

It’s also extremely bullish for gold. Any effort to monetize gold implies much higher gold prices in order to avoid deflation given current gold-to-money ratios.

This is just one more reason to position in gold before this horse leaves the barn.

Finally, we need to consider the difficulty of physical gold supplies to keep up with increasing demand. The global gold supply increases only about 1.6% per year, and the floating supply of gold has been disappearing into private vaults from Zurich to Shanghai.

Refiners cannot find enough “scrap” gold (your discarded jewelry) to produce fine gold to meet demand. If demand increases appreciably from here, and there’s excellent reason to believe it will, there’s only one solution to the shortage of gold supply. And that’s much higher prices.

There, four catalysts waiting to send gold much higher. The time to move into gold is now before it resumes its upward climb.

James Rickards 

Best Way to Buy Gold in an IRA

By Mykola Kadutskyi,

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U.S. Loses $309 Billion To China In 2016

By alexadmin,

Last Thursday, President Donald Trump held the first meeting about the trade deficit with China. The parties in attendance could not come to any sort of agreement, and each party even made independent statements at the closing of the meeting.

 

After the meeting, a protocol was finalized to allow the U.S. to ship rice to China, as China’s rice imports have increased dramatically over the last decade. However, the U.S. and China are going to have to agree on much more than these tiny deals in order to make any sort of difference in the trade deficit.

 

US_China_Imports

The U.S. doesn’t have much leverage when it comes to international trade relations with China. In addition to the 309 billion dollars we lost to China last year, this year we now lose approximately 30 billion to them each month. China is also the number one producer of gold in the world. It has continued to increase its gold reserves since 2014. The most recent increase on gold reserves seems to be a strategic measure to back up its economy after the yuan depreciated in 2016.

 

The only thing the U.S. and Chinese governments seem to be in agreement about is reducing the trade deficit and mutual interest in each other’s prosperity, and have only recently made miniscule agreements. Our trade relationship with China is complicated, especially when multinational American companies in China would lose money if we imposed tariffs on imports.

 

At the same time, tensions are rising between the U.S. and China after a sanction last month to restrict a Chinese bank from doing business with North Korea, as well as the Trump administration weighing the decision to cut steel imports. North Korea grew last year the most in 16 years, even under sanctions, so any sanctions the Trump administration makes against North Korea probably won’t make much difference.

 

When the U.S. administration is slow on making decisions on internal issues such as the delay on passing a new healthcare bill, you have to wonder if they’ll ever come to a decision on passing any major trade deals. The Trump administration has the lowest rating in the first six months of any president in the past 70 years. As the ability of the administration to make decisions always affects the dollar, will the stock market be able to survive this and go higher in the second half?

Best Way to Buy Gold in an IRA

By Mykola Kadutskyi,

Under Construction

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Positive Relationship between TRUMP and GOLD PRICES

By alexadmin,

If Trump were to become president, gold prices will likely perform well, because we expect that his policies will be inward looking and will weaken the fundamentals of the U.S. economy’ Georgette Boele, ABN Amro

 

Trump’s pledge to tear up trade agreements and a rise in overall uncertainty over the policy outlook would likely dent the U.S. economy while spurring a rise in demand for gold, said Georgette Boele, a currency and precious metals analyst at ABN Amro, in a Friday note.

To be sure, Boele’s forecast is based on highly pessimistic expectations in regard to Trump’s likely economic policies.

“If Trump were to become president, gold prices will likely perform well, because we expect that his policies will be inward looking and will weaken the fundamentals of the U.S. economy,” Boele said. “In addition, his rhetoric and possibly policy actions could create domestic and international uncertainty at best, and upheaval at worst.”

 

Weaker U.S. growth would help push gold toward $1,850 an ounce “over the coming years,” she said. That would be a 40% rise from gold’s US:GCQ6 current level just above $1,320 an ounce. Gold has rallied nearly 25% in 2016.

In the note, Boele takes a look at gold’s performance during past presidential administrations stretching back to Gerald Ford’s in 1974. She found that while gold was “very sensitive” to changes in inflation through the early 1990s, the yellow metal’s performance since the Clinton administration has been dictated by a wider range of forces (see table below).

mw-es237_gold_p_20160722112702_ns

During Obama’s second term, improvement in the output gap — the difference between an economy’s actual output and its maximum potential output — and a rise in U.S. real yields (yields minus inflation), along with a sharp rally by the U.S. dollar, sent gold tumbling between 2013 and 2015, Boele said. A deterioration of U.S. real yields and haven demand amid geopolitical shocks have allowed gold to rebound this year.

Boele is bullish on gold overall, forecasting a smaller rise toward $1,650 an ounce if presumptive Democratic nominee Hillary Clinton wins in November. Gold would find support due to inflation outpacing growth, forecasts for interest rates to remain negative (though less negative than at present), and a longer-term downtrend for the U.S. dollar.

 

Boele isn’t the only analyst who sees a more pronounced upside for gold under Trump. Julian Phillips, the founder of Goldforecaster.com, agreed that a Trump presidency and a push toward “protectionism” would be negative for growth and “disruptive and divisive for the global economy.”

In addition, a President Trump would rapidly accelerate the transformation of the global monetary system away from its reliance on the U.S. dollar to a multicurrency framework.

“The need for gold in ‘official’ hands will grow in such an environment to smooth out the ruptures in cash flows between nations across the world,” he said, adding that silver would also likely benefit.

ABN Amro’s Boele, however, offered one caveat. Gold could sell off sharply in the unlikely event that U.S. real yields rise and the growth/inflation mix and the output gap see dramatic improvement. That scenario could lead the Federal Reserve to hike rates aggressively amid strong, above-trend U.S. growth.

Source: Market Watch, William Watts

 

 

A Great Opportunity to Stack Up on Gold

By alexadmin,

Jim Rickards contact “Goldfinger,” a gold industry insider, first clued us into an important gold flow reversal happening. You might recall their live broadcast. In the months just before that meeting in Zurich with Goldfinger, over 170 tons of gold flowed back into London. Instead of coming out of London, into Switzerland, and then heading over to China and India, China and India slowed down their imports and gold starting to flow back into London.

Since then, the U.S. has become a significant gold importer, if you can believe it. Gold is flowing from vaults in London, Switzerland and even Dubai to destinations in the U.S. (If you’re wondering, there are no gold mines in Dubai; it’s all warehouse gold.)

In May, the U.S. imported more than 50 times the monthly average amount of gold, as compared to the past.

The most interesting thing?

This year, investor demand was the largest component of gold demand for two consecutive quarters (Q1 and Q2) – the first time this has ever happened. This means that more and more U.S. investors are diversifying their assets into gold. They are looking for ways to protect themselves from the monetary tricks that central banks are experimenting with around the world.

goldie1Daily Reckoning

We’re familiar with those tricks here at the Daily Reckoning. The biggest two are the war on cash (see yesterday’s DR issue on that topic) and negative interest rates. The truth is governments don’t want people holding currency on the sidelines of the economy. Governments desperately want people to spend their money as fast as they make it. They know that the global economy is fundamentally weak, even as they try to convince the rest of us otherwise.

After a minor, but much-anticipated, Federal Reserve interest rate hike last December — the first rate increase in 7 years — gold prices bottomed. For a moment, the Fed seemed to convince people that the economy was picking up strength, and investors didn’t need the safe haven of gold anymore. Then, on January 21, 2016, news broke that the Bank of Japan had adopted a policy of negative interest rates. That hit the market hard and gold prices soared.

Not long ago, a study by Merrill Lynch concluded that roughly $13 trillion of government bonds, worldwide, offer negative yield. Here’s a chart to show the rapid growth in negative yielding financial instruments.

goldie2Daily Reckoning

As bad as this chart looks, however, it doesn’t tell the full story. Of that “positive”-yielding debt, about $14.5 trillion pays between 0 and 1%. Overall, about 3/4ths of the world’s sovereign bond market trades at 1% or lower. Just over $2 trillion, or 6%, of outstanding government bonds offer coupon rates better than 2%.

Once negative interest rates were introduced, gold prices began to climb, and they’ve been rising steadily ever since. Here’s the one-year chart of the London gold fix, showing the progress since last winter:

goldie3Daily Reckoning

Seven months ago, gold prices began to move upwards from its December-January low of $1,050 per ounce. This was right around the time the physical gold flows began reversing due to heightened investor demand.

Now, more than halfway through summer, gold has solidly broken through a major resistance at $1,300. We could see $1,550 to $1,600 by March 2017, just six months from now. Silver could make a similar climb, moving from the current $20 range to a near-term level of $25 per ounce. Thanks to the strange world of negative interest rate bonds and bumbling central banks, demand for gold and silver is consistently growing.

Numbers don’t lie. The gold bulls are out in full force. People are buying gold and silver, and putting large amounts of money into small packages of yellow metal.

 

People are finally waking up to the fact that the global economy is not strong. We have sky high bubbles in the markets, and the Fed apparently can’t explain it all away with academic-sounding gobbledygook.  The bottom line is that our U.S. economy is not recovering — indeed, it’s on the brink of a recession. This increases demand for safety. And safety means gold.

Your Social Security Is Running Dry

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Yet now, we confront a problem:  What about future supply?

Not long ago, I was in Yukon Territory, in northern Canada. I was visiting Kaminak, a gold mining company that has worked up a major new gold prospect which is still a few years away from becoming a mine. Back in May, Goldcorp, one of the largest gold producers in the world, announced that they would buy out Kaminak for $520 million. I spent much of one day on-site with Kaminak and Goldcorp representatives. They were all open and straightforward. And what they told me about gold supply was astounding.

According to Goldcorp, there are “significant supply constraints ahead’ for future gold production. One main reason is found in what they call the “Peak Gold” approach. Across the world, gold discovery peaked in the 1990s. However, according to one Goldcorp rep, “it takes about 20 years to move a project from discovery to initial production.”

goldie4Daily Reckoning

It’s basic logic that production would trail discovery by a significant period of time — you can’t produce what you haven’t discovered. But now, as gold discoveries continue to decline, future production will decline as well. Goldcorp management calculates that gold production peaked in 2015. The trends are all downhill from here.

Now, if a company wants to remain a major producer, it must grow reserves and invest in new discoveries and production.

Goldcorp’s preferred method to stay in the gold game is through “brownfield” exploration and expansion. This means that they focus future growth in existing mine districts that host established discoveries and/or developments and production. Along the way, they’ll seek partnerships with junior companies that are active in these kinds of areas to cultivate a future production pipeline.

But even if more gold discoveries are made today, we still need to wait roughly twenty years for the pace of production to catch up. Meaning the supply of available gold in the world today is declining, just as investor demand for gold is increasing.

And as I noted earlier, China and India have slowed their gold imports in recent months. If their demand increases even back to early 2016 levels, there won’t be enough gold to go around — at least not at the current price…

Let’s make the most of this opportunity.

Right now, in our Strategic Intelligence model portfolio, we have several gold and silver royalty and streamer companies. We also have an exchange traded fund of gold miners. These ideas offer exposure to the upside of rising gold-silver prices via capital gains and dividends over time.

This is an ideal time to buy the physical metals, too.  Jim and I expect that gold and silver prices will climb in the months to come, through the rest of 2016 and into 2017. Still, I understand that you may be reluctant to purchase coins or bullion, due to markups by dealers, storage issues, insurance, and so on. But there are ways for you to buy in at your own pace, without the hassles, yet still, have ownership of metal that you purchase.

All in all, governments across the world are cracking down on cash. Bonds are a zero-yield play, if not negative. Most stocks are sky-high, and market bubbles everywhere await their needle. You are left with preserving wealth via classical, real money — gold and silver. But as demand builds and the production declines, we expect prices to skyrocket.

That’s why it’s imperative that you start getting a 10% allocation of your investable assets into physical bullion now. If you aren’t already building your stash of actual metal, now’s the time.

Source: the Daily Reckoning, by Byron King

A Big Comeback For Gold

By alexadmin,

Gold is set for a comeback six to 12 months from now, according to UBS.

As long as the Federal Reserve sees no reason to raise interest rates in a hurry, gold should do well, according to strategists at the bank’s Chief Investment Office Wealth Management Research arm.

They see gold prices climbing to $1,350 per ounce over the next year, up 7% from its current level.

Because gold does not bear any interest, it loses appeal when rates rise and investors go after better alternatives.

Also, gold is favored in times of panic and economic stress, when investors are looking for assets that are considered safer.

UBS’ Wayne Gordon and Giovanni Staunovo said in a note that the Fed is still likely to raise its benchmark rate in December, and that may be bearish for gold in the short term.

And so, they forecast that gold could fall to as low as $1,225 an ounce over the next three months. Gold traded near $1,258.60 on Thursday, up by 0.4%.

They noted that Friday’s employment report was not enough to keep the Fed from raising rates later this year. The report was a dud; it showed fewer job gains than expected but did not have many worrying details about the labor market.

But after the Fed hikes rates in December, the outlook for gold should become much better, they said.

“A slow moving Fed and a moderate pickup in inflation should push real interest rates deeper into negative territory in 2017,” Gordon and Staunovo said. “Historically, this has acted as a powerful driver of higher gold prices.”

Gold

Source:  “The Business Insider: The Money Game”

Platinum Bear Cycle set to Break

By alexadmin,

Legendary investor Stan Druckenmiller, founder of Duquesne Capital Management LLC, told the Sohn Investment Conference in New York last week that he is bullish on gold and bearish on the stock market. Gold, he told the conference, “is our largest currency allocation.”

Druckenmiller recommended that investors sell their equity holdings. “The bull market is exhausting itself,” he told the conference. A major factor has been the Federal Reserve’s easy money policy, which has resulted in “reckless” corporate behavior.

Growing corporate debt is increasingly used for financial engineering, rather than in R&D that could lead to productivity improvements, Druckenmiller said. According to him, from 2012 to 2015, use of debt for U.S. nonfinancial firms for stock buybacks and M&A increased from $1.25 trillion to $2 trillion, while debt for R&D and office equipment grew from $1.55 trillion to only $1.8 trillion.

“The corporate sector today is stuck in a vicious cycle of earnings management, questionable allocation of capital, low productivity, declining margins and growing indebtedness,” Druckenmiller added.

The slowing Chinese economy as another reason to sell equities, according to Druckenmiller. He believes that stimulus measures by China have “aggravated the overcapacity in the economy.” While he had hope two years ago that the Chinese were willing to accept the tradeoff of a slowdown to gain reform, the Chinese “have opted for another investment-focused fiscal stimulus, which may buy them some time but will exacerbate their problem. They do not need more debt and more houses.”

Instead, Druckenmiller has made a move to gold. “It has traded for 5,000 years and for the first time has a positive carry in many parts of the globe as bankers are now experimenting with the absurd notion of negative interest rates,” he said. “Some regard it as a metal, we regard it as a currency, and it remains our largest currency allocation,” he added. Among his investments are holdings in the SPDR Gold Trust.

Druckenmiller gained fame in 1992 when, as lead portfolio manager for George Soros’ Quantum Fund, the fund shorted the British pound, a trade that is widely believed to have made $1 billion in profits. Druckenmiller’s Duquesne Capital averaged annual returns of 30% before he converted it to the Duquesne Family Office in 2010.

The Bull Market is Exhausted – Move to Gold!

By alexadmin,

Legendary investor Stan Druckenmiller, founder of Duquesne Capital Management LLC, told the Sohn Investment Conference in New York last week that he is bullish on gold and bearish on the stock market. Gold, he told the conference, “is our largest currency allocation.”

Druckenmiller recommended that investors sell their equity holdings. “The bull market is exhausting itself,” he told the conference. A major factor has been the Federal Reserve’s easy money policy, which has resulted in “reckless” corporate behavior.

Growing corporate debt is increasingly used for financial engineering, rather than in R&D that could lead to productivity improvements, Druckenmiller said. According to him, from 2012 to 2015, use of debt for U.S. nonfinancial firms for stock buybacks and M&A increased from $1.25 trillion to $2 trillion, while debt for R&D and office equipment grew from $1.55 trillion to only $1.8 trillion.

“The corporate sector today is stuck in a vicious cycle of earnings management, questionable allocation of capital, low productivity, declining margins and growing indebtedness,” Druckenmiller added.

The slowing Chinese economy as another reason to sell equities, according to Druckenmiller. He believes that stimulus measures by China have “aggravated the overcapacity in the economy.” While he had hope two years ago that the Chinese were willing to accept the tradeoff of a slowdown to gain reform, the Chinese “have opted for another investment-focused fiscal stimulus, which may buy them some time but will exacerbate their problem. They do not need more debt and more houses.”

Instead, Druckenmiller has made a move to gold. “It has traded for 5,000 years and for the first time has a positive carry in many parts of the globe as bankers are now experimenting with the absurd notion of negative interest rates,” he said. “Some regard it as a metal, we regard it as a currency, and it remains our largest currency allocation,” he added. Among his investments are holdings in the SPDR Gold Trust.

Druckenmiller gained fame in 1992 when, as lead portfolio manager for George Soros’ Quantum Fund, the fund shorted the British pound, a trade that is widely believed to have made $1 billion in profits. Druckenmiller’s Duquesne Capital averaged annual returns of 30% before he converted it to the Duquesne Family Office in 2010.

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Trump discovered a 100-year-old secret that Feds don’t want you to know.

By alexadmin,

R: Hello Mr. Viera, Thank you for this interview today. What do you make of Donald Trump’s statements about our national debt and likely default?

 

V: Good Morning, Rebecca. Donald Trump needs to be careful about what he says, recently he got in trouble for mentioning a well-known truth that you really can’t talk about because it puts our finance and banking system at risk.

R: how are we at risk?

V: Let me explain. When Donald Trump mentions the possibility of buying back debt at a discount, He seems to have been following Argentina’s treasuries debt restructuring that was just finished by the new president Macri. What he seems to miss is the 12 years of inflation, economic contraction and misery created by such a historical default. In other words, he doesn’t understand the ramifications of these actions. If we attempt something like this the lack of faith in our treasury would ultimately hurt our economy and perhaps push us into default in the U.S.

R: What do you think about the “print the money” statement made on May 9th on CNN?

V: Trump was misquoted from the New York Times and other publications, he wasn’t pushing for the U.S. to default. Trump claims to be the “king of debt” and is telling us the truth that has been going steady since Q.E. or the quantitative easing program. The federal reserve has already bought 4.5 trillion in debt of which 2.7 trillion was in federal securities who were simply “printing the money”. Many critics of Trump say that such money printing will be inflationary but the Fed program has not even been able to create a modest 2% inflation.

R: This 4.5 trillion debt is made from nothing, where did this money go?

A: Well Rebecca, the 4.5 trillion dollars was supposed to end up in banks and be distributed to the people. The banks instead speculate in the market driving up stock prices and real estate. The CPI (consumer price index) is barely moving. The central banks, unfortunately, have been pumping money into the economy without much to show for it. “Growth is mediocre” as put by Christine Lagarde. Chief of the IMF.

R: Mr. Viera, what do you think Trump was truly trying to say?

A: Perhaps Mr. Trump was talking about what is commonly known as monetizing the debt. Since it’s a fake debt,to begin with, where the treasury prints debt in exchange for dollars. Since the Fed is legally allowed to return the debt, to the treasury to be destroyed why not just buy it straight and get it over with. This, of course, would be too much of a shock since the bank needs debt to make money, perhaps this is what Mr. Trump was trying to say.

R: Mr. Viera in your opinion does Donald Trump Know exactly what he is talking about.

A: Good Question, Rebecca, somehow he does understand but without the detailed knowledge, but it is a positive thing that he’s challenging the taboo of money creation. Question is, who should be in control of the money supply? Should it be the public, or done by the government? Should it continue like it is today and be private and held in the hands of banks and the Fed? As our monetary system slows and shows it’s age, crumbling in both Europe and Japan under the weight of negative interest rates. This question will need to be answered in the development of a new monetary system where the dollar might not be the world reserve currency.

The secret is we have been “printing the money” for the last 100 years with nothing to back it up.

R: Thank you, Mr. Viera, hope to speak with you again.

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