-- Posted Thursday, 23 April 2009 | Digg This Article | | Source: GoldSeek.com

Since the Chinese put a new global reserve currency on the table at the G20 summit which created $250 billion in new IMF Special Drawing Rights, discussion of the new currency has increased, and the logic of putting precious metals into this basket is clear.

Gold and silver have been used as money for several millennia because even the most artful alchemist has failed to find a way to manufacture precious metals. Over recent century’s fiat or paper money collapses have always been followed by a reversion to gold and silver, why should it be different this time?

Money supply inflation

Global governments are expanding money supply as though there is no tomorrow. Only yesterday the British Government unveiled plans to borrow more in the next two years than in the previous 300 years of its history, including two world wars and the creation of the welfare state.

It is clear that a day of reckoning is coming for the fiat or paper currencies of the world whose governments have lost all reason in their desperate pursuit of a magic bullet to solve the global financial crisis. Printing money is the last resort of bankrupt governments.

If we go back to the South Sea Bubble of the early 1700s in France then there is the first example of modern times, with paper replacing gold until a mammoth inflation sent the government scurrying back to precious metals. The revolution came later.

Or in ancient times the Roman emperor Nero debased the currency and so did his successors and with it fell the Roman Empire.

But an orderly exchange of fiat currency for precious metals is perfectly possible, and the Chinese proposals for a new reserve currency have suggested using the commodities model suggested by Keynes in the 30s.

Stiglitz support

Nobel Prize winner Joseph Stiglitz is the latest economist to back a new global reserve currency, although he does not detail a role for gold and silver.

However, precious metals should be at the heart of a new global currency, partly to give it credibility as something really different to combining several paper currencies, and also because of the discipline of a fixed supply of precious metals that will stop governments from devaluing and inflating away people’s money.

Will this happen as a result of informed debate? Probably not, the historical precedent is for a crisis followed by a reversion to gold and silver at prices far higher than those seen before the crisis.

Dubai gold storage facility opens

The new gold vaults under the headquarters of the Dubai Multi Commodities Centre will open on Sunday as the City of Gold ups its bid as a regional centre for the burgeoning investment interest in the yellow metal.

The DMCC is a free zone for commodities trading in which companies pay no taxation, and the new vault is intended for both short and long term storage of precious metals and other high-value products.

Safe haven

This capitalizes on the UAE’s reputation as a safe haven with stable politics, economics and geology as Dubai is away from the earthquake zone.

Investors are also increasingly looking to move their real assets away from established financial centers for fear of seizure in times of economic emergency. The owning of gold was made illegal and deposits confiscated in the USA in the 1930s, and investors were left empty handed as the price of gold took off.

Offshore investors are also worried about growing moves by advanced countries to rob them of their traditional right of secrecy in tax havens. Again geographic diversification to new locations is a logical response.

Dubai is already one of the world’s biggest centers for trading gold and handles a throughput of around a fifth of global annual gold production. Most recently the DMCC has launched a gold exchange traded fund to capitalize on this status, but trading has been in very limited volume thus far.

The new vault is open to local and international banks as well as investment companies, and features the very latest in security equipment and inventory monitoring.

Investment products

This leaves open the possibility of creating new investment products for high net worth and institutions that wish to hold gold in a safe location not linked to traditional global financial centers.

Dubai has a long history of providing advanced infrastructure for new business and financial opportunities, and the opening of the new storage vaults for precious metals seems to be yet another example.

Now what the DMCC needs is a spike in gold and silver prices as paper currencies come under pressure from surging global money supply, and Dubai will have another success story to tell.

-- Posted Thursday, 23 April 2009 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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