Failure of GCC monetary union to boost gold
Now that the UAE has decided not to participate in the monetary union of the GCC states the way is cleared for increased gold buying by thier central banks to diversify away from the US dollar.
Gold purchases may have been on hold pending further progress on GCC monetary union, and a decision over what kind of currency basket – which was the most probable outcome – would prevail. Gold might, or might not have been included in this basket.
Gold not on hold
Now this uncertainty is removed and the six central banks of the GCC can get on with managing their own affairs. Saudi Arabia has amassed considerable gold reserves and could well decide to buy more to spread its risk now that it is most likely going to keep its dollar pegged currency.
And the UAE which holds no gold might decide that this would be a very good time to get on and do so, before prices hit the roof, and the opportunity to diversify away from the dollar is lost.
Certainly Gulf central bankers are suddenly freed from a policy straight-jacket that has inhibited their thinking for some years. The argument has always been that with a single currency around the corner that new ideas like stocking up on gold or silver could be postponed.
Swift action
The GCC central banks will need to move swiftly now if they want to diversify their reserves away from the US dollar which looks to be facing a structural decline due to mounting deficits, enormous new borrowings that need to be funded with bonds as well as quantitative easing or money printing and the threat of inflation.
There are plenty of good reasons to exit the dollar at this moment, as commentators like Jim Rogers and Dr Marc Faber have elucidated recently. Gold is a way to do so quietly without having to sort out new currency baskets, which might take too much time and prove controversial.
So expect to hear in future months that the Saudis and perhaps even the Emiratis have emerged as surprise buyers of gold. They will want to spread their risk away from the US dollar just like any other investor.
Now that the UAE has decided not to participate in the monetary union of the GCC states the way is cleared for increased gold buying by thier central banks to diversify away from the US dollar.
Gold purchases may have been on hold pending further progress on GCC monetary union, and a decision over what kind of currency basket – which was the most probable outcome – would prevail. Gold might, or might not have been included in this basket.
Gold not on hold
Now this uncertainty is removed and the six central banks of the GCC can get on with managing their own affairs. Saudi Arabia has amassed considerable gold reserves and could well decide to buy more to spread its risk now that it is most likely going to keep its dollar pegged currency.
And the UAE which holds no gold might decide that this would be a very good time to get on and do so, before prices hit the roof, and the opportunity to diversify away from the dollar is lost.
Certainly Gulf central bankers are suddenly freed from a policy straight-jacket that has inhibited their thinking for some years. The argument has always been that with a single currency around the corner that new ideas like stocking up on gold or silver could be postponed.
Swift action
The GCC central banks will need to move swiftly now if they want to diversify their reserves away from the US dollar which looks to be facing a structural decline due to mounting deficits, enormous new borrowings that need to be funded with bonds as well as quantitative easing or money printing and the threat of inflation.
There are plenty of good reasons to exit the dollar at this moment, as commentators like Jim Rogers and Dr Marc Faber have elucidated recently. Gold is a way to do so quietly without having to sort out new currency baskets, which might take too much time and prove controversial.
So expect to hear in future months that the Saudis and perhaps even the Emiratis have emerged as surprise buyers of gold. They will want to spread their risk away from the US dollar just like any other investor.