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-- Posted Tuesday, 14 July 2009 | Digg This Article | | Source: GoldSeek.com
US Treasury Secretary Timothy Geithner arrives in the Persian Gulf this week to reassure Arab states that their dollar assets are safe. Yet he will find himself largely preaching to the converted. Arab central bankers are pragmatic folk, and the first question they ask about abandoning the dollar is what is the alternative. It is a fair point. Alternative assets Saudi Arabia has massive gold reserves. The UAE chooses to have none. There is an element of diversification into currencies like the euro, yen and pound in foreign reserves, but the major diversification is achieved in the sovereign wealth funds whose assets are broadly spread geographically. It has to be said that short-term thinking often seems to predominate in Gulf banking circles and this again favors the dollar. The short-term horizon has the dollar as a safe haven asset whose strength was well proven in the financial crash of last autumn. Indeed, in any further financial crisis – such as an end to Wall Street’s current secular bear market rally – then the dollar would strengthen further as stocks are turned into cash and bonds. The problems lie further out. The US Government is going to have to borrow massive amounts of money to finance its public spending and trade deficits, and is already effectively printing money through its quantitative easing process. All the history of monetary policy dictates that a higher volume of money in circulation must eventually result in inflation and devaluation of a currency. If you hold this money then you will lose out, big time. Double-talking Mr. Geithner has to argue that black is actually white, and do it with a straight face. He will be closely listened to in the Arab World where personal relationships and judging individuals is often given more attention that facts, figures and analysis. Of course, Arab countries have political agendas for supporting US monetary policy as well as purely economic objectives. The holder of the world’s reserve currency also holds a monopoly on military power. However, it is more than that. If the Gulf States exchanged their dollars they would produce a devaluation of the US currency that would damage the value of their dollar assets that could not be so quickly liquidated. Perhaps if we are all in the same boat nobody is going to pull the plug, but the problem is that it is sinking anyway. Quietly transferring more money into gold and silver would make obvious sense. Gold Guru Jim Sinclair Sees November Crisis for US Dollar This is a rare interview on South African television yesterday featuring the gold uber-guru Jim Sinclair who is offering a $1 million bet that gold will reach $1,650 by January 14th 2011. Here he explains the reason for his confidence in making this wager. He also predicts that November 4-27th this year will bring a severe challenge for the US dollar. Gold is a perfect currency and the safest of safe havens with no liability or nationality, he suggests. Mr. Sinclair could well be proven right again in his November dollar crisis prediction. This TV interview does not go into his reasoning so we can only speculate on his logic. However, let us say that the US stock market is being set up for another October crash with too much optimism about the non-recovery. When that crash happens the dollar will have a final rally as stocks are cashed out and bond prices will rise. But what happens then? Surely the next call for traders will be to exit bonds and the US dollar which will have peaked, and be very vulnerable to inflation and devaluation from emergency stimulus packages. And where will investors then put their money? Precious metals will be the only store of value left as a safe haven. That could well drive gold to $1,650 by 2011 and substantially higher by the current year-end.
-- Posted Tuesday, 14 July 2009 | Digg This Article | Source: GoldSeek.com
Previous Articles by Peter Cooper
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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US Dollar Not Dead yet As Geithner Visits the Gulf; Plus Jim Sinclair Interview
