Gold And Silver Versus The Petrodollar Peril

Transcript

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Jim Goddard: My guest is David Smith, Senior Analyst for the Morgan Report which you can find online at Silver-Investor.com. Welcome to the show David.

David Smith: Good to be back, Jim.

Jim Goddard: Gold and silver versus petrodollar perils, maybe explain to us what you feel that is and why investors should be concerned about it.

David Smith: Well, the petrodollar is a term for US dollars that are used by different countries in exchange for buying petroleum and other goods. It’s extensive enough that it has come to be called the reserve currency of the world – but now that status is beginning to change.

It has been underway for several years and it’s now picking up speed with a deal that the Russians and the Chinese signed for a natural gas agreement. It’s going to be very significant, and it won’t be paid in petrodollars.

The extent of that significance for the United States is that we depend upon being able to print an almost unlimited amount of dollars and circulate those outside the country so that we can export our inflation -and so we can buy a lot of goods at cheaper value than would be the case otherwise.

If the petrodollar, which is defined as a dollar circulating outside our country for that use, comes into question as to how frequently it’s going to be used, that’s going to change the whole metric for us.

I was thinking this morning, not just for us but even with countries that are so-called dollarized. There are countries in South America where the currency is actually the US dollar and then there are other countries like Argentina which has its own currency, the peso, but it has one of the largest accumulation of dollars anywhere in the world.

So you could imagine if the value of that dollar were to decline substantially, it would have all sorts of unexpected and unintended effects, and not just for the US.

JG: What could be some of those effects for Argentina and other countries?

DS: Certainly it would increase inflation. It would increase the concern people have about confidence in the monetary unit itself. If you think about it with the debts that we’ve been running over the last few years, confidence is primarily what’s holding it up.  If people lose confidence they may want to hold something else. The lifeboat gets pretty crowded when that happens and there aren’t many options. The other lifeboats that are around have been the historical ones – gold and silver.

I think the record flows of gold and silver into private hands, as well as public entities over the last few years is an indication people have that all is not well with the petrodollar, in addition to the other things we’ve discussed. They know that gold and silver will give them an opportunity to have insurance and assurance. That’s a pretty powerful concept for putting away part of your wealth to try and preserve it in that way.

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