By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com
In recent years, when gold and silver prices were knocked down hard, this development was almost always followed by the occurrence or at least the disclosure of events that were horrible news for the US government, economy, or dollar.
With the extreme blatant suppression of gold and silver prices since late February, I have been waiting for the terrible news development that would explain the reason behind the suppression.
It is possible that the meeting in New Delhi, India on Wednesday, March 28 between top finance officials from Brazil, Russia, India, China, and South Africa will start the process that will result in a major drop of the value of the US dollar. If so, that would spur a huge increase in demand for gold and silver as protection against the further decline of the dollar.
These five nations have already agreed to extend credit among each other using their own currencies rather than the US dollar.
On March 17, the Society for Worldwide Interbank Financial Telecommunications (SWIFT) cut off Iranian access to this mechanism for handling global financial transactions. Belgium-based SWIFT handles almost all international banking transactions. By disconnecting Iranian access to SWIFT, the US and other nations were taking an unprecedented step to intensify financial sanctions against Iran.
Although this action is only financial, it is so extreme that it could be considered as a provocation for war by Iran.
The US government has now threatened India with the same disconnect from SWIFT because it has proposed paying for Iranian oil with either gold or currencies that are not the US dollar.
As Brazil, Russia, India, China, and South Africa grow in financial clout, they have reasons to be wary of the US dollar serving as the bedrock of international commerce.
I think that there will be a good chance that the result of the meeting in New Delhi will be establishment of another global banking clearinghouse competitor to SWIFT. This competitor will likely use a different currency—probably the Chinese renminbi yuan—instead of the US dollar
Just the announcement of such a development would shock the financial world and knock down the value of the dollar.
However, the news would likely continue to get even worse for the dollar. The Chinese have been especially aggressive using their huge currency reserves to establish major relationships all across Africa. Should a competitor to SWIFT emerge, I would expect it to become the most used banking transaction clearinghouse for the entire African continent. This would further clobber the US dollar’s value.
Even if the March 28 meeting does not start the process of creating a competitor to SWIFT, these five nations have previously made it clear that they plan to sharply reduce the use of US dollars in international transactions. Whatever success they achieve toward that goal will have the effect of scaring foreign holders of US dollars and dollar-denominated assets. There are approximately $12 trillion of liquid US dollar-denominated assets outside of the US today. If even a small fraction of these are quickly repatriated, it would wreak economic havoc in America.
Compared to that prospect, gold and silver at today’s prices look mighty attractive.
Patrick A. Heller owns Liberty Coin Service and Premier Coins & Collectibles in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (http://www.numismaster.com under “News & Articles). His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.