Yuan Devaluation, Now Rapid Dollar Devaluation
In the absence of a Chinese backstop that the U.S. has for too long taken for granted, when the dollar resumes its decline, the fall will be much more pronounced. This will also generate significant upward pressure on both U.S. consumer prices and interest rates that was absent five years ago, when Chinese buying provided a huge cushion to the U.S. economy. In fact, data indicates that China is already paring the amount of Treasuries held in reserve. That means a full blown dollar crisis may not have been averted, but merely postponed, with the dire warnings of U.S. hyperinflation potentially coming true after all.
The move may also rekindle to the Chinese appreciation for gold as a safe haven asset as the yellow metal has surged in yuan terms over the past few weeks. Increased buying in China indicates that this may indeed be the case. Given the importance of gold to the typical Chinese investor, the yuan/gold exchange rate may become more important globally than the gold/dollar rate.