Gaddafi transacts in gold, not dollars

It looks like Muammer Gaddafi understands the fundamentals of the fiat dollar and as a result the value of gold. Says the FT today:

The international community has hit Muammer Gaddafi with a raft of sanctions and asset freezes aimed at cutting off his funding. But the embattled Libyan leader is sitting on a pot of gold.

The Libyan central bank – which is under Colonel Gaddafi’s control – holds 143.8 tonnes of gold, according to the latest data from the International Monetary Fund, although some suspect the true amount could be several tonnes higher.

Those reserves, among the top 25 in the world, are worth more than $6.5bn at current prices, enough to pay a small army of mercenaries for months or even years.

Did Gaddafi understand that the West could cut his financing ties by freezing his assets as was done to Hosni Mubarak just recently, opting instead to accumulate gold reserves and not US dollars?  Possibly. But the next line tells us he understands a little more about the gold market and the West’s central bank shenanigans in price suppression by selling foreign owned gold vaulted in the US and in London to the bullion banks under swap arrangements to suppress the price, which is why he wanted to hold his gold physically under his own control.

While many central banks hold their gold reserves in international vaults in London, New York or Switzerland, Libya’s bullion is in the country, said people familiar with the country’s activities in the gold market.

But, says the FT, Gaddafi is not alone, highlighting that many more nations perceive the West’s foreign- and even economic policy as erratic and as a result choose to purchase gold these days rather than dollars.

At the same time, Iran has been quietly stocking up on gold in recent years, in an apparent attempt to shift away from the US dollar and thus protect its reserves from risk of seizure. Other significant buyers of gold include China, Russia and India.

The BRICs and Gaddafi are onto something here, that being the demise of the dollar fiat system that is going to result in increasingly desperate measures by the West to get its hands on physical resources such as gold and oil in order to have hard currencies to exchange when the run on the dollar, euro, pound sterling and yen accelerates and these are no longer as readily accepted in international trade transactions as before.