Gold Hits Another Record-High, Dollar Hits New Low

This morning, gold hit a new high nearing $1,070/oz. showing the  U.S. dollar ‘reaching a breaking point’ as it hits another new 14-month low.

Reuters reports gold hit $1,069.70 per ounce, topping the record set October 8 at $1,060.60, as–Moming Zhou reports at MarketWatch–“crude climbed to a seven-week high, increasing gold’s appeal as a hedge against a weaker currency and possible inflation”. This comes a week after Robert Fisk reported at The Independent that Arab oil powers in the Gulf are conspiring “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 (G.C.C.)”.

“Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades,” Ye Xie and Anchalee Worrachate reported at Bloomberg in an article Monday titled, “Dollar Reaches Breaking Point as Banks Shift Reserves”:

World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn’t drive away the nation’s creditors. The diversification signals that the currency won’t rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991.

“Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it,” said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. “It looks like they are really backing away from the dollar.”

The dollar’s 37 percent share of new reserves fell from about a 63 percent average since 1999. Englander concluded in a report that the trend “accelerated” in the third quarter. He said in an interview that “for the next couple of months, the forces are still in place” for continued diversification.

America’s currency has been under siege as the Treasury sells a record amount of debt to finance a budget deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30….

Foreign companies and officials are starting to say their economies are getting hurt because of the dollar’s weakness….

“The diversification out of the dollar will accelerate,” said Fabrizio Fiorini, a money manager who helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People are buying the euro not because they want that currency, but because they want to get rid of the dollar. In the long run, the U.S. will not be the same powerful country that it once was.”…

The dollar’s reduced share of new reserves is also a reflection of U.S. assets’ lagging performance as the country struggles to recover from the worst recession since World War II.

What’s seldom mention is that this “worst recession since World War II” was caused by the policies which continue to kill the dollar. The demise of the dollar has been underplayed in the statistics via diplomatic efforts to conspire the artificial propping up of the U.S. dollar and other fiat currencies’ near-term image:

Developing countries have likely sold about $30 billion for euros, yen and other currencies each month since March, according to strategists at Bank of America-Merrill Lynch.

That helped reduce the dollar’s weight at central banks that report currency holdings to 62.8 percent as of June 30, the lowest on record, the latest International Monetary Fund data show. The quarter’s 2.2 percentage point decline was the biggest since falling 2.5 percentage points to 69.1 percent in the period ended June 30, 2002….

Central bank diversification is helping push the relative worth of the euro and the yen above what differences in interest rates, cost of living and other data indicate they should be. The euro is 16 percent more expensive than its fair value of $1.22, according to economic models used by Credit Suisse Group AG. Morgan Stanley says the yen is 10 percent overvalued.

Low interest rates have artificially propped up demand for the U.S. dollar. “The world is currently flush with the U.S. dollar, which is available at no cost,” Christoph Kind, who helps manage $20 billion as head of asset allocation at Frankfurt Trust in Germany, told Bloomberg.

That which is free will get snatched up, but the artificial abundance–inflation–will speed up the dollar demise. An intrinsically worthless dollar is only valued by its scarcity.

UPDATE:

Gerard Lyons, chief economist and group head of global research at Standard Chartered Bank in London, called the U.S. dollar a “ticking time-bomb” in his discussing the BRIC Alliance to end dollar hegemony with RT today (3:05):