My, we’re getting generous…
Thanks to Alan Greenspan maintaining negative real interest rates—meaning rates that below the rate of inflation—and US consumers taste for large gas guzzlers—pickups, SUVs and minivans accounted for more than 50% of new car sales in the US from 2001-2007—the US underwent a massive exporting of wealth to the Middle East over the last seven years.
Collectively, the Gulf Cooperation Council’s [GCC]—Bahrain, Qatar, Kuwait, Oman, Saudi Arabia, and the United Arab Emirates—economy more than doubled between 2001 and 2006. Similarly, the GCC trade surplus has exploded above $500 billion and is now closing in on $700+ billion.
This transfer of wealth also fueled one of the biggest infrastructure booms in history. Dubai, Abu Dhabi, and other areas in the region have transformed from semi-desert regions to burgeoning metropolises. Altogether, the GCC plans to invest more than $1.6 trillion in infrastructure in the next five years. Some of the more striking projects:
- King Abdullah City: a 68 square mile city built in Saudi Arabia.
- Dubailand: a 3 billion square foot theme park twice the size of Walt Disney World in Dubai.
- Silk City: a $136 billion, 250 square kilometer city in Kuwait.
Having funded this massive expansion with our gas guzzling, we’re now giving the Middle Easterners another fantastic opportunity to maximize their wealth… not in dollars, but in gold.
The recent dollar rally has kicked gold in the teeth. The precious metal has broken through a string of technical support lines and now trades at its cheapest level in 2008.
Dubai is already one of the largest markets for gold and gold jewelry in the world. More than three-quarters of Dubai residents own gold—95% of the jewelry sold there above 21 karats in quality, and nothing is below 18 karats.
However, this recent plunge in gold’s price couldn’t have come at a better time for the region, since Dubai will be launching a gold ETF later this year. Investors throughout the region, for the first time ever, will be able to trade gold on a financial exchange rather than buying bullion from a vendor at one of the 600 odd gold shops in Dubai’s Gold Souk.
The irony here is bordering on the ridiculous. Middle Eastern countries have been complaining about the weak dollar for years. Now that the dollar is strengthening, they’ve got a chance to buy gold—a far more attractive currency—on the cheap.
For centuries gold has been a store of value. It has no deficit or outstanding debts, it doesn’t bail out crummy financial firms, and it can’t be inflated to worthlessness. Gold is wealth in a very real tangible form, and traders worldwide are dumping it in favor for an IOU from the bankrupt US government.
Like I said, we’re mighty generous.
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This article has 2 comments:
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enviro111
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32 Comments
Aug 13 03:48 PMThe primary reason is LOW fuel prices. In the future, people will be shocked at how low gasoline cost from 1950 - 2005, and how Americans just wasted it.
Now it is Saudi Arabia's chance to waste it. Why not, it belongs to them. It looks like they are doing a good job of it, too.
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chux08
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42 Comments
Aug 14 06:49 PMAgreed!! Though this trader isn't...
Paper for gold...they deserve to lose it!!