Selling Dollars to Buy Gold
- Iran is buying lots of gold
- Wait…how did Iran get so many dollars?
- The beginning of the end? Or maybe more towards the middle…
What do I have in common with Iran?
Not much I suppose. But we’ve both been trading dollars for gold.
And Iran isn’t the only Middle Eastern nation trading dollars for gold. According to a recent Wikileaks cable, Jordan and Qatar have been loading up as well.
So this story has also been verified by Bank of England officials, according to a story in the Financial Times:
“Andrew Bailey, head of banking at the Bank of England, told an American official that the central bank had observed “significant moves by Iran to purchase gold”, according to a US diplomatic cable obtained by WikiLeaks and seen by the Financial Times.”
You might be wondering why Iran has so many dollars, and how it got them.
After all, Iran is a sworn enemy of the United States, and vice-versa, so where did they get these dollars?
The answer is simple. Iran is one of the 12 member states of OPEC. And while the United States actually buys most of its oil from Canada, all oil contracts are settled in dollars.
That’s gotta be a thorn in the side of countries like Iran, and Venezuela. These folks make no bones about hating America.
But I don’t think that trading in dollars for gold is done so purely out of spite.
Look at what happened the preceding 5 years before Iran allegedly began dumping dollars for gold:
I’d say that more Iran’s hatred for America probably only comes second to its hatred of watching its currency holdings fall by 25% in a five year span. Who can blame them, or any of the OPEC nations for ditching cash as fast as they can?
The dollar is losing its dominance. You can pull up a chart of the dollar index, like the one above, which compares the dollar to a basket of other currencies. Or you can pull up a chart of gold priced in dollars, or wheat, corn, coal, coffee, oil – almost anything. And the tape tells the tale. The dollar is losing value, and quickly.
The danger isn’t that Iran will keep buying gold. They can do that with Iranian Rials. The danger is that some of the most significant OPEC nations would love nothing more than to stop settling their oil contracts in dollars. They have the motive. All they need is the opportunity.
What’s a better opportunity than civil war throughout the Middle East? What better time to switch OPEC contract settlement to a currency that’s slated to increase in value, like the Chinese Yuan, or the Brazilian Real?
Those countries are growing. That’s where real oil consumption growth is going to be in the coming decades.
And with the dollar in free fall, I say it’s only a matter of time before something similar to an OPEC contract shakeup will happen. And then the dollar’s slide will only get worse.
Invest accordingly,
Kevin McElroy
Editor
Resource Prospector
