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New Worries America on Verge of Losing Petrodollar Privilege

April 2, 2023

As gold prices continue to hold firm near the $2,000 level, bulls are eying big developments ahead for the monetary metal along with the global monetary system.

Gold's potential ascendancy to new record highs is coinciding with a decline in the global status of the U.S. dollar as world's reserve currency.

China is pushing for its currency, the yuan, to be the primary competitor to the dollar in international trade. It has forged new partnerships with Russia and other countries who are willing to deal directly in Chinese yuan.

Of course, it's no surprise that Russia is working to undermine the U.S. dollar standard. Western sanctions have attempted to blacklist Russia from the global financial transactions and forced the Kremlin to pursue alternatives which include doing international business in rubles, yuan, and even gold.

What U.S. officials fear now is that Saudi Arabia could announce it will no longer price oil exclusively in dollars. Any abandonment of the petrodollar would formally signal the end of the dollar's status as world reserve currency.

The consequences of such a development would be “catastrophic.” That's according to Monica Crowley, who served as assistant to the U.S. Treasury Secretary under President Donald Trump.

Monica Crowley: It's really hard to overstate exactly how catastrophic the abandonment of the U.S. dollar would be as the world's global reserve currency. Look, since the end of World War II, the dollar has been the safe place to go, and it's been backed up by a couple of things. It originally was backed up by gold, but President Nixon took us off the Gold Standard, so there's no hard asset backing up the dollar anymore for the last 50 years, but also it's been backed up by the strength and economic power of the United States and the fact that oil has always been traded in dollars. If that were to end, that would mean the end of the U.S. dollar. If Saudi Arabia decides to join with America's enemies here and start trading oil in different currencies, that is going to undermine the entire global economic system. And here at home, you know what it's going to mean for us? It's going to mean raging inflation, so much worse than anything we have ever experienced.

With so much at stake, the Treasury department, the Federal Reserve, and large financial institutions want to prevent public confidence in the U.S. dollar from slipping.

One of the warning signs of a collapsing currency would be a spike in gold prices. The powers that be in the futures market seem to be trying to push gold back down whenever it begins to make a move past $2,000 per ounce.

Although the gold market does face powerful resistance near current levels, it can't be capped forever -- especially given that the dollars in which it is priced are steadily losing value. The longer gold prices remain compressed within a trading range, the more the pressure will build for an eventual breakout.

As of this Friday recording, the yellow metal checks in at $1,987 an ounce, essentially unchanged for the week here on this final trading week of the first quarter. Gold does appear poised though to have its best month since July of 2020.

Turning to the white metals, silver has been outperforming and currently shows a weekly gain of 3.8% to bring spot prices to $24.39 an ounce. Platinum is up 0.5% since last Friday's close to trade at $1,009. And finally, palladium is gaining 1.9% for the week to command $1,512 an ounce.

Metals markets have been moving in recent days on bank run fears, rising expectations for Federal Reserve rate cuts later this year, and simmering geopolitical tensions.

China is currently making moves to expand its global reach and undermine the United States. While some geopolitical analysts are warning of a military conflict between the two superpowers, Chinese Communist Party officials may be more inclined to strike at the U.S. financially.

China is investing in countries throughout Asia, Africa, and the Middle East as part of its “Belt and Road” project. The Chinese aim to place the majority of the world's population under its direct economic influence. And they will likely use that influence to drive a wedge between its trading partners and the United States.

The end goal may be to drive most of the world away from the U.S. dollar. The U.S. might be able to defeat China militarily, but it will be in a difficult position if it comes down to trying to win a currency war.

It can no longer claim to be the custodian of a global gold standard. Nor can the United States credibly claim to be the world's most financially sound or politically stable country.

American politicians, bureaucrats, and central bankers have abused the privilege of having the world's reserve currency. Instead of practicing fiscal and monetary prudence, they have embarked on a reckless expansion of debt owed to the rest of the world.

The rest of the world is starting to realize that what they are owed won't be paid back in honest currency. It will be paid back in rapidly depreciating Federal Reserve notes.

That realization is helping to prompt a record surge in sovereign gold buying by foreign central banks. They can see the writing on the wall. And hopefully, so too will individual investors before it's too late for them to protect themselves from a currency crisis.

Well, that will do it for this week. Be sure to check back next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening and have a great weekend everybody.


Mike Gleason is a Director with Money Metals Exchange, a national precious metals dealer with over 50,000 customers. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.
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