Gold futures hit an all time record high of $1,045 on Tuesday spurred on by a story in the London based Independent. The story stated that a cabal of Middle East oil producing nations along with China, Russia, Japan and France where conspiring to replace the dollar as the currency for crude oil.
The story caused the dollar to break and gold to rally though officials from several countries cited either denied the story or had no knowledge of the plan. Saudi Arabia’s central bank chief denied the assertions in a Bloomberg story.
The story plays on many peoples’ legitimate inflation fears and our trading partners worries over the dollar’s value. It claims there is a nine-year plan to replace the currency for crude oil from the dollar to “a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
While the likelihood such a conspiracy is real is doubtful, some folks would like it to be true and want to send a message as the concern over the valuation of our dollar is certainly real.
Phil Flynn put it well in this morning’s energy update: “Forget the conspiracy theories, the leaders of all of these counties have already spoken openly about the dollar. The truth is that the dollar is going to seal its own fate. If we keep printing money and don’t get our spending under control, it won’t matter if the U.S. currency is used or not used.”
Perhaps the best way to put it is that there was a reason why the dollar became the defacto world reserve currency, and if that changes it will be for a reason as well. The dollar’s rebound from its 2008 low in the midst of the global credit crisis shows that there was no better alternative. That may not always be the case.