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January 19, 2015

Rare Metals: China and Russia Teaming Up Against The U.S.?

By Rich Checkan for Wall Street Daily
As an investor, it’s not your job to change how the United States handles foreign policy, even though you might want to. It is, however, your duty to understand how global conditions move the price of various assets so you can affect the things you can control.
Recent events have made it clear that China and Russia are teaming up for an economic war that’ll cause major currency volatility and higher prices on certain commodities.
One of the main asset classes affected by all this news is rare strategic metals, a group of elements used in 95% of all products manufactured today, including everything from cellphones to jet engines and medicines to clothes.
Understanding the rare strategic metals market could be just the ticket for the investor looking to get ahead of the market.
Teaming up Against the United States
As the world’s economies chug along, the high demand for rare metals is causing prices to steadily increase. Unfortunately, there’s also a tight supply. Because production of strategic metals is environmentally damaging, and China’s pollution standards are lower than those in the West, China controls approximately 90% of the current availability. And in the last few years, they’ve squeezed supply several times.
Even though Miao Wei, the Chinese Minister of Industry and Information Technology, told the Xinhua News Agency its policy on exports doesn’t target any specific country, there’s reason for concern.
With such a powerful tool at their fingertips, it’s likely they’ll use supply control in an economic war with the West. In fact, the United States, European Union, and Japan have already complained to the World Trade Organization about unfair price controls.
You see, in the past China relied on the United States as a major metals buyer, but that strength is fading. China has finally surpassed the United States in GDP, and thus won’t be so dependent on America as a customer.
Plus, Russia and China are now allied in a way that could throw a massive wrench in the United States’ ability to secure the metals needed for both military and civilian applications.
It’s no longer a secret that China and Russia are powerful allies, thanks to the recent signing of a new natural gas deal between the two countries.
China has also just created a new organization called the Association of China Rare Earth Industry, which has far-reaching control over which countries mines can sell to, how much metal they can release, and other quotas.
The problem with these two countries rubbing elbows is they both share the same disdainful opinion of the United States. And the power to achieve their ultimate goal, unseating the U.S. dollar as the world’s reserve currency.
Dollar in Peril
In a public speech, Putin recently said the United States is, “…living like parasites off the global economy and their monopoly of the dollar.” Not exactly a friendly attitude.
According to financial analyst Kevin Freemen, who was hired by the Pentagon to investigate the 2008 recession, Russia and China do have the power to cripple the U.S. financial system. He told TheBlaze, “Russia is preparing to fight World War III by attacking the U.S. dollar.”
Indeed, Sergei Glazev, the Kremlin’s economic aide, backs up Freeman’s opinion. He commented that if the United States imposes sanctions on Russia, it would end in a crash of the U.S. financial system.
In the same way, China hasn’t been shy about admitting its wish to take down the dollar as the world’s reserve currency either. It’s mounting an assault by loosening control and internationalizing the yuan (also known as the renminbi) to compete with the dollar.
If other countries join the movement, which Singapore and England already have, it’ll devastate the U.S. dollar.
But, rare strategic metals can offer many investors a way out of fiat currency into solid, inflation-proof assets.
Currency Volatility Is Almost Certain
Inflation means a currency’s value is decreasing, not necessarily that the value of assets or services are increasing. Therefore, because strategic metals are a solid industrial asset, their price automatically increases with inflation, acting as a tremendous hedge against currency volatility.
However, since these metals are growing in importance and getting harder to acquire, partially due to the reasons stated above, the law of supply and demand dictates their value will increase even faster than the inflation rate, turning into profits.
The potential crippling of the U.S. dollar and China’s monopolistic control over rare strategic metals will lead to enormous price increases for rare strategic metals.
Russia and China may not be successful in their ploy to collapse the U.S. financial system. However, they’re certainly poised to disrupt the value of the dollar.
The relationship between China and Russia is just one of the driving forces making strategic metals a powerful wealth preservation tool.
But, it’s not an instrument for every investor. All you can do is watch what’s happening in the world and choose the right asset protection plan for any crisis thrust in your direction. 
Courtesy Rich Checkan, President and COO of Asset Strategies International via Wall Street Daily (EconMatters article archive Here)   
The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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