Gold News

Gold vs. Goldman Sachs & the Dollar

Forget what Goldman Sachs thinks; the Gold Price is not yet discounting the death of the Dollar...

believes the Gold Price has come up too far, too quickly. This week it forecast a 15-20% setback, driven by a bounce in the US Dollar.

   But making money in the foreign exchange markets is not solely about watching exchange rates.

   It is about values, smooth flowing of international trade, about trust and reliability. And the sight of the US Dollar falling over a long period of time, with bounces and recoveries that don't change the downward trend, is far more than simply a drop in value!

   The Dollar is steadily weakening, undermining much besides the Dollar's international value. The loss of confidence in the US currency – and with it, the broader financial system – is accelerating every time the USD slips one or more percent on a persistent basis, with small and short-term recoveries only coming in the midst of this decline.

   How important is this loss of confidence? It's critical, we believe here at the, for it precedes policies which will – long-term – only lessen the role of the Dollar as one of the world's top 5 currencies.

   Growing Dollar surplus holders don't want to dump the greenback for fear of losing value in the remaining notes held in their portfolio. But don't think that a dumping of the Dollar is what it will take to remove it from the position of principal global currency. Everyone realizes that it is knowledge of the declining value of the Dollar that will bring on a major toppling of the US currency. So it is a choice of a steady "controlled" fall or a steep decline to disaster.

   To get perspective on the global scene, ask yourself what is the thinking out there.

China & East Asia

China's premier, Wen Jiabao has expressed concern at the decline in the Dollar, of which they hold $1,430 billion – a total still growing by the day. He said it was becoming difficult to manage these reserves while their value was under unprecedented pressure. China has stockpiled $700bn worth of foreign currency, and has only to decide to slow its accumulation of the US Dollar to weaken the currency further.

   Yes, Europe is now China's top customer, so it is acquiring the Euro at a rapid pace too. But it has to lower the Dollar's presence in Beijing's reserves nevertheless. So, what can the People's Bank do?

   All they can do is to speed up spending their Dollars on physical assets, other currencies, and whatever else they can lay hand on – and buy them as quickly as possible. The warning from Premier Wen was reinforced by a Chinese central bank vice-director, Xu Jian, who said the Dollar was "losing its status as the world currency."

   South Korea's central bank, meantime, has urged shipbuilders to issue invoices in the local currency and take precautions against the weakened Dollar.

The Middle East:

Kuwait cited imported inflation as the reason for its decision to drop the Dinar's peg to the US Dollar. The Dinar has gained 4.76% since May, when the central bank switched to tracking a basket of currencies instead.

   The Saudi Riyal has also risen, hitting a 20-year high after the US Fed cut rates on Sept. 18th and the Saudi Arabian Monetary Agency chose not to follow. This appreciation of the Riyal also came just after the United Arab Emirate openly questioned its currency peg to the Dollar.

   Saudi Arabia may be considering its first revaluation in 21 years to help bridge a divide with oil-producing neighbors worried about their own Dollar pegs. UAE central bank governor Sultan Nasser al-Suweidi said last week he was under growing social and economic pressure to follow Kuwait's lead, although he would only act in concert with Saudi Arabia and three other states currently preparing for an pan-Arabian monetary union.

   Contracts to buy 12-months futures in the UAE currency, the Dirham, rose at the fastest pace in at least 10 years this week after al-Suwaidi's comments, trading at a 2.5% premium to the spot price. Local businesses are complaining about rising costs, and migrant construction workers rioted in Dubai this month to demand a pay rise to compensate for the value of their savings lost to the US Dollar's slide.

   The UAE economy ministry has said exchange-rate reform would be one of the ways of containing inflation driven by the Dollar's slide, which is making some imports more expensive. Meanwhile the Opec oil cartel's $6 billion development fund is hedging its exposure to the weakening Dollar, said director-general Suleiman Jasir al-Herbish this week. Last month the central bank of Iraq, four years after the United States invaded, stated that it wishes to diversify its reserves from their current reliance on the US Dollar.

Other Opec Nations:
Venezuela has backed an Iranian proposal to add the group's concern over the falling Dollar to a summit declaration to be made today (Nov. 30th). Saudi Arabian foreign minister Prince Saud Al-Faisal said that no mention of the Dollar should be made in the declaration, because he didn't want the US currency to "collapse".

   Nigerian Finance Minister Shamsudeen Usman said last Friday that his country's laws have been changed to allow it to diversify its foreign reserves out of the Dollar. Angola may shift its international reserves away from the Dollar too, says finance minister Jose Pedro de Morais. The Southern African state has $10.2 billion of foreign-currency reserves. De Morais said around 80% of the reserves are in the US Dollar.

   Three of the world's biggest oil exporters – Iran, Venezuela, and Russia – are now demanding payment in the Euro rather than in the Dollar. Iran insists that Japan should make all its payments for oil in Yen, rather than in the Dollar.

A Long List of Dollar-Owners Nearing Crisis Point

   Consider the pressures now mounting on the US Dollar's 62-year reign as the world's main international currency for trade, financial transactions and central-bank reserves. Is it not clear that this reign – begun when Gold Bullion was replaced by the Dollar – is nearing its end?

   Unless something is done to give real value back to the Dollar, we believe that the process will only to accelerate, rupturing the global monetary system and bringing a wave of protectionist politics to the large trading blocs, exacerbating political and economic instability worldwide.

   We see this rising wave of concern moving forward to a major crisis. Any calming of the situation will cause a short-term strengthening of the Dollar to be followed by steeper declines.

   And on the back of this – whichever alternative form of paper money Opec, China and the rest of the world demand – confidence in the precious metal markets, particularly in the silver and Gold Market, will climb as a counter to the decline of the Dollar.

For the entire report, please subscribe to the here...

JULIAN PHILLIPS – one half of the highly respected team at – began his career in the financial markets back in 1970, when he left the British Army after serving as an Officer in the Light Infantry in Malaya, Mauritius, and Belfast.

First he worked in Timber Management and then joined the London Stock Exchange, qualifying as a member and specializing from the beginning in currencies, gold and the "Dollar Premium". On moving to South Africa, Julian was appointed a macro-economist for the Electricity Supply Commission – guiding currency decisions on the multi-billion foreign Loan Portfolio – before joining Chase Manhattan and the UK Merchant Bank, Hill Samuel, in Johannesburg.

There he specialized in gold, before moving to Capetown, where he established the Fund Management department of the Board of Executors. Julian returned to the "Gold World" over two years ago, contributing his exceptional experience and insights to Global Watch: The Gold Forecaster.

Legal Notice/Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster/Julian D.W. Phillips have based this document on information obtained from sources they believe to be reliable but which it has not independently verified; they make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster/Julian D.W. Phillips only and are subject to change without notice. They assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, they assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this report.

See full archive of Julian Phillips.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn



Market Fundamentals