Tuesday, April 03, 2012

Gold as World Currency Reserve

Gold as world currency reserve may seem, at this point, to be a bit far fetched but in fact it is closer than you think.

Over the past few decades the US dollar has somehow been positioned as the world reserve currency despite the fact that no one in the world voted on it being so. And if they had, would they have favoured the US dollar over any other currency. Right now no currency looks at all stable enough to be considered a world reserve currency least of all the US dollar.

This is beginning to be recognized by other countries now attempting to seek other methods of trade. The US government does not take too kindly having a replacement. Take Iraq for example. Back in 2000 Saddam Hussein stated he wanted to trade Iraq’s oil for Euros* and bypass the USD as a medium of exchange and we all know what happened a few short years later.

History is repeating itself now with Iran. Having been locked out of using the reserve currency by the denial of the Swift banking system**, Iran is now negotiating to trade with other currencies and, significantly, with gold. The US is now threatening other countries keen to do business with Iran. Bloomberg has reported that the US Obama administration is also threatening China, India and 10 other countries to cut down on their oil trades with Iran or face similar sanctions.***

If the SWIFT system is shut down to other countries then alternatives will be sought as no country is going to allow their trade to be stifled.

As currencies are so easy to manipulate it is very likely more and more countries will turn to gold as an exchange medium resulting in an effective gold as world currency reserve scenario emerging. This is evidenced by the fact that many countries are stockpiling gold and ordering the return of their gold from overseas storage. Asian countries, such as China, India, Korea and so forth, always having a traditional appreciation of gold, are actively accumulating gold at an increasing rate.

Take China for example. China is becoming increasingly anxious to divest itself of the billions of US dollars it has unwittingly accumulated and what better way to do that than with gold.

But it is not only in Asia that the writing is on the wall. In the US the big players are also buying gold. Buffett is pooh poohing gold, perhaps because he is so heavily invested in stocks, but George Soros, John Paulson and other heavyweights are buying up gold at express train speed.****

According to the Daily Reckoning, "The gold price has increased for 11 consecutive years — a time frame during which, coincidentally, it has trounced the investment return of Berkshire Hathaway. Why? Because a new era of monetary destruction is unfolding throughout the Western world. That’s why a growing number of investors are devoting a growing percentage of their investment portfolios to gold and other hard assets."

So the world is slowly moving to remove the US dollar. It is likely to be replaced by somethign that all countries can agree on and that is gold. Gold cannot be manipulated or printed. It retains its value even as currency does not. Faith and confidence in currency is eroding fast and the more currency that gets printed the bigger the debts become and the less value it retains.

Gold is money in the true sense of the world and those that buy gold will have value long after currency has done its dash and worth zero.
Gold will then be truly the world currency reserve.


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