Central Banks to Support US Dollar by Selling Gold

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Out of the dollar and into gold and oil, seems to be the response of the markets to Ben Bernanke’ slash and burn policy. There are even rumours that Saudi Arabia, unhappy with the weakening dollar, will unpeg its currency from the greenback. If this happens, it is truly “look at below” for the US dollar—which may buy you 87 cents of the local unit by the end of the day.

This raises one last point to think about this weekend. How does the European central bank support the dollar without cutting interest rates?
 
You might wonder why the ECB would want to support the dollar. The answer is that the strong euro could kill Europe’s economic growth—and with two-thirds of the world’s major economies on the edge of recession, this is worth considering.

It’s hard to imagine the European economy will do a rip-roaring trade with China and the US if the Euro goes to US$1.50 against the dollar. With China’s dollar peg…further euro strength hurts European trade in all directions. The dollar’s fall is Europe’s biggest problem.
 
Leaving aside the absurdity that everyone wants to have a weaker currency (competitive devaluations), one thing to watch for is an aggressive central bank campaign to sell gold in the coming weeks. What’s that you say? We’ve been eating too much mercury here at the Old Hat Factory in Elwood? Perhaps…

It MIGHT sound stupid, supporting the US dollar by selling gold. But the ECB is reluctant to cut rates and fuel inflation, although it floated that very idea this morning in the papers, and if the ECB does cut, gold could soon hit US$1000. If it chooses not to cut rates, however, the ECB could tack in another direction to prevent a further a growth killing slide in the dollar/appreciation in the euro: arrest the dollar price of gold.
 
A faltering gold price might take the edge off some of the current anti-dollar sentiment. It’s a bit of a contradiction because you’d think the dollar’s decline would accelerate the diversification of currency reserves, which is bullish for the euro, gold, and high-yielding commodity currencies like Australia’s.
 
But—while they’re busy selling US bonds—the world’s monetary mafia may want to create the impression that the US dollar has not already become a third world currency: and they can achieve that impression by selling gold. There are certain to be many buyers of gold today. But concerted and coordinated central bank selling is a definite trick in the bag of the money mafia. Let’s see if the play it.
 
Dan Denning
The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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Comments

  1. World economic order has at least since Nixon closed the gold window in 1971 been attemted regulated by central banks and not without some success, but the consequence that we have not been living in a free market.
    Not anyone unless stupid or insane are now believing in central banks.
    Restore order return to the goldstandard or experince economic collapse.

    Reply
  2. Incidentally, a fair number of my long-time colleagues in the USA, Canada and Australia/NZ, especially the highly educated technical types, are working overtime to learn French, German, Dutch or similar languages to emigrate and work in a place like Germany, Austria, France, the Netherlands, Belgium or Italy. Nobody’s going to the UK, their debt crisis is even worse than the USA and they’re right on the brink of collapse.

    But the Eurozone is where it’s at, at least as far as working in a tech field. You work fewer hours than in the USA (50 per wk as opposed to 80 or 90) but you make much, much more money, with better schools and higher quality of life.

    So long as the USA pisses away our national inheritance on dumb wars, nukes and weapons systems designed to fight the Death Star, we’ll continue to squander like mad and go bankrupt. With the UK right on our heels– damn, over $2 trillion of consumer debt in the UK? They’re toast, and they’re getting toasted in Iraq and Afghanistan just as we are.

    I dunno, but methings I might soon be writing my own blog in something like German or French in a few years. Achtung Baby, die Welt sie sich verandert. (Something like that, sorry 10 years since my last German course– though maybe I should be relearning fast!)

    Reply
  3. Despite Mr. Denning’s prognostications, the USD still buys 1.15 or more of his local currency (read AUD), not the other way around.

    Reply
  4. Turn those Calistoga Wagons around,
    and go East, My friends.
    As soon as I got out of College,
    Cal Arts, I hightailed it over to France. Everything is there.
    I am an HD Cinematographer and travel the world.
    I live in S. Ca. because my elderly
    mom lives here.
    As soon as she goes home,
    I be gone to France.
    See you there.

    Bonnie
    filmexpeditions.com
    http://www.youtube.com/bonnieember

    Reply
  5. Dear Vishnu let it happen.

    I’m not buying any more gold when it’s this high but if a sell-off reduces the price for awhile I’m up for scooping more gold “on sale”.

    The banks want to sell their asset to postpone the failure of the US fiat, I say full steam ahead. The US dollar is a falling knife. To catch it on its way down, better them than me.

    Their loss, my gain.

    Reply
  6. Germany is the key to any gold sales. So far they have stood firm. It may be no coincidence that Germany took the brunt of the recent ‘liquidity crisis’ in Europe. France on the other hand might be a keen seller to pay for their next military adventure…

    Reply
  7. Thanks Mr. Denning. This seems like a possible move by the CB’s

    The Banco Espana, Spain’s CB have already sold much gold onto the market this year, and France too, so it’s a decent possibility that other CB’s will follow suite.

    We will have to wait and see. BTW Phillip is correct regarding the US dollar by approx. 1.15 aussie, and not the other way round. Even so, the trend is defnitely heading that way.

    Reply
  8. german! france! when the bell tolls there are those of us, who have enjoyed freedom for so long that will fight like a pack of wild dogs to keep it.
    as to the dollar vs gold? gold was here before paper, and will be here long after paper is flushed down the toilet.

    homas caruso
    December 15, 2007
    Reply

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