The Latest and Greatest Dollar Rumor

A rumor, based on conspiracy, wrapped up in presumption… that’s all it takes to get markets moving these days. And it’s why your gold investments just hit a historic high:

Gold Spot Price

A global consortium of European, Middle Eastern and Asian nations are plotting to stop using the U.S. dollar to trade oil, says the U.K.’s The Independent.

The paper — which has captured the attention of essentially every financial news outlet — claims that “Gulf Arabs are planning — along with China, Russia, Japan and France — to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Cooperation Council (GCC), including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.”

Quite a mouthful, eh? According to the Independent’s “Gulf Arab and Chinese banking sources,” secret meetings between all these nations are already well under way and a potential transition out of the dollar is viable “within nine years.”

Of course, every government mentioned has dismissed the report, but some damage has already been done. The dollar index sank almost a point, to 76.2, just above its yearly low. And gold, as we illustrated above, found a new record high. But is this story for real?

“At first sight, such a move looks highly unlikely,” says Peter Cooper, one of our contacts in the UAE, who also just happened to be giving a citywide tour of Dubai to Addison Wiggin and Chris Mayer today. “The Gulf Arab countries are staunch allies of the United States and dependent on the U.S. for military protection in their volatile region… It is far more likely that such rumors, if they are true, are more a question of policymakers mulling over policy options.

“The gold price jumped on the publication of this article, but it will need to be better supported by official statements to be treated with credence. On the other hand, it does underline how parlous the state of global confidence has become over the future of the U.S. dollar and highlight a possible solution, although one that risks causing more damage than it cures.”

“These rumors are especially interesting,” adds Addison, “because they presuppose a unified position among GCC nations. Independently of this story, we learned yesterday at a press conference hosted by Standard Chartered Bank of England that these countries don’t necessarily agree with one another.

“The Saudis, Kuwaitis, Qataris and Emeratis have been trying to create a euro-style unified currency in the Gulf region. But they can’t agree on who would be the leading party, how the currency would be weighted or even what to call it. It’s a huge assumption that the GCC could get this currency off the ground in the near future… an even bigger presumption that these nations could agree on a strategy for replacing the dollar pricing of oil.

“Of course, it’s possible — stranger things have happened. But at this point, it’s a long shot. And it’s no strange wonder that the rumor floated on the first day of the IMF meeting in Turkey today. The main subject under discussion at the meeting will be viable alternatives for the trillions in dollar reserves held by the Gulf States and BRIC nations…”