Weekly Update from RLA Tax and Wealth Advisory

By:  Dennis Tubbergen

US Dollar Losing More Ground Internationally?

         If you’ve been a long-term reader of this publication, you’ve heard me discuss the Petro-Dollar in past issues.

         For context, here is a brief overview of the establishment of the Petro-Dollar.  From 1944 until 1971 (August 15, 1971, to be precise), the US Dollar could be exchanged for physical gold at a fixed rate of $35 per ounce.

         After US gold reserves declined from more than 20,000 tons in 1944 to just over 8,000 tons in 1971, then-President Richard Nixon went on television to make the announcement that the redemptions of US Dollars for gold would be temporarily suspended.  Of course, that temporary suspension of dollars to gold ended up being permanent.

         By 1973, the United States made a deal with Saudi Arabia that had the Saudi’s agreeing to price their oil exports exclusively in US Dollars in exchange for arms and military assurances.  The agreement was a rousing success, and by 1975, every OPEC country priced oil exports in US Dollars.

         That began to change in 2023, when Saudi Arabia began to price oil exports in other currencies as well.  This was at least partially due to US sanctions against Russia imposed in response to Russia’s invasion of Ukraine.

         Then, last April, President Trump imposed tariffs on nearly every nation in the world, including China.  Not long after the tariffs were put in place, Chinese President Xi visited nations that were part of the Association of Southeast Asian Nations to reaffirm China’s free trade policies with these countries.  (Source:  https://vongreyerz.gold/alasdair-macleod-the-petroyuan-shift-has-begun)

         China then took two other steps.

         One, China promoted it’s cross border international payments system (CIPS), which allows for the exchange of all currencies for the Chinese currency, the Renminbi, without the need to exchange those currencies for US Dollars first.

         Two, the Shanghai Gold Exchange opened a vault in Hong Kong and another in Saudi Arabia.  Gold held in these vaults can be exchanged only for the Chinese currency, the Renminbi.  (Note:  China’s official currency is the Renminbi; the Yuan is a unit of the currency.)

         As Alasdair MacLeod notes in the article referenced above, the only remaining step is for China to declare the country’s real gold reserves and fix an exchange rate between the renminbi and a specified weight of gold.  That final step is now pending.

         Mr. Macleod notes in his article that in early January, a 20-year pact was signed by Iran, Russia, and China.  The agreement calls for military coordination, opposes Western military dominance, and currency warfare.

         The agreement has Iran getting electronic intel support from China and technical expertise from Russia.  MacLeod uses this analogy to explain the agreement:

         “As Ukraine is NATO’s proxy in a war against Russia, Iran is China’s and Russia’s proxy in a war against the United States.  All three nations want to drive US bases out of West Asia, removing them from the Asian continent entirely.  As part of the plan, Iran insists that free passage out of the Gulf through Hormuz can only be obtained for cargo paid for in yuan (Renminbi), effectively ending the petrodollar for all GCC (Gulf Cooperation Council) states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates).”

         Macleod adds this:

“…the financial consequences for GCC states are significant.  For the last fifty-two years, they have accumulated dollars, only to find that they are now redundant, no more than an investment in a foreign currency and possibly a speculative one at that.”

         Just one more reason to add currency diversification to your portfolio.  

Pawn Shops Making More Loans as Gas Prices Rise

         “The Independent” reported that pawn shops are seeing a surge in customers since oil prices have surged, leading to much higher prices at the pump.  (Source:  https://www.the-independent.com/news/world/americas/us-politics/pawn-shops-iran-strait-hormuz-gas-prices-b2955816.html)

         The article quotes Tim Cassidy, who operates Cassidy’s Jewelry and Loan in Stockton, California, “We’re making a lot more loans,” Cassidy stated, “they have to have that gas, they have to get to work.”

         It’s not just lower-income families that are being affected; middle-income families are too.  

         Abigail Mielcarek, co-founder of Abby’s Pawn and Coin in Santa Rosa, California, told “Bloomberg” that middle-income earners are increasingly walking through the door of her shop to get loans using personal items as collateral.

         Mielcarek stated, “Expensive watches are coming in a little bit more frequently.  Some of the people who have money are also feeling what is going on.”

         Brian McNamera, an analyst at Canaccord Genuity, which covers the pawn industry, particularly large pawn companies EZCORP, Inc and FirstCash Holdings, Inc., explained that the pawn business is ‘counter-cyclical’.

         “If pawn shops are doing well, it probably means that some part of the economy is not,” McNamera said.

RLA Radio

         The RLA radio program this week features an interview that I conducted with best-selling author and long-time publisher of “Trends Journal”, Mr. Gerald Celente.

         I had a fascinating conversation with Mr. Celente about the current economy, where it is trending, and what his forecast is. Gerald also offers aspiring retirees and everyday investors some great advice.

         The interview is available now by clicking on the "Podcast" tab at the top of this page or on your favorite podcast channel.

Quote

“A lot of people give up just before they’re about to make it.  You know you never know when that next obstacle is going to be the last one.” 

                       -Chuck Norris  1940-2026