06/06/2009 05:12 am ET | Updated May 25, 2011

Dollar Doomed, Gold Glitters

"The US should be afraid, very afraid. China is questioning the dollar's status as a reserve currency and, at US$1,000 an ounce, gold has become the world's de facto currency" -- John Ing, Maison Placements in Canada.

It is a chilling statement from an expert on both gold and China. But he is just speaking truth to power: In a G2 world (the US and China), he who is the piper calls the tune and China holds a US$2-trillion mortgage on the U.S. and is not happy. This country, along with others who lend money to the U.S. such as Saudi Arabia, will determine the value of the US$ and gold. And they have spoken. They are not buying more US$ treasuries and are buying gold as a new asset class. China announced that it was doing so quietly and recent reports are that the Saudis and others have been buying bullion and hocked gold jewelery from around the world to be melted down in Middle Eastern refineries.

Gold gains as America loses
The only way is up for gold prices because the U.S., which backstops the IMF which is the world's lender of last resort, has had to become its own lender of last resort.

Washington has cranked up the printing presses in an unprecedented way, replicating the behavior of its spendthrift corporations and consumers. This year's budget is US$3.5 trillion, bigger than any in history including Napoleon's when he was taking on the British, Germans and Russians at the same time.

And as Ing points out, the "bi" in this bipolar global economy is China and it is not amused. Beijing has not only started to hoard gold but has continued to talk up a new reserve currency concept to replace the US$.

The writing's on the wall and the only reason the Chinese and others don't dump US$s is because it would be like shooting themselves in the feet.

For more see Diane Francis blog.