Down Goes The Dollar
LONDON (Reuters) - Gold hit a record high at $1,036.40 an ounce as the dollar dropped on a report, later denied, that Gulf Arab states were considering abandoning the U.S. currency for oil trade.
A positive technical picture for gold fueled buying on the fund side, traders said. However, the weight of near-record long positions in New York gold futures still leaves the market vulnerable to correction.
Spot gold was bid at $1,032.05 an ounce at 1319 GMT (9:19 a.m. EDT) against $1,016.65 late on Monday.
U.S. gold futures also hit an all-time high, with gold futures for December delivery on the COMEX division of the New York Mercantile Exchange hitting a peak of $1,038.00 an ounce. They were later up $16.10 at $1,033.90.
"Investors (and) funds keep buying as the technical side looks good," said senior Commerzbank trader Michael Kempinski. "Even without the weak U.S. dollar, gold is performing quite well."
Gold also hit six-month highs when priced in sterling and euros, breaking above 700 euros an ounce for the first time since early April.
The dollar slipped sharply in Asian trade after UK newspaper the Independent said Gulf Arab states were in secret discussions to end the use of dollars in oil trading.
The newspaper said the states were in talks with Russia, China, Japan and France to replace the unit with a basket of currencies. The dollar pared losses after the report was denied by Saudi and Russian authorities, but stayed soft. (More at link above)
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The last part is the real nuts and bolts of the story, IMHO.
If other coutries are in "Secret Discussions" to drop the Dollar (in oil trading)... Sheesh...
If this comes about, then might it be the initial action of a domino effect?
And what of the certain inflation that coming our way... Todays news is unsettling to say the least.
Been telling people for over a year, if the US didn't do something about the dollar falling there'd be a price to pay. Bush insisted on devaluing the dollar so as to make American products cheap in order to stimulate foreign purchases. The problem is he let it get too cheap. A 5% to 10% lose wouldn't be that much, but at the moment it costs $1.47 for a euro and a dollar only get 68 euro cents. The net result is everyone outside the US is enjoying cheap gasoline because the US is subsidizing their purchases at a 32% discount on the exchange rate. What makes matter worst is because oil is pegged to the dollar and the dollar is so cheap, oil producing countries need to raise their prices to offset the dollar devaluation. So Bu$h's devalued dollar policy is coming home to roost when the oil producing nations move away from the dollar to another currency.
Here's an example of what to expect. In Germany, high grade gasoline, 94 octane, costs about 1.50 Euro per liter. There's 3.78 (approx) liters to a gallon. That's 5.67 Euro for a gallon or $8.34. Oh and that 1.50 euro liter of gas costs $2.21.
Guess how much it would cost if the dollar was equal to a euro? You'd buy 3.78 liters and pay 5.67 euros for a gallon, but that would only cost you $5.67. See the difference?
So if they do go off the dollar standard, the prices paid at the pumps in the summer of 2008 will seem cheap. Obama needs to stimulate the dollar, on top of the economy, on top of job creation. Bu$h and the republicans really screwed the public and if the price for gas shoots up to European levels we have no one else to blame but ourselves.
October 6, 2009 10:33 PM | Reply | Permalink
A lower dollar would be great. It would increase exports. It helps get us out of a deflationary cycle. It doesn't affect the Treasury's ability to borrow, as it is largely funded by the higher US savings rate.
I don't get the whole 'strong dollar' mantra.
October 7, 2009 9:41 AM | Reply | Permalink
You have to manufacture stuff to export stuff.
October 7, 2009 10:32 AM | Reply | Permalink
One of the reasons manufacturing is declining is the strong dollar policy - it's hard to compete when your costs are artificially inflated 20%.
October 7, 2009 10:46 AM | Reply | Permalink
This is a bigger event than most people can imagine. The rest of the world has rendered their judgment of the United States as a member of the community of nations. The world (minus Israel) has collectively decided that they will no longer fund America's wars because they themselves need those scarce resources and funding America's military works against their collective future.
The world has also decided to say out loud what all of us already know; the US economy no longer had a viable foundation. Manufacturing is gone. The money supply has been privatized. The press has been de-legitimized. etc etc etc
The verdict has been rendered.
October 7, 2009 10:31 AM | Reply | Permalink