Dollar devaluation against gold inevitable – Murenbeeld

Dollar devaluation against gold inevitable – Murenbeeld by Lawrie Williams – Sharps Pixley

With threats and counter-threats, President Trump’s tariff trade war appears to be escalating – primarily with the world’s second biggest economy – China – but also perhaps with the EU and others.  The U.S. President is happy to impose tariffs against what he sees as unfair trade practices, but promises severe escalation if counter tariffs are imposed on U.S. exports in return.  As Martin Murenbeeld, in our view one of the most prescient of gold analysts, notes in his latest Gold Monitor newsletter, that when the U.S. followed a similar tariff imposition policy back in 1930 during the Great Depression the policy contributed sinificantly to the global economic malaise  He comments “Students of monetary history should recall that global growth shrank  in the wake of the Smoot-Hawley Tariff Act of 1930, and the US was forced to devalue the dollar against gold in January 1934 with the result that the gold price rose by 70% (from $20.67 to $35.00).”   He goes on to say that, under the current Trump policy, the dollar will inevitably have to be devalued as these tariffs and counter tariffs are followed through to their inevitable conclusion.  A trade war tends to have no winners.

President Trump, of course, having come through the world of business, feels that these bullying tactics will lead to a climb-down by the U.S.’s trade opponents.  But as we’ve pointed out before, global politics does not necessarily follow the same patterns as global business, particularly in the case of China where we see the economy as much more resilient in part due to the much greater work ethic of the population.  As Frank Holmes pointed out in a recent article, Chinese engineers often work a 9-9-6 pattern (9 am to 9 pm 6 days a week) to achieve their goals.  When I was editing a tunnelling magazine, for example, we noted that German designed tunnelling machines manufactured in China for a Shanghai project were ready in 6 months, whereas their manufacture in Germany would have taken three years.  In the event the machines worked well and completed their tasks as efficiently as if they had been manufactured in Europe.  This is just an illustration of how quickly things can move in China and that the nation may well be able to absorb the impact of stringent U.S. trade tariffs rather better that President Trump imagines.  It’s not exactly a level playing field.

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Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT). He has worked in mines in South Africa (gold, uranium and platinum), Canada (uranium), Zambia (copper) and U.K (coal) and holds a South African Mine Managers certificate. He also worked as a gold mining company analyst for one of the major South African mining houses. He left South Africa to join Mining Journal as Financial Editor and worked his way through that organisation to edit Mining Magazine, and then join the Board. He was Managing Director (CEO) of the company for 13 years up until it was sold in 2001. During part of this period he was also President of Nevada-based U.S. company Mining Media Inc which was publisher of North American Mining magazine.