Dear Reader,
As China continues to show its true colours, the world continues to grapple with the revelation that the world’s next superpower isn’t playing by the rules. At least, not the rules as we know them.
Below, Jim Rickards reveals just a few of the ways in which China is wreaking havoc around the world — and how investors should respond.
Read on for more.
Until next time,
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Shae Russell,
Editor, The Daily Reckoning Australia
Why Investors Should Disinvest from Chinese Stocks
What’s going on in US–China relations is more than just a fight over tariffs or exchange rates. The conflict has degenerated into a new Cold War.
The tariffs that Trump applied in January 2018 were more of a symptom than a cause of this conflict. The Chinese Communist Party are running concentration camps where they round up dissidents and members of the Uighur and Catholic minorities for ‘re-education’.
Unlucky dissidents have their organs removed while they are still alive and without the use of anaesthetics to supply a multibillion-dollar organ transplant industry. Once the victims die from the organ removal, their bodies are quickly cremated, as happened to victims of the Holocaust.
China is now engaged in forced sterilisation and forced abortions on Uighurs as a form of genocide to wipe out the next generation.
Things will only get worse from here
China has also passed a new ‘national security’ law that applies to Hong Kong in violation of the 1997 treaty between the UK and China, regarding the handover of Hong Kong to the PRC.
The treaty was supposed to guarantee basic freedoms and the rule of law until 2047. China just tore it up and began arresting protesters, who will be sent to Beijing for trial and probably never heard from again.
China is also threatening war with India over a disputed border in the Himalayas and is threatening war with Taiwan across the Strait of Taiwan. China continues to manipulate its currency, steal intellectual property, and pursue digital surveillance over every move of its 1.3 billion people.
In the face of this relentless totalitarianism and anti-capitalism, the US is moving close to breaking ties and forcing China out of US capital markets entirely. Reuters reports on pending legislation that would ban Chinese companies from operating in US capital markets and cause the delisting of Chinese companies listed on US stock exchanges.
Hopefully, investors have gotten out of their Chinese investments ahead of this wave of revulsion at Chinese business practices and suppression of human rights. It may not be too late to get out of China if you still own any of their stocks, but the hour is definitely getting late.
Things will only get worse from here.
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When China is involved, even physical gold can’t be trusted
I’ve said for a long time that the best way to own gold is in the form of physical bullion (coins and bars) held in safe, non-bank storage. (Don’t ever store your gold in banks. The day you want your gold the most will be the same day the banks are being shut down.)
Of course, there is a place in a balanced portfolio for other forms of gold investments. Shares in well-managed gold mining companies offer investors the chance to realise gains even greater than gold bullion because of the interplay of fixed and variable costs, and the application of earnings multiples and takeover premiums to the miners.
Gold streaming royalty companies are another way to participate in higher gold prices with less risk than investing in miners directly.
Still, the safest way to invest in gold is with bullion — unless the Chinese are involved. As reported in the Nikkei Asia Review, the Chinese recently pulled off one of the greatest physical gold frauds in history.
The fraud involves a gold dealer named Kingold, which is based in China but listed on the Nasdaq. Kingold borrowed $2.8 billion from a consortium of Chinese banks. It pledged 83 tonnes of gold bars held in its own vaults as collateral for the loans. There was only one problem. Many of the gold bars were fake. They were copper bars covered with a coating of gold.
This was discovered when Kingold defaulted on loans to the Dongguan Trust Co Ltd.
When Dongguan seized the gold collateral and began to liquidate it, it discovered the fake bars. The story is still playing out since the CEO of Kingold is a powerful figure in China and former military officer with deep connections to the Communist Party.
The lesson for gold investors is to stick with reliable dealers who source their gold from reliable refiners such as PAMP, Argor-Heraeus, Valcambi, and the Royal Canadian Mint.
Above all, keep away from any dealer or refiner with connections to China or controlled by the Chinese. They simply cannot be trusted.
All the best,
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Jim Rickards,
Strategist, The Daily Reckoning Australia
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