Why Yuan Isn't Ready for Prime Time

There has been a lot of speculation concerning the goal and strategy of China concerning the place of the yuan or renminbi on the world economic stage.

I have no doubt the Chinese have a goal of becoming the leading reserve currency in the world, but if that ends up being a reality, it's going to be many years from now.

The idea that China is attempting to bypass the existing currency market and working to build an alternative to it is actually the exact opposite of what it really wants to do, which is to become a larger player in the current global economy.

For now, the yuan isn't close to being ready to be a currency leader, as China needs to take a number of steps before it's going to be considered a means of paying for major transactions on a global basis.

read more ...

Yuan to Continue Upward Move

In what can only be called a dramatic change of direction, the upward move of the Chinese yuan has caught a lot of investors off guard, as their attention, in the currency market has mostly been on the Japanese yen, once it implemented a policy to drive down its value.

Meanwhile, the yuan has moved strongly in the opposite direction, strengthening against the U.S. dollar in a meaningful way since the beginning of 2013.

More on strength of yuan

Leeb Sees China Implementing Gold Standard

In what would be an extraordinary event if it happens, Stephen Leeb said he believes China is working towards implementing a gold standard to back up the renminbi or yuan.

Leeb said this in an interview with King World News, "China wants gold so they can continue with their plans. They want their currency backed up in gold and they are going to continue to buy it. So gold may weaken, but if it does people should buy it. Once gold starts taking out the all-important $1,800 level, you are not going to have a chance to get into the market. It will not let you in."

As to whether or not China goes on a gold standard or not really won't have an impact on the price of gold, as it'll go up whether China does or not, as the country will continue to buy as part of its economic and financial strategy.

I don't mean by that a gold standard wouldn't boost the price of gold, just that China will buy up gold with or without a gold standard, and that's one element concerning the price of gold that a lot of investors and the media aren't talking a lot about.

Most are focusing on how the money created out of thin air by major central banks around the world will impact gold prices, and silver as well; which is of course of major importance too.

According to Leeb, China has boosted its acquisition of gold by three-fold over the last year, and it doesn't appear to have had any effect on the market at this time. Sometime it will, as news gets out about the demand factor of gold in that regard.

Assumptions are China is bolstering its gold reserves in order to use it to acquire much needed commodities over the years ahead.

Some wrongly believe that China has reached some type of peak concerning building the infrastructure of the country, but it's really only taking a breather, and most likely we'll see them reallocate assets to building out its infrastructure rather than creating cities with few people residing in them.

Leeb gave this advice concerning investing in gold: “My advice is if we get a dip in gold, I would buy that dip.  Gold has a lot of support.  I think long-term and that’s a bet that I’m always willing to make.  I haven’t sold a single ounce of gold or a single share of a gold stock.  That is because I am positioning and I am thinking about the long-term."

Interestingly, we haven't really seen much in the way of "official" inflation at this time. Once that kicks in, along with stimulus and Asian demand, gold will rise to unprecedented levels.

Silver is one of the few assets he sees will come close to rivaling gold going forward. He didn't mention much about demand and it being an alternative to many investors who are being priced out of the gold market, as he commented on the possibility of governments stepping in and not allowing people to buy it any more.

“Having said all of this, if there is one investment that can possibly rival gold, it’s silver.  People don’t realize this, but at some point governments may say to their people, ‘We need the silver and you have to stop buying it.’  When that point comes, silver is likely to be at $150 to $200.  So there is still a lot of room in the silver market.”

Other than China and other Asian markets acquiring gold, the reasons gold will go up are the same reasons silver will, and silver has a much larger demand from the industrial sector versus gold, but is considered secondary as a form or protection and an alternative currency than gold is.

A number of commodity investors see silver outperforming gold over the next decade, but I think that will depend largely upon how much demand Asia has.

Jim Rogers on China Being an Opportunity

Most people following the stock market know it is being set up for a m major correction, but according to Jim Rogers, there is another opportunity awaiting those who are looking for something now to invest in, and that is China.

As for the American stock market, it is likely it'll take from about six months to nine months to complete what is expected to be about a 20 percent drop. That means investors will have to divest of stocks and build up their cash position to be prepared for the time when stocks are much cheaper than they are today.

Rogers, who is a long-term China bull, has said in the recent past, and reminded people, that about a year ago Chinese leaders said they're going to slow down the economy because it had heated up too quickly.

So with that seemingly reached close to expected levels, Rogers believes it's time to take a closer look.

He said, "China's going to be the next great country in the world. I was violently and vehemently telling people not to buy China when it was going up in 2007. I only buy China when it collapses."

Jim Rogers backs up what he says, as at this time he is long currencies and commodities, while shorting the stock market.

Concerning buying China, one of the major ways Rogers does that is via commodities, although he also does that through the renminbi as well.

China Says Fed's Inflating Poses Major Risk to Economic Recovery

The move by the Federal Reserve has many countries fuming, including Germany and china, who are outraged over the consequences that could emerge from the misguided move.

China went so far as to say it could undermine any economic recovery that may come in the future, and the U.S. "should not force others to take medicine for its own disease."

Zhang Tao, director of the international department of People's Bank of China, said, "For emerging countries, capital inflows may lead to significant increase in asset prices and foreign exchange reserves, and many countries are concerned about that.

"Doubtlessly, disordered international capital inflows will make emerging countries very vulnerable. As emerging countries are important for the global economic recovery, that will greatly increase the downward risks in the world economy."

Concerning the revaluation of the renminbi or yuan, Chinese President Hu Jinatao reiterated China's policy of gradually reforming the currency over time.

Insteel Industries (Nasdaq:IIIN), Mechel OAO (NYSE:MTL), Universal Stainless (Nasdaq:USAP) Soar on Fed Inflation, Collapsing US Dollar

Insteel Industries Inc. (Nasdaq:IIIN), Mechel OAO (NYSE:MTL),
Universal Stainless & Alloy Pr (Nasdaq:USAP) all moved up with the broader commodity sector Thursday, as the reality the Federal Reserve was going to inflate again via its quantitative easing strategy pushed up the price of commodities in anticipation of the inevitable inflation to come.

Commodities moving up in price included gold, aluminum, silver and oil. Gold prices exploded record levels again, moving toward the $1,400 an ounce level. Silver pushed past the $26 mark, and is more than likely going to continue increasing for some time.

The steel industry overall may go through seasons of wide fluctuations as currencies sway in response to the drop in value of the U.S. dollar, which will affect margins because of the wide moves in currency value and the fight by some against the Chinese renminbi, which they'll be forced to take defensive measures against.

Taking into account market factors, and the general economic health of the steel industry , it more than likely won't partake in the surge in commodity prices and demand as other commodities will surely do.

Insteel Industries Inc. closed at $9.11 Thursday, rising $0.22, or 2.47 percent. Mechel OAO surged to close at $25.27, gaining $1.68, or 7.12 percent. Universal Stainless & Alloy Pr was up to $30.62 at the end of the trading session, gaining $1.03, or 3.48 percent.

General Steel Holdings (NYSE:GSI), Gerdau S.A. (NYSE:GGB), Companhia Siderurgica Nacional (NYSE:SID) Rise on Fed Inflation, Collapsing US Dollar

General Steel Holdings (NYSE:GSI), Gerdau S.A. (NYSE:GGB) and Companhia Siderurgica Nacional (NYSE:SID) all moved up with the broader commodity sector Thursday, as the announcement that the Federal Reserve was going to inflate again via its quantitative easing strategy pushed up the price of commodities in anticipation of the inevitable inflation to come.

Commodity prices going up included aluminum, gold, silver and oil . Gold prices soared record levels again, reaching toward the $1,400 an ounce level. Silver exploded past the $26 level, and is ready to continue moving up.

The steel industry could go through a seasons of swings as currencies respond to the fall in value of the U.S. dollar, which will affect margins because of the wide swings in currency value and the battle by some against the Chinese renminbi, which they'll have to take defensive measures against.

Because of market factors, and the overall economic health of the steel industry, it probably won't partake in the surge in commodity prices and demand as other raw materials will surelydo.

General Steel Holdings closed at $39.40 Thursday, rising $0.86, or 2.23 percent. Gerdau S.A. surged to close at $13.55, gaining $0.29, or 2.19 percent. Companhia Siderurgica Nacional was up to $14.59 at the end of the trading session, gaining $0.54, or 3.84 percent.

Nucor (NYSE:NUE), AK Steel (NYSE:AKS), Commercial Metals (NYSE:CMC) Rise on Collapsing US Dollar, Fed Inflation

Nucor (NYSE:NUE), AK Steel Holding (NYSE:AKS), Commercial Metals Company (NYSE:CMC) all moved up with the broader commodity sector Thursday, as the announcement that the Federal Reserve was going to inflate again via its quantitative easing strategy pushed up the price of commodities in anticipation of the inevitable inflation to come.

Commodity prices going up included gold, silver, oil prices and aluminum. Gold prices reached record levels again, straining toward the $1,400 an ounce level. Silver surged past the $26 level, and seems poised to continue moving up.

The steel industry could go through a period of fluctuation as currencies respond to the fall in value of the U.S. dollar, which will affect margins because of the wide swings in currency value and the battle by some against the Chinese renminbi, which they'll have to take defensive measures against.

Because of market factors, and the overall health of the steel industry, it probably won't participate in the surge in commodity prices and demand as other raw materials will do.

Nucor closed at $39.40 Thursday, rising $0.86, or 2.23 percent. AK Steel Holding surged to close at $13.55, gaining $0.29, or 2.19 percent. Commercial Metals Company was up to $14.59 at the end of the trading session, gaining $0.54, or 3.84 percent.

ArcelorMittal (NYSE:MT), Carpenter Technology (NYSE:CRS), US Steel (NYSE:X) Soar on Collasping US Dollar, QE2

ArcelorMittal (NYSE:MT), Carpenter Technology (NYSE:CRS), US Steel (NYSE:X) all moved up with the broader commodity sector Thursday, as the announcement that the Federal Reserve was going to inflate again via its quantitative easing strategy pushed up the price of commodities in anticipation of the inevitable inflation to come.

Commodity prices rising included oil prices, gold, silver and aluminum. Gold prices reached record levels again, straining toward the $1,400 an ounce level. Silver broke the $26 level, and seems poised to continue moving up.

The steel industry could go through a period of uncertainty as currencies respond to the fall in value of the U.S. dollar, which will affect margins because of the fluctuations and the battle by some against the Chinese renminbi, which they'll have to attempt to protect themselves against.

ArcelorMittal closed at $47.33 Thursday, rising $1.66, or 3.63 percent. Carpenter Technology surged to close at $35.51, gaining $0.96, or 2.78 percent. US Steel was up to $47.33 at the end of the trading session, gaining $1.66, or 3.63 percent.

Citigroup (NYSE:C): Asian Emerging Markets Buying US Dollar

The weak US dollar is wreaking as Citigroup (NYSE:C) notes, Asian countries like Indonesia, Philippines, Taiwan, Thailand, Malaysia and Singapore have been snapping up US dollars as a move against their major competitor China.

Increasing strength of the currencies of the smaller emerging markets has been squeezing margins and profits of companies in the region, as the pegged Chinese currency moves in step with the greenback.

The acquisition of US dollars is a defensive step by these countries in order to maintain competitive exchange rates to compete with their exports.

Although financial media has focused on this recently, it has in fact been going on for quiet some time.

China Looking at Switching from U.S. Dollar Benchmark

China and other BRIC nations (Brazil, Russia, India) have been talking some time about the idea of switching from the U.S. dollar as a benchmark to some other currency arrangement.

One of those possibilities has been to move to a basket of currencies as a benchmark as the measure of an exchange rate for the renminbi, or yuan.

Deputy Gov. Hu Xiaolian of China's central bank said this on their government Web site earlier today.

Hu said, "Compared with pegging to a single currency, the exchange-rate regime with reference to a basket of currencies will help adjust exports and imports, current account, and balance of payment in a more effective manner.

"A floating exchange rate has impact on total imports and exports of an economy. Therefore, the floating cannot be aimed to adjust [only the] bilateral trade balance, and it is not advisable to just look at the [dollar-renminbi] exchange rate.

Will Floating Yuan Help Alcoa's (NYSE:AA) Performance?

Alcoa (NYSE:AA) has probably done about as much as they can in cutting costs and preparing for a turnaround when it comes.

Over the last couple of years, aluminum prices have plunged by about 60 percent, and the shares have dropped to just below $11 a share, from the $30 range.

For better cost controls to compete in that regard, Alcoa is developing a bauxite mine in Brazil. They're spending about $1.5 billion on that project. Some of Alcoa's smaller competitors have been nipping away at their business with better prices, contributing to the overall poor performance of the company, the reason for the bauxite strategy.

Other projects are a large aluminum mining project in Saudi Arabia, and a effort to modernize Russian plants to better serve the domestic market there.

Recently they acquired window and door manufacturer Traco, to diversify their product line.

What could help them the most, is the recent decision by China to allow the yuan or renminbi float more against the U.S. dollar. That could generate more demand from China, although they've been cutting back in some areas to battle rising property prices in urban areas and a possible bubble.

The other problem with the renminbi is it is a potential double-edge sword, which could perform reverse and cause more challenges for Alcoa if that is the case.

If it performs as expected, it could be a good boost for Alcoa in the short term.

The bottom line though is still demand and aluminum prices. Until those elements in the equation change, Alcoa is going to continue struggle, along with its shareholders.

Alcoa (NYSE:AA), Century (Nasdaq:CENX) Increase on Yuan Floating Against U.S. Dollar

The announcement by China that they'll float the yuan against the U.S. dollar has caused shares in in Alcoa (NYSE:AA) and Century Aluminum Co. (Nasdaq:CENX), among other commodity companies, to surge today, based on the assumption the yuan will appreciate as a result.

This would of course help commodities which are traded in U.S. dollars.

With China by far the largest importer of a larger number of commodities, it would be beneficial for many companies, which would have their margins and earnings increase as a result.

The other side of the equation which no one is talking about today because of the temporary euphoria, is the consequences to these same companies if the yuan depreciates in value against the U.S. dollar, which would have the opposite effect.

The market believes this won't be the case, and until proven otherwise, in the near-term should help metals producers in general.

Alcoa was at $11.88 a share, a gain of $0.77, or 6.93 percent, as of 1:45 PM EDT, while Century Aluminum rose to $10.86, a gain of $0.82, or 8.17 percent, as of 1:45 PM EDT.

Marc Faber: China Won't Appreciate Currency Against U.S. Dollar

Marc Faber said at the Asian Investor Fifth Annual Asian Investment Summit in Hong Kong today that China is highly unlikely to remove the peg it has with the U.S. dollar, as the European sovereign debt crisis has knocked the euro down hard and fast.

Faber said, “If I had to take a bet, I’d say that the renminbi will not go up this year.”

The renminbi, or yuan, has appreciated against the euro by 16 percent so far in 2010, and exporters from China are starting to get nervous because of the rising costs of doing business as a result.

Faber also said he believes China should have eased up more than they did. Since July 2008, the renminbi has been pegged at an exchange rate of 6.83 percent against the US dollar.

BRICs Continue Local Currency Pursuit

A growing number of nations are losing confidence in the U.S. dollar, as the endless printing of paper money has increased the pace of the drop in value of the dollar, and its desirability as a currency to do business in, as it's becoming questionable as to its long-term viability on a number of fronts; including whether countries want to continue to acquire the increasingly risky Treasuries, which have propped up the U.S. economy for a long time.

Although it's not the first time BRIC countries have let it be known they are looking for ways to conduct business in their own currencies, the fact that they're continuing to talk and pursue it shows it's not an issue that is going away, and also points to the probable removal of the U.S. dollar in the future as the currency to be traded in, to be replaced by the renminbi or yuan.

China already allows some business to be conducted on a regional basis in its own currency, and that is an experiment to see the potential of expanding to do business in foreign currencies besides the U.S. dollar.

The other thing on the positive side, is it seems to show not only a desire to do business beyond the U.S. dollar, but also that the countries are increasingly confident in the currencies of each country.

JP Morgan (NYSE:JPM): China Imports Falling

China Trade Deficit

JP Morgan (NYSE:JPM) economist and chairman of China Equities and Commodities, Jing Ulrich, said in a research note that even though China just experienced its first monthly trade deficit in six years in March, fixed asset investment on the domestic will decline, and that will bring things back into balance.

Assuming developed economies start to rebound in 2010, that should result in growing exports for China as well, bringing back a trade surplus to them.

Concerning floating the renminbi, Ulrich said, "The pace of China's export recovery and dynamics of imported inflation will shape the country's approach towards currency valuation. A return to the policy of gradual RMB appreciation would allow China to mitigate imported inflation and promote domestic consumption by boosting household purchasing power in local currency terms."

The March Chinese trade deficit was a reported $7.24 billion.

China Ready to Revalue Renminbi?

China about to revalue renminbi?

Rumors on the street are China is close to announcing they are ready to revalue their currency, although we shouldn't expect much of a move there, and if the rumors are true, it will be a relatively small increase in value in the renminbi.

What is expected is a very quick but low revaluing of the Chinese currency, probably to placate politicians in the U.S., who for the most part, are clueless over it all, but are pressuring the Chinese from a populist position.

Concerns over speculators entering the market will evidently be handled by the Chinese saying the renminbi can just as easily be lowered in value as increased in value, as they want to keep the possible huge influx of investment that could come into China from assuming an inevitable upward climb in value which could hurt the country.