Reading time: 2 – 3 minutes
Because most Western news is highly inaccurate concerning Iran some background may be needed. There are seven months to go before Iranian Presidential elections in June. The current Iranian President Mahmoud Ahmadinejad is particularly unpopular domestically. The politicking posturing has started and it appears that the Iranian conservative faction may make Ahmadinejad a sacrificial lamb. Ahmadinejad has had tense relations with the Bush administration. However, President-Elect Obama has been more open. It is clear that a new chapter in American-Iranian relations may be possible.
The Bush administration has imposed economic and financial sanctions against Iran and generally made commerce for them extremely difficult by threatening European banks who do business with them. The Asians, particularly China who invested $100B in an Iranian oilfield in 2005, have no qualms trading with their geographic neighbor.
An open letter from about 60 economists complains of meager economic growth, widespread jobless rates, chronic and double digit inflation, inequity, poverty and other ills and blame Ahmadinejad’s aggressive foreign policy on the lack of foreign direct investment. A high ranking central bank official has warned that there will be big problems if the price of oil averages below $60 between now and March because of the large social spending programs. Actually, I have heard whispers about interesting developments that may be afoot if oil prices continue their fall to $50 or below.
One interesting development is that according to Reuters ‘Iran has converted financial reserves into gold to avoid future problems.’ Unlike fiat currency who serves its state issuer; Gold serves only its master. Gold is the ultimate form of payment and is always accepted. Additionally, the gold to oil ratio is returning to more normal ranges. [Note: A retraction was issued on November 19].
There is an interesting portent with Iran’s posturing and this rhetoric is coming from China that they should have several thousand tons instead of their measly 600 tons (The Standard and Bloomberg). Given that there is about $100T of paper currency in the world while only about 50% of the $4T of above ground gold is ‘for sale’. Thus it begs the question: Will the new financial world order that is currently being crafted be underpinned by gold?