Gold at record highs

When I first got onto the computer this morning, it was just when the price of gold was shooting up in a nearly vertical line. As it turned out, it didn't have much farther to go, and was "only" headed to around $1,040 per ounce. But I didn't know what was going on and felt sick, wondering if Israel had bombed Iran or the Chinese had done something. Gold tends to go up in response to political turmoil, war, uncertainties about currency, and so on. It's true that it fell temporarily when the banking crisis hit late last year, because many people had to sell whatever they had that was liquid in order to meet obligations. But compared to other kinds of investments it has done amazingly well since the whole ball of yarn started unraveling in 2007.

Today's gold move was from about $1020 to an all-time record high of almost $1045. The reason for this, some speculate, is that journalist Robert Fisk -- one of my favorite journalists ever, by the way, constantly smeared by other Western journalists because he won't toe the line -- broke the news that a number of countries were meeting in secret to discuss moving away from the US dollar as the only currency in which to trade oil.

You may have heard the term "petrodollar," short for "petroleum-backed dollar." The idea is, since everybody but everybody needs oil, and you can only buy the stuff using dollars, everybody needs dollars. This maintains the dollar's status as reserve currency and it also supports its value by insuring demand.

If oil is routinely sold in anything other than dollars, then nobody has to have dollars anymore.

Most Americans don't have any clue what kind of danger our currency is in. They know about unemployment, bank bailouts, falling wages, store closings. But the idea that everything at China-Mart could double in price in 6 months (to choose a random hypothetical example) is not on their radar.

All of that said, I don't think this is "the big one," the point at which gold skyrockets and the dollar tanks, never to return. I still expect a stocks crash, a short dollar rally, and a major pullback in gold (although this pullback could be less than I'd been thinking, because the Chinese stand ready to buy gold whenever the price gets attractively low).

Silver, by the way, is known as the "poor man's gold," for being so much cheaper. It is currently undervalued relative to gold, meaning that not only are both precious metals expected to rise over the coming years, but silver should rise by even more. I wouldn't buy any silver just yet, because it could go off a cliff again if we have something similar to the fall of 2008. But if the price drops, go out and snatch up whatever silver you can. Sometime in the next few years (and possibly pretty soon) the world's post-WWII dollar system will fail.