How much credence to give rumors of oil for gold swaps

Rumors citing vague banking sources in the Far East have surfaced in The Independent newspaper that the Gulf States are looking at switching from the US dollar to trading oil in a basket of currencies and gold.

At first sight such a move looks highly unlikely as it would destabilize the dollar as indeed even these rumors achieved yesterday, and perhaps that was the intention of the sources that made them.

Staunch allies

The Gulf Arab countries are staunch allies of the United States and dependent on the US for military protection in their volatile region.

It is therefore far more likely that such rumors, if they are true are more a question of policy makers mulling over policy options, and even considering a move against the US dollar can be damaging if taken out of context.

Indeed, it would perhaps be surprising if Gulf States were not considering all available monetary strategies at this moment in time, particularly with a proposed union of the currencies of Saudi Arabia, Kuwait, Bahrain and Qatar supposedly about to happen.

Gold for oil

Gold bugs have been excited by the statement in The Independent that ‘The transitional currency in the move away from dollars may well be gold, according to Chinese banking sources.’

This does indeed chime with recent warnings on the website of gold superbug Jim Sinclair that a dollar crisis is imminent and that its cause will be a Chinese statement on its intentions towards the US dollar.

The Independent article speaks of ’secret meetings’ between finance ministers of Middle Eastern nations along with China, Russia, Japan and France. That could be an exaggeration of talk over coffee late at night.

The gold price jumped on the publication of this article but it will need to be better supported by official statements to be treated with credence. On the other hand, it does underline how parlous the state of global confidence has become over the future of the US dollar and highlight a possible solution, although one that risks causing more damage than it cures.