Oil and Dollar Could Part Ways
The downward spiral of the US Dollar has reached near terminal velocity with the news that oil purchases worldwide will no longer be denominated in dollars but instead in a virtual cornucopia of currencies as well as gold. This news came as the Chinese were being asked to strengthen their currency and as the Russian government, along with the Chinese, the Indians, and many in the Persian Gulf had been trying to knock the US Dollar from its perch as world reserve currency. This struggle has been going on for years, but has really heated up in the wake of the world economic recession and the fears that were created by US debt and its relative economic health. There is no doubt that a shift away from US denominated oil contracts will negatively affect those holding US Dollars, but the affect it will likely have on the US economy as a whole will likely be staggering.
To say that the US Dollar has been a pillar of world economic security and certainty for the past 50 years would be an understatement. But that position of power and integrity has slowly shifted in the past couple of decades and a culmination of debt crises and economic imbalance has put the dollar’s future at risk. The shift away from dollars could in fact create a new world reserve currency, and, in it’s wake, push gold and other inflation and uncertainty hedging commodities upwards rather quickly.
The news that the dollar may be doomed has already created a virtual feeding frenzy worldwide for gold and other precious metals. It is likely that whenever the shift occurs, and whatever shape it takes, precious metals may very well be the only safe bet in town. The inclusion of gold into the oil trading platform shows that no matter which economy is doing the trading, they all feel that gold, as a store of wealth, and as a very rudimentary form of currency, is here to stay. This has been the case for thousands of years, but only recently have many people realized the importance of the yellow metal.
The fact that oil will no longer be traded with US Dollars will also likely create a real market for the commodity in the US. The possibility is also quite high that a new, secondary market will be created in which US Dollars will be traded for the basket of currencies that oil would be denominated in. A sort of oil trading index could be created in which US Dollars could perform against. This new investment vehicle could further hasten the decline of the dollar and create even more of a vacuum for a new world reserve currency.
Taking note of history, both ancient and modern, investors around the world would do well investing in precious metals at this time. Those who have a dollar heavy position should liquidate as soon as possible as the next decade holds nothing but more downward motion for the dollar, barring any sort of major economic shakeup or global meltdown.
