Countries Are Dumping Dollars
Trade partners keep taking in dollars they do not want and trying to spend them right back. They will hand over gold, silver, or copper for dollars, but they hold on to sulfuric acid and fertilizers because those are real goods they need. Despite all the fighting over tariffs, the trade surplus sits at a record high, which just means more unwanted dollars piling up. They can see what is coming for the dollar's buying power, and they have seen it for a long time.
The signs showed up right after Trump's "liberation day" in April. The next week China's President Xi toured Southeast Asia. Soon after, plans appeared for the Shanghai Gold Exchange (SGE), normally a purely domestic operation, to open vaults in Hong Kong and Saudi Arabia. Hong Kong is China's international finance center. Saudi Arabia sells huge amounts of oil in that region. Both spots make sense if you expect the dollar to weaken.
China Planned This for Decades
None of this is a sudden surprise. Back in 2014 a director at a major Swiss refinery described working 24 hours a day, 7 days a week. Part of the job: taking in LBMA 400-ounce bars owned by Arab buyers, recasting them into Chinese-standard 99.99% one-kilo bars, then shipping them back to those Arab owners. Even the Arabs could see in 2014 where things were headed. The real money knew fiat currencies would eventually fail. Whether the change would come gently or violently, nobody knew.
China set its course in 1983, naming the People's Bank of China (PBOC) as the state's sole agent for buying, selling, and managing gold and silver alongside foreign exchange. That is 43 years of piling up gold and silver against the day fiat money breaks, much of it held off the central bank's official balance sheet.
Since the SGE opened to the public in 2002, buyers there have taken delivery of roughly 28,000 tons of gold. Some went back in as scrap, but none left the country. Exporting gold required PBOC permission that basically never came, plus customs sign-off. Two weeks ago that changed: exporters no longer need PBOC permission, so it is now just a customs matter. This links the SGE to the new clearing and settlement system in Hong Kong. Refineries in Shenzhen have been named to recast gold for the new operation.
Building a Market to Replace the West
This is a move toward making gold into money, with the yuan as the settlement currency for gold trades. In Western markets, a gold futures or forward contract is not really a contract in gold at all. It is a contract in dollars. If the dollar becomes worthless, the market itself disappears. So China is setting up a system to take over from the West. It has already pulled most of the world's gold to its side. Now the market itself is set to follow.
Relaxing export controls right as new settlement infrastructure comes online looks less like opening up and more like preparation for a bigger monetary role.
Russia and China Could Switch Tomorrow
This is a very dangerous situation. If I were in Putin's shoes, or Xi's, I would speed up the collapse of the fiat money system, because both the ruble and the yuan could move onto gold standards tomorrow. Look at the economies and the gold reserves. Russia holds gold on the central bank balance sheet plus extra gold in sovereign wealth funds. Both nations are major gold miners. They are ready to watch the West collapse and maybe give it a nudge.
Signs point that way. In February word came that China told its banks to lighten their load of US Treasuries, which in plain terms means sell them and get out. Chinese banks, under orders from the SGE and PBOC (which owns the SGE and runs it for the Communist Party), were also told to close all speculative positions.
Why Close Positions by July 24?
The July 24 date probably ties to the expiry of the Shanghai Futures Exchange (SHFE) contract. Why close positions? Just like in the West, speculators are always net long, which means the establishment is net short. Order everyone to close, and the establishment is no longer short. Boom, done. It would be a dream for a swap dealer on Comex to just tell everybody to close their positions.
They know something is coming. It would be a stretch to say the government will fix the yuan-gold exchange rate a week or two after July 24. More likely, Chinese authorities are extremely well informed about world finance and have formed a view on where the gold price is heading. At the same time, banks were pushing savers into gold accumulation accounts: real investment, no speculation.
Weakness That Hides Buying
Shutting down speculative interest and forcing accounts to close has been misread. It is why Shanghai has traded at a discount to the fixed price. Yet for the last three weeks, at the fixes, the SGE keeps popping back up to price and then falling into discount again. That pattern is PBOC footprints all over it, maybe Russian ones too.
Mainstream media reads it wrong: they see weak, declining gold and silver. That weakness lures speculative shorts to pile back in, maybe at 100-to-one leverage. At some point this reaches a breaking point where the whole thing implodes in their faces.
The Rot Inside Paper Markets
The futures market and the London forward market are paper markets because banks run them. Banks do not want physical gold weighing down their balance sheets. They want to trade it for basis points, in enormous volumes. Same as the wider derivatives world. The Bank for International Settlements puts derivatives outstanding at around 800 trillion, and if that is about 80% of the total, you are near a quadrillion. Where is the capital backing that? It is not really there. When turnover on the LBMA first became clear back in the 1990s, it shocked the investment world. A billion dollars was serious money then; now it is small change.
Paper bullion exists because banks prefer credit exposure over holding metal. That works only while confidence holds and counterparties keep performing. Liquidity tends to vanish exactly when you need it most.
The Squeeze Ahead
Everything runs on banks dealing in credit. The moment that credit business stops being profitable, it is over. The artificial supply of paper gold and paper silver shrinks, which tightens the squeeze. That is probably what is happening now with the drop in open interest on Comex.
When open interest first started falling, gold and silver prices were rising. Prices have since dropped as the establishment tries to get out. When silver was above $100, the average swap position was short about $3 billion. It has fallen to under $1 billion. That roughly explains the price drop: the establishment wants out. It also explains why prices fell even as physical demand poured out of Western capital markets and into China and elsewhere in Asia. Falling prices usually mean weak demand, but here physical metal keeps flowing east while paper exposure shrinks. If institutions are cutting short positions while physical demand strengthens, the market is signaling a transition, not weakness.
Get Out of Credit
The goal now is not growing wealth. It is protecting it. There is one answer: get out of credit. Currencies are credit. On a central bank's balance sheet, its currency shows up as a liability, and a liability is the other side of credit. It is all credit, and it all depends on the value creditors put on it. That value is set to collapse. Get out of credit and into physical money, which in law, from Roman times, has only ever been gold, with silver in a smaller role today.
Protecting buying power matters more than chasing returns once confidence starts cracking. The hard part: modern portfolios lean heavily on credit-based instruments. History shows again and again that confidence can vanish far faster than anyone expects.
