Skip to comments.Morning Note: Gold Replacing Dollar as World’s Reserve Currency?
Posted on 03/28/2011 8:20:26 PM PDT by Tolerance Sucks Rocks
$105 per barrel oil. Cotton prices at record levels. Food prices at 2008 highs. Typically, such commodity price increases would send central banks running to the U.S. Dollar to secure the value of their savings. After all, the dollar has been the reserve currency since World War I.
But not this time.
Central banks are shedding dollars [DXC1 76.48 0.105 (+0.14%) ], reducing their holdings by about $9 billion in previous quarter, according to Nomura Securities Jens Nordvig, global head of G10 FX Strategy.
What are they buying instead? Gold [GCCV1 1417.40 -2.50 (-0.18%) ].
The yellow metal hit a fresh record high this morning, while the dollar index dropped to a 15-month low. The news had Fast Moneys Brian Kelly looking to add more gold and silver longs to his portfolio Thursday morning.
What is working is gold, silver [SICV1 36.90 -0.188 (-0.51%) ] and oil [CLCV1 103.37 -0.61 (-0.59%) ], said Kanundrum Capitals Kelly. I wish I had more.
Gold and silver have become the inflation hedges of choice for some investors. Gold hit an intra day high today of $1,448 per ounce. Silver is trading at 31-year highs, hitting an intra day high of $38 per ounce.
‘Food prices at 2008 highs’-
I stopped reading right there.
I wish food prices were at 2008 highs, I’d be paying less than I am now....
And what happens after the Islamists get a hold of Libya’s gold in storage? They will sell it and the price will go drastically down.
“Financial Times on March 21 cited data from the International Monetary Fund (IMF) that the Libya holds 143.8 tonnes of gold (see table), but some say the actual amount could be several tonnes higher.
Instead of vaults in London, York or Switzerland, Libyan bullion is in the country held by its central bank, which is under Gaddafis control. However, Financial Times noted some believe that the gold reserves may have been moved from the central bank in the capital, Tripoli, to another location such as the southern city of Sebha, close to the borders with Chad and Niger. “
Sell gold for what? Dollars? They don't want dollars.
Under Sharia, Islamic banking is gold-based. They will use the gold to set themselves up as one of many banking centers for the Islamic world. It will be the first step in demanding that customers for oil pay in gold, not dollars or euros.
This is precisely what the Arab oil producers did in the waning days of World War II, before the Bretton Woods agreement set up the dollar as the world's reserve currency backed by gold for non-domestic purposes. The dollar is failing, and this is about replacing a dying currency with gold.