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USAGOLD NewsGroup Alert
 An elegant but dangerous idea
Stephen S. Roach, Newsweek, 7/24/06
"This is a global problem.
American consumers have tapped their asset bubbles -- first equities
and now property -- and have taken income-based personal savings
rates into negative territory for the first time since 1933.
Lacking in domestic savings, the United States has to import
savings from abroad -- and run massive current account and trade
deficits to attract the capital. By ignoring asset bubbles and
fixating on the CPI, central banks have spawned huge and dangerous
global imbalances. That's where it could come full circle. America
can't afford to have the Fed slip up right now. The European
Central Bank is sending a clearer signal of its intent, and markets
were well prepared when the Bank of Japan finally ended its zero-interest-rate
policy last week. With chairman Bernanke waffling, the relative
credibility factor could swing away from the Fed. That could
lead to a loss of confidence in dollar-based assets, with serious
consequences for bonds and stocks."
USAGOLD comment: In this short essay, Morgan Stanley's
Stephen Roach deals with 'inflation targeting' and its pitfalls.
Although he makes some very good points, particularly with regard
to the various asset bubbles, he misses a couple others of importance
to investors.
One, how can you gear something as concrete as Fed monetary policy
to a Consumer Price Index which is a fictional, convoluted and
politicized number in the first place? Most Americans will tell
you that the CPI does not reflect the real cost of living which
is much higher and escalating rapidly. Wouldn't gearing monetary
policy to this fictionally low number insure an ever rising inflation
rate?
And, two, since the Labor Department's CPI has become highly
politicized, wouldn't gearing policy to it compromise the Fed's
long-standing claim of being immune to control by the executive
branch of government?
When you begin to understand what inflation targeting really
means, it makes a very strong case for gold ownership. Escalating
inflation and currency depreciation under such a policy regime
would remain a fact of life.
Will
the Federal Reserve create the new socialist Man?
Karen de Coster and Eric Englund, Von Mises Institute - 6/26/06
"Over the past ninety-three
years, since the founding of the Federal Reserve, the dollar
has depreciated by over 95%. With money no longer being a stable
repository of value -- thanks to inflation -- a predictable shift
in the American character has occurred. Gone are the low-time-preference
days where hard work and savings paved the road to a better life
for parents and children.
As our fiat money perniciously
lost value, time preferences shifted upwards as it made more
sense to spend a depreciating currency today than save for the
future. And, better yet, what is more seductive than to borrow
ever-depreciating fiat money -- as heavily encouraged by the
Federal Reserve -- and pay the principal back with money that
has become worth even less?"
NewsGroup Notable Quotables:
From Byron Wien's "For
the smartest man in Europe it's all about Asia" - 7/19/06
"All of this [the rise
of Asia and the Middle East] makes the Smartest Man [in Europe]
bullish on gold. A decade ago people were talking about a billion
people buying a McDonald's hamburger or a Coca-Cola each day.
From his point of view, we should be thinking about three billion
people buying a milligram of gold whenever they get some spare
cash. People in developing markets are generally unsophisticated
in their understanding of financial assets, and those that have
some knowledge and experience are somewhat distrustful based
on the experience of the past few years. They know that gold
will always be worth something."
USAGOLD comment: I have followed Wien's always interesting
discussions with the Smartest Man in Europe for years. This is
the first time to my knowledge that he directly recommended purchasing
gold -- and for very solid, long term reasons as it turns out.
From Peter Grandich, The Grandich
Letter - 7/21/06
"While geopolitical events
are adding to the volatility, I continue to believe gold should
trade in a broad range of $575 to $675 through the end of August.
Strong seasonal factors and a continuing long list of bullish
fundamental and technical factors should lead to a new year high
in the fall."
 Transformation's Toll
George Will, Jewish World Review, 7/18/06
" 'Why wait?' Perhaps
because the U.S. military has enough on its plate in the deteriorating
wars in Afghanistan and Iraq, which both border Iran. And perhaps
because containment, although of uncertain success, did work
against Stalin and his successors, and might be preferable to
a war against a nation much larger and more formidable than Iraq.
And if Bashar Assad's regime does not fall after the Weekly
Standard's hoped-for third war, with Iran, does the magazine
hope for a fourth?"
USAGOLD comment: George Will has been the conscience
of American conservativism for a very long time. Here he takes
on the Bill Kristol, The Weekly Standard magazine, and neo-conservatism
-- a movement he calls "a spectacularly mis-named radicalism."
Though the purpose of the USAGOLD NewsGroup is apolitical, we
will recommend reading from time to time which we consider groundbreaking.
This is a must read.
Related: Wm F Buckley: Bush Not A True Conservative
(CBS News Exclusive: Buckley Criticizes President For Interventionist
Policy)
Note: The last few days has seen gold and the dollar
trading on interest rate and central bank policy news and rumor.
As the United States and others evacuate its citizens from Lebanon
consider the possibility that this is a prelude -- a clearing
of the way -- for an Israeli invasion of Lebanon. We have all
seen how the chaos in the Middle East has affected the gold price.
As such the dollar rally and gold correction of early this week
might turn out to have been but a brief hiatus belying a much
more powerful yet still unseen undercurrent.
 Gold rallies sharply, dollar falls on Bernanke
testimony
Wangfeng Zhou, MarketWatch - 4/19/06
"The dollar fell sharply
against major foreign-exchange counterparts Wednesday after comments
from Federal Reserve Chairman dampened expectations the central
bank will raise interest rates in August. Bernanke told Congress
that monetary policy must be flexible as the economy is in a
state of transition. He said inflation risks remained and the
central bank was concerned about rising prices. But he said the
economy was likely to slow and this should ease inflation pressures.
He also said the full impact of past rate hikes have yet to hit
the economy."
USAGOLD Comment: Helicopter Ben takes flight. Gold,
stocks fly along.
Fed economist says US could be going bankrupt
EdmundConway, Daily Telegraph - 4/17/06
"To paraphrase the Oxford
English Dictionary, is the United States at the end of its resources,
exhausted, stripped bare, destitute, bereft, wanting in property,
or wrecked in consequence of failure to pay its creditors. .
. The United States has experienced high rates of inflation in
the past and appears to be running the same type of fiscal policies
that engendered hyperinflations in 20 countries over the past
century."
USAGOLD Comment: Professor Laurence Kolitkoff's views
(written for the St. Louis Federal Reserve) validate much of
what was said in "The ABCs of Gold Investing" and in
subsequent updates of the "Disturbing Trends" essay
available in our online
information packet. The fact of the matter is that these
trends are on a one-way street to a dead-end town called Dollar's
Collapse. When reading Mr. Koltikoff's analysis keep in mind
that economic history shows that there are only two ways to beat
hyperinflation. You must either become a very adept and lucky
speculator, or you can diversify into gold -- the ultimate safe
haven -- and watch the whole thing unfold calmly from your armchair.
Note: The way things are going we may have to declare
the Summer
Doldrums over -- making "Doldrums 2006" the shortest
slow period for the gold market in recent times. I would caution
that the chaotic situation in the Middle East -- and the $78
oil price -- isn't the only reason gold is rising. Another important
contributor is the fact that while the Federal Reserve has signaled
that it might forego further rate increases, Japan and Europe
have indicated simultaneously that they are likely to raise rates
-- all of this ahead of the upcoming G-8 conference in St. Petersburg,
Russia. It appears that key members of G-8 want to demonstrate
to the financial markets that they are in concert with the Bush
administration's drive to devalue the dollar. This is a very
important change in the long term mix for the foreign exchange
markets. It is at the same time strongly gold positive for the
medium to long run when you consider that in order for the devaluation
policy to truly work, it must be sustained over an extended period
of time measured not in weeks or months, but years. --Mike
Kosares
Barclays says ditch bonds, buy commodities on
inflation, growth
Bloomberg - 7/12/06
"Barclays Capital analysts
recommend selling U.S. and Japanese government bonds and buying
commodities in the third quarter as global growth and inflation
accelerates."
USAGOLD comment: When the mainstream press say buy
"commodities" what they really mean is "buy gold"
-- unless of course you have the wherewithal to buy a silo full
of corn or a warehouse full of copper or zinc. Gold is the great
simplifier; the great equalizer. For those who truly understand
the analysis: Gold is the answer.
Bulls bet on gold to top $1,000
Ambrose Evans-Pritchard/Daily Telegraph - 7/14/06
"A sudden surge in demand
for gold options cashable at over $1,000 an ounce is the clearest
sign to date that hedge funds and savvy traders are betting on
a big rise in bullion prices. UBS said investors had begun to
show keen interest in 'call' options to expire in December with
strike prices of $1,000 an ounce and above. The bank said buyers
had even emerged for options dated late 2007 with a strike price
of $2,500."
USAGOLD comment: This is the first time I have seen
option numbers in the four figures. We have to get accustomed
to the possibility of much higher prices for gold as well as
much higher volatility. Gold has been discovered by the world's
big speculators. There is both good and bad in that as we are
all finding out.
Gold hits highest level since May 30
Polya Lesova/CBS MarketWatch - 7/14/06
"Gold for August delivery
was last up $10.10 at $664.50 an ounce on the New York Mercantile
Exchange, reaching its highest level since May 30. With the escalation
of violence and political tensions around the world this week,
gold's safe-haven allure has spurred buying."
Be careful out there. . .
Jack Crooks/Asia Times - 7/14/06
"Japan did its thing.
Stocks are tumbling. Gold is rising. Oil is rising. The Middle
East is burning. And we have June import prices to worry about
on Friday morning. Be careful out there."
Gold rises to six-week high as investors seek
safe haven
Bloomberg - 7/12/06
"Gold rose to a six-week
high in London as investors bought the metal as a haven following
terrorist attacks in India and tension over Iran's nuclear research
program. . .Gold climbed 2.2 percent last week as North Korea
fired at least seven rockets into the Sea of Japan. . . . 'Gold
gained on the Indian bombings, and there are problems in North
Korea and the Middle East,' said Bernard Sin, chief trader at
Geneva-based MKS Finance, one of Switzerland's four gold refiners.
'The market will continue to scale up; tensions are still there.'"
USAGOLD comment: It seems we are emerging from the
doldrums much sooner than anticipated. At $645, we are roughly
$80 from the previous high! As this is posted it is being reported
that two Israeli soldiers have been captured by Hezbollah militants.
Israeli Prime Minister Olmert called it "an act of war."
Those following gold's glitter are wagering on
bad times
Eric Heisler/St. Louis Dispatch - 7/08/06
"'Gold was money before
there were central banks,' said Michael Kosares, president of USAGold-Centenniel
Precious Metals, a gold trading company in Denver. 'In the modern era, people see it
as a final payment. It has a value that doesn't come out of thin
air and can't be undermined, and that's not ever going to change.'"
USAGOLD comment: If the true motivation for gold owners
were headlined, it would read: "Those following gold's glitter
are HEDGING bad times." The press sometimes paints gold
owners as some divergent aspect of the social mix. In reality,
gold owners are your average physician, dentist, accountant,
business owner, lawyer, investment professional, contractor --
etc cutting across every occupation. This group realizes that
their financial safety is not insured by any branch of government
or even the central bank, but by their own prudent action. There's
a story making the rounds among financial market participants
that Alan Greenspan, after delivering a speech recently in Europe,
was asked if he would prefer his fee in dollars or euros. He
answered that he preferred gold coins.
United Arab Emirates set to enter gold market
(Peter J. Cooper, Editor-in-chief/AMEInfoFN - 7/03/06)
"The United Arab Emirates Central Bank governor this week
gave his strongest hint yet that the emirates will shortly enter
the gold market and also purchase euros as a diversification
of the national currency reserves presently held in US dollars.
With the US dollar ripe for devaluation this seems a timely initiative."
USAGOLD Comment: UAE estimates an acquisition amounting
to 10% of its $23 billion in reserves -- a figure which translates
to a nearly 120 tonne gold purchase. When you consider that the
Central Bank Gold Agreement countries are slated to add at best
500 tonnes of gold per year over the next three years, one can
only speculate how the rumored official sector demand is going
to be met. The United Arab Emirates is one small but oil-rich
state among many. With private investment demand and jewelry
soaking up most of the mine production and official sector buying
set to outweigh official sector selling, traditional economics
dictates that the imbalance will feed through to the price.
... and a related link: Gold shines after UAE's dollar switch by AE
(Pritchard/London Telegraph - 7/03/06)
"The Abu Dhabi petroleum fund is thought to be worth atleast
$450 billion. The fund never discloses its investments and moves
quietly through foreign banks, but veteran gold watchers suspect
that it is also diversifying into precious metals."
USAGOLD Comment: Pritchard subtley suggests that perhaps
the UAE central bank governor has more on his mind than the reserves
of the nation state alone. In the Gulf, oil revenues are more
concentrated in what we would call private hands than public.
The $23 billion in UAE central bank reserves is overshadowed
considerably by what is held in the "petroleum fund"
-- $450 billion dollars. Despite the fact that most "players"
talk their book in the public venue (and I consider the Sultan
a player), here we have a case where the power is so situated
that what is being said might very well become reality. If the
UAE central bank can drive the gold price higher by inference
or direct action, guess who benefits? UAE official sector buying
could translate to huge profits on the private side of the ledger.
Why the Gulf countries continue to embrace the
doomed dollar
(Mena Report - 7/04/06)
"Thus, the dollar's demise might take a bit longer than
common sense would suggest, as everybody is trying to evade the
unpopular repercussions. Nevertheless, it is inevitable, and
that is why the GCC countries need to contemplate a diversification
into other currencies and gold sooner rather than later."
USAGOLD Comment: There are several revelations in
this analysis of value to the gold owner among them the fact
that the United States Treasury Department offered specially-priced
tranches of Treasuries to the Gulf States and Japan in order
to finance the U.S. debt. This report offers a realistic interpretation
of how the dollar is viewed by the nation-states holding it,
and why even though exporters like Japan and Saudi Arabia are
forced to hold it now, they still need to find a safe harbor
before its too late. This tightly written report blends well
with the UAE news.
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