Tuesday 31st January 2006 AD

"THE DOLLAR'S GOLDEN AGE"

The precious metals are up nearly 25% in a little under 3 months, with gold now firmly settled above the important $500 level, and silver only a few cents away from crossing the very significant $10 barrier. Why all the action in these sleepy, ageless metals? For the best part of 6000 years, gold has been the barometer for things not seen (at least to the ordinary eye). 

Prior to WW2, the US was an industrial and technological giant, however its dollar shared status with the British pound and international monetary gold. In 1944 as the war was drawing to a close, treasurers, finance ministers and economists from 45 Allied nations gathered at the Mount 
Washington Hotel, Bretton Woods, New Hampshire. The signing of the Bretton Woods Conference saw the US dollar emerge as the world's sole reserve currency. All national currencies were now to be measured in US dollars at a fixed exchange, while the US dollar itself was pinned to gold 
at US$35 per oz. Now all international trade was settled in dollars, internationally everything bought and sold, were bought and sold in dollars. 

The US now sat in an imperial position more privileged than any other time in world history; monetarily more uniquely favored than the Spanish empire of the 15-1700s, the Ottoman Empire, or even that great empire of Ancient Rome. 

From the 50s to the 90s, the US was the global financial, industrial and technological powerhouse. It was principally US industry and technology that made possible satellites orbiting the globe (allowing for systems such as global positioning etc) and our instant worldwide telecommunications systems. US technology created computer banking and clearing 
infrastructure making possible a global (dollar) banking infrastructure capable of multi-trillions of payments and transfers worldwide per day. US technology created and still controls the backbone of today's interconnected world, the internet (1). 

During this US Dollar Golden Age, cheap energy was the 'oil in the cogs' of global infrastructure development. Crude flowed virtually uninterrupted and freely, discovered by US affiliated companies using US seismic and other exploration technology, recovered, transported and refined using US affiliated companies and technologies, and all this bought and sold in US dollars using US dollar bank clearing systems. 

This massive buildup of interconnected global infrastructure was greatly accelerated by a flexible international monetary unit. The amount of US dollars could be increased quickly and efficiently and rapidly pumped into economies of countries anywhere, for any reason and at anytime. The 
US could run deficits (even huge ones), which the world would happily absorb, as everyone was benefiting from US technological miracles and cheap energy. 

This was a period of relative global prosperity. Like Roman roads of old, US infrastructure raised the standard of living, and eased the pain of labor for hundreds of millions of people in countless dozens of countries spanning the entire globe. Without a doubt this was the 'US Dollar's Golden Era'.

So what of the golden barometer? What is gold and silver's recent price rise telling us? Is the US Dollar Golden Age drawing to a close, or are there other factors at play? Questions to which we will continue to dig for answers in the days and months ahead. 

Best Regards - Philip Judge pjudge@anglofareast.com

(1) The Internet is coordinated by a private-sector nonprofit organization called the 'Internet Corporation for Assigned Names and Numbers' (ICANN), which was set up BY the United States in 1998 to take over the activities performed for 30 years (amazingly, by a single ponytailed professor in California). The controversy over who controls the Internet has simmered in insular technology-policy circles for years and more recently has crept into formal diplomatic talks. Many governments recognize that they have invested into and geared up reliance on the internet, and feel that, like the phone network, the Internet should be administered under a multilateral treaty. ICANN, in their view, is an instrument of American hegemony over cyberspace and global technology: its private-sector approach favors the United States, Washington retains oversight authority, and its Governmental Advisory Committee, composed of delegates from other nations, has no real powers. (source : http://www.foreignaffairs.org)