Why Did Gold break up to lord levels above $1,050?

In an unsubstantiated newspaper article from the Independent in the U.K., later denied by Russia and Saudi Arabia, it was stated that France, Russia, China and certain Middle Eastern oil producers we going to price oil in a basket of currencies making a 'new' currency.    This would replace the $ as the currency of oil.   While the report was denied subsequently by Russia and Saudi Arabia, something like this is expected by the investment world in the future, so why not start to discount it now, as a matter of prudence?

Such a move would be very damaging to the U.S. whose $ is already weakening.   But it would have a far more wide-ranging impact than just the $.   With the $ the hub of global currencies, any damage done there would affect all nations that trade in the $.

All nations that buy oil have to trade in the $ for oil is priced almost exclusively in the $ worldwide.   Oil is the driver of the world economy so everybody that drive a car is affected.   If the $ is weakening, so is the oil price, unless it compensates by rising.   A rising oil price has its own negative impact on the condition of the global economy and all its component parts.

The call by the present and previous Administration that they support a strong $ has been repeated so many times in the face of a weakening $ that it is no longer believed.   This impacts not just on confidence in the monetary authorities, but on fundamental confidence in the $ as a reliable measure of value.   And that is where the rub is.   The U.S. has issued dollars not just internally but through a persistent Trade Deficits that effectively issued them into the rest of the world.   What are they used for?   They fill national reserves, they are being spent at a rate of knots by surplus holders buying up assets with which to fuel their own future growth, but they can use only so many for this, leaving an overwhelming number of dollars out there just being held in national reserves.   Bear in mind that the U.S. is the only nation that does not have to earn dollars, simply print them.

Since the start of the "Credit Crunch" in August 2007 confidence in the bankers themselves [now villanized] and confidence in the banking system itself, has sunk to low, almost unheard of, levels.   Since the middle of last century banking has pervaded every element of our financial lives and now dominates and operates the very veins and arteries of our money world.   So when they mess up, everything is messed up, as we have experienced since August 2007.  

The ripples emanating from this have spread across the entire monetary world.   Had the U.S. been the only global world power as in the last half of the last century, the problems could have been managed far better, because we would have nowhere else to go.   But not today with a bipolar world emerging.  

Economic power has grown in the East.   In the past this would have not been a significant event in itself, but today and for several reasons it is critical.   With prices from China [and a slower growing India] so low, compared to the developed world, international trade has swung in their favor tipping the seesaw of monetary power eastwards.   China is now getting very close to the point where it can sustain its growth internally and lessen it dependence on exports [while gaining extra benefits from exports still].  Consequently it saw slow growth in the first half of 2009 [only 8%] and is now experiencing good growth again at double digit levels.   Their exports have effectively sucked industries out of the developed world into their world and resulted in China alone holding $2 trillion in U.S. dollars and the oil world holding more than $2 trillion of U.S. dollars.   Other countries in the developing world hold more still.  

The sad fact of the matter is that the entire process points to a waning U.S.   Bear in mind that China has a population of 1.4 billion and the U.S. 300 million.   It is only a matter of time before the seesaw swing, bleeds the U.S.   But the problem is not the seesaw, but the impact on the currency world and the flows therein.  

The Chinese Yuan has to become a global currency consistent with its future place in the global economy.   So the appreciation of the Yuan that should have happened may now be made impotent, by a huge issue of Yuan internationally, that will eventual rival the waning $.   Now this may take a decade or so, but meanwhile the attrition on the $, global confidence in currencies and the tensions that accompany such changes, make investors run to something that will measure value in such turmoil and cannot be manipulated by governments and currencies.   Gold has done this for millenniums and appears to be seen at present as a more reliable measurer of value,   With Chinese and Russian central banks buying substantial amounts of gold and institutional plus individual investors now seeing gold as a prudent investment in the face of future uncertainty it is no wonder that gold is blowing its top.

Eventually currencies will be measured in gold again and not gold measured in currencies.   The rise of the gold price through $1,000 is the first step on that uncertain unpredictable road that could lead to significantly higher gold prices still.