Crude, gold, and other commodities

Another major factor the U.S. dollar has on its side is that the world’s key commodities, such as crude oil and gold, are priced in U.S. dollars.

“If South Africa mines gold and wishes to sell it to England, they sell it in U.S. dollars,” says Woolfolk. “If Saudi Arabia sells oil to Japan, the Japanese have to sell yen and buy dollars to pay the Saudis.”

Admittedly, there has been talk about the possibility of developing a Middle Eastern crude oil futures contract denominated in euros, and there always remains the possibility that someday OPEC will sell its prized oil reserves priced in euros instead of dollars.

“[This cenario] may not be independent of political problems that the Middle East has with the U.S.,” Woolfolk says.

But Woolfolk doesn’t expect that scenario to play out anytime soon because of the unique role the U.S. dollar has within the global foreign-exchange transaction system.