Posted on 11/20/2005 6:01:11 AM PST by wotan
Gold, Blood and Petrodollar Defectors
There's China landing long-term oil contracts with Saudi Arabia, Venezuela, and Nigeria after its own oil production couldn't keep up with domestic demand for the first time in the nation's 5,000-year history.
There's India looking for a dependable oil pipeline of its own. That's literally and figuratively speaking: Talks are underway for the creation of an historic Iran/India oil pipeline.
There's an emerging Arab/South American geopolitical axis. In it, Saudi Arabia, Kuwait, Iraq, the United Arab Emirates, Algeria, Egypt, Qatar, Libya, Oman, Syria, Yemen, Venezuela, Ecuador, Argentina and Brazil pump about 32.5% of global oil production each day. Needless to say, this is an axis not overly friendly to the U.S.
Nations all over the world, in fact, are jockeying for position in the increasingly dramatic oil derby, made all the more suspenseful by the burgeoning Asian consumer nations, the question of whether oil has peaked or not, the ready-to-detonate Middle East, and the direction U.S. military leaders are now looking.
Conspicuously underlying all of this jockeying is the question of the petrodollar. Namely, how can nervous nations, anxious over the dollar's weakened condition, convert with relative impunity from petrodollars to petroeuros? Or petrodinars?
Or to a petro-anything-but-the-dollar system?
There's that much concern about our good, old American greenback.
It's not a hatred for the U.S., as disturbingly strong as it now is worldwide, that's fueling this petrodollar discontent. Many nations simply agree with Jean-Philippe Cotis from The Organisation for Economic Co-operation and Development (OECD) who recently warned:
"Were not saying there will be doomsday tomorrow morning ... but because the adjustments (to global imbalances) are relatively slow, we are running the risk an accident will happen. That's where we are. Time is running out-the numbers are getting big, big, big."
He's referring to America's record twin deficits and the fact that a cheaper dollar has had no effect whatsoever on reducing these deficits. Predicting U.S. balance of payment deficits may climb to nearly $900 billion in 2006, the OCED warned that a debt this size would need an inflow of more than $2.5 billion per day from the rest of the world (up from an estimated $2 billion per day).
Signs are arising that the rest of the world is getting tired of cooperating. Dollar defection, a once unthinkable subject, is now on the lips of oil producers. Iraq (before the war), Iran, Russia, Indonesia and many other Islamic nations, for instance, have either started pricing oil in an alternative currency or else are seriously considering doing so.
Which, many analysts believe, has effectively put America on the defensive. And may well have greased the skids for our involvement in Iraq. Not that other, more pressing reasons haven't been hammered home to us. But tucked amid the highly publicized WMD worries and the several War on Terror issues was this little story left entirely alone by the media: Two months after the start of the war, on June 5th of 2003, Iraqi oil was switched back to being dollar-denominated (after Hussein had switched to petroeuros in 2001).
Could Hussein's in-your-face challenge to the petrodollar supremacy have been among the reasons we went to war? Was it important for the U.S. to make an example of this petrodollar defector before others chose defection, too?
Probably the more important question is, could Iran's plans to start an independent oil bourse in 2006 "encourage" a brand new round of military action?
What is an oil bourse? It's like a stock exchange for oil. There's two major ones in the world already: London's International Petroleum Exchange (IPE) and the New York Mercantile Exchange (NYMEX).
Along with Iranian plans to start a third oil bourse in early 2006, what may be most disturbing to the petrodollar establishment is the likely intention of Iran to also, according to William Clark, "usher in a fourth crude oil marker - denominated in the euro currency. From a purely economic and monetary perspective, a petroeuro system is a logical development given that the European Union imports more oil from OPEC producers than does the U.S."
Clark, who has an upcoming book on the subject, Petrodollar Warfare, went on to say…
"One of the Federal Reserves' nightmares may begin to unfold in 2005 or 2006, when it appears international buyers will have a choice of buying a barrel of oil for $50 dollars on the NYMEX and IPR… or purchase a barrel of oil for E37 - E40 (37 to 40 euros) via the Iranian Bourse.
"A successful Iranian Bourse would solidify the petroeuro as an alternative oil-transaction currency, and thereby end the petrodollar's status as the monopoly currency."
Does that mean Iran will be made an example, too? Is war with Iran inevitable, notwithstanding the euros recent weakness? Seymour Hersh and Scott Ritter, at least, believe it's right around the corner. Both the veteran investigative journalist (in the January 24th New Yorker) and the former weapons inspector (in a February 18th talk) maintain that the decision has already been made and the planning already begun.
Further evidence of petrodollar defection is found in the Middle East. Within five years, the six Gulf Cooperation Council (GCC) countries are expected to issue their own currency.
This Gulf dinar or riyal, as it is expected to be called, will rank right up there with the dollar and euro in global significance according to one study…even as it manages to dilute both.
The Arab News recently reported, "Once established, the GCC leadership may decide to invoice their hydrocarbon sales in the new common currency, moving away from the current dollar pricing system. It could also become the reserve currency of choice for Islamic and Arab central banks for a combination of religious and political reasons."
Perhaps anticipating the new currency would be born amid petrodollar chaos, the Gulf Research Center and GCC recently sponsored a lecture by Dr. Ferdinand Lips titled, "Oil for gold or oil for paper?" Lips, the author of "Gold wars: The battle against sound money as seen from a Swiss perspective," was making a case for the GCC's new currency to be pegged to gold and not to currencies.
"The lecture, attended by prominent members of the banking and finance industry, dealt with how currencies, investments and every crucial economic factor in the GCC countries are dependent on the US dollar, which shows increasing signs of structural weakness," the Arab News reported.
Dr. Lips was quoted as saying, "Being in the midst of a global currency devaluation scenario, it is worth noting that while oil is the king of commodities, gold is the king of money." He said the GCC banks should set aside a certain percentage of their reserves in gold, along the lines of the European Central Bank's mandatory 15 percent gold reserves rule.
Lips added, "Gold is the insurance policy…when the rest of the world will go down on the paper money system..."
This is one insurance policy we should all have. Especially in light of what appears to be directly down the road. With deficits eager to set more records, a declining dollar, a growing list of petrodollar defectors, and more desperate petrodollar conflicts seemingly ahead, the time looks right to peg your investment strategy on what Dr. Lips accurately calls "The king of money."
Kevin DeMeritt
www.goldcentral.com
June 6, 2005
Correct me if I'm wrong, but nobody produced oil for the first 4,800 years of that history.
This is an ad to buy gold.
Also, Peak Oil is a myth. There might be some minor inconveiences if there is a shortage, but the free market will adjust consumer behavior.
Everyone rushed out to invest in gold in the late 70's and early 80's as a hedge against inflation. Correct me if I'm wrong but wasn't the peak price somewhere close to $900.00?
Wasn't the same scenario about foreign oil and escalating prices a reason given for investing in gold then?
Then the bottom dropped out of the gold price and a LOT of people got shafted when the price dropped to the $300.00 range, if not lower.
The speculators mad a lot of money, the average investor lost a bunch.
Now the same "buy gold now" promotions are rolling the next generation of investors. Beware!
The speculators mad a lot of money, the average investor lost a bunch.
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>...........
"Mad a lot of money"? Any investment has a few winners and alot of loosers or we would all be rich..internet bubble in stocks some got out at top and are rich- most bought high and sold low or went broke. You can make money in Gold but the risk is there, High risk High reward. Disclosure:I own some gold but a very small % of my investments are there.
Oops...... typos. darn fingers anyhow... LOL
If you bought in at $300.00 gold you are fairly safe. Over that level and the averages seem extremely risky.
I doubt if long term averages keep pace with inflation.
In this world today...... I think lead is a better investment.
A "minor shortage" in Japan in the late 1930s helped to lead to WW2.
It hit about $850 in Jan of 1980. If Carter had been re-elected who knows how high it could have gone? Wasn't the same scenario about foreign oil and escalating prices a reason given for investing in gold then?
Yes, well that and double digit inflation, very high interest rates. Some of that brought on by surging oil prices.
Then the bottom dropped out of the gold price and a LOT of people got shafted when the price dropped to the $300.00 range, if not lower.
And your point is? Oil and gold are commodities and speculating in them can both make you a lot of money and lose you a lot of money. (Well some curmudgeons insist that gold *IS* money...). You choose to focus on the downside. What about the up side? If you bought gold in March of 1976 when it was at $103 an oz you could have made a huge killing by selling at the top of the market. A 8X play in four years is great by any standard. Conversely if you bought at $800 and held you missed a lot of other opportunities and *still* haven't seen the high reappear.
The speculators mad a lot of money, the average investor lost a bunch.
OK. Well define your terms. Anyone who is buying Gold to hold for a while and sell at a higher price is a speculator. It's not like you are investing to help a company grow. There is nothing inherent in this run (the 76 to 80 bull) that worked against small guys. The gold market is fairly transparent. It would have been easy to say circa 1976 "I'll buy gold as a hedge against all this inflation I keep hearing about". With only some basic common sense you might have easily got out of you position at $200, or $300 or $600 or even timed it perfect and hit $850.
Now the same "buy gold now" promotions are rolling the next generation of investors. Beware!
Again, Huh? Gold **HAS** been a great investment this year. People who listened to the "buy gold" propaganda are up 20%. Thats more than S&P, Dow and NASDAQ. Now the question is "buy, hold or sell". Personally I'm holding. I see more inflation, more dollars and thus a higher price for gold.
I think gold is medium or even low risk. It's never gone to ZERO and likely never will. Compare that with stocks. Someone asked me once whether gold would have been a better investment then RCA over the long term. I tried to find out but it was hard, RCA was bought and sold a few times. It's not easy to know if or how much you would have made. And of course for every stock that was on the NYSE in 1920 and is still traded (in some form) there are 10 that are gone.
Gold is a good way to move wealth between generations. If your grandfather put $1 Million in $20 dollar bills in a box for you in 1920 it would still be worth a million dollars. If he had taken that same amount in gold it would be worth $24.5 million.
And very low risk. There has been no string of "professional managers" responsible for your wealth.
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