Gold Hits Record High on 'Plan' to Ditch Dollar
By Staff News & Analysis - October 07, 2009

The price of gold struck an all-time high at 1,038.65 dollars an ounce here on Tuesday as the dollar fell on a reported plan by Gulf states to stop using the greenback for oil trading. Gold reached the level in late afternoon trade on the London Bullion Market, beating the previous record high of 1,032.70 dollars an ounce struck in March, 2008. "Gold prices hit an all-time high as the dollar weakens," said Barclays Capital precious metals analyst Suki Cooper. "The dollar weakness appears to be related to … (reported) secret talks about oil being priced in a basket of currencies including gold rather than the dollar, which has added to concerns about the future role of the dollar in international financial markets."The dollar's future as the world's top currency was thrown into doubt on Tuesday as a report said Arab states had launched secret moves with China and Russia to stop using the greenback for oil trading. – AFP

Dominant Social Theme: Markets roil?

Free-Market Analysis: This story is related to the other one in today's Bell. Supposedly gold has moved up because the dollar is being threatened by a basket of currencies being developed by Saudi Arabia, Russia and some other countries, mainly in the Middle East.

China is supposed to be one of these countries but China holds close to US$1 trillion and we wonder how enthusiastic China really is about dinging the dollar. Japan too, the world's second largest economy, holds nearly a trillion (US) as well. We don't see much mention of Japan anywhere, though.

And what about Saudi Arabia? This is a state that likely would not exist without America and American oil companies, certainly not in its present form, Saudi Arabia in our humble opinion is an ideal example of a vassal or client state.

The idea that Saudi Arabia is a lynchpin in an anti-dollar revolt is questionable indeed. We figure a lot of Saudi Arabia's investments are in dollars; the country does business with big American oil companies in dollars – the idea of Saudi Arabia leading a currency revolt is just plain strange.

Then there is the complexity of the system being discussed, as we pointed out in the other article in today's Bell. It will take nine years to get off the ground, if it ever does, and it sounds most cumbersome given the amount currencies and commodities that will be included In the "basket."

After Thoughts

What is most telling about all this is that gold continues to climb. Analysts are claiming that gold is going up because faith in the dollar is in short supply. Well, that's true. But we are in a gold bull market, and our take is that gold will go up regardless until the trend reverses. And we figure that could be about five years from now. There are so many distortions built into the global economy that unwinding them will inevitably, in our opinion, emphasize gold's safe-haven characteristics.

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