Final Assault - or the Last Gasp?

By: Alex Wallenwein | Fri, Apr 16, 2004
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If amazement made people rich, gold buffs would all be billionaires.

It's amazing to see what markets will do when they are in their final stages of shaking off decades of semi-centralized "management" by the political and banking class.

In fact, I have been so amazed these past few weeks, and continue to be so amazed that I fear, if it ever stops, I will need a psychologist to deal with the emptiness that will follow. Maybe I'll have to turn to strong drink or something.

In only the last few months, we have seen the following (formerly unimaginable) economic developments:

  1. Gold has climbed (and on occasion has fallen) in sync with the Dow.

  2. The euro-zone underwent a huge crisis of confidence last year when EU finance ministers voted not to punish France and Germany for violating the Maastricht Treaty's "growth and stability pact". Yet, the euro not only survived - its value began to take off even faster relative to the dollar than before.

  3. We have seen gold losing almost every shred of its traditional inverse connection to the dollar's (mis)fortunes in two different ways: (1) a time-divergence (gold fell hours before the dollar made a jump); (2) both gold and dollar moving in tandem, intra-day; both in the upwards and downwards direction.

  4. We witnessed gold beginning to rise in dollar terms even as the dollar made gains against the euro (to which gold seemed to be hog-tied back in 2003 and continuing into the early months of this year).

  5. Gold, the inflation-hedge "par excellence" falls on a day when Forbes reports an "alarming jump" in US inflation for March 2004.

  6. Supposedly "good" economic news (the 308,000 "increase" in non-farm payroll jobs) literally ravages US treasuries.

  7. Future rate-hike fears are so high that even the normally good economic news of improving corporate earnings sent the Dow spiraling lower.

  8. Even a rock-like drop in the dollar during the last two quarters of 2003 has brought no relief from chronically (fatally?) high US trade and current account deficits. Instead, the twin deficits have grown even more menacing.

And now? What were the news of the day on this past fifteenth day of April, when Americans rush out to send their government legally coerced "love letters" with checks in them?

Rothschild, the primordial gold banking family, the family that has built its fortunes on gold for over 200 years, the name that has controlled the "London gold fixes" for decades, has announced it is exiting the business of gold banking - except for lending.

And on the same day, the Bank of France (yes, that's gold-loving France, the same country that has held on to it's number three position in world-wide gold reserves for four decades with an iron fist, the country whose decision to cash in on the US international gold window leading up to 1971 has forced Nixon;'s hand in closing that window) yes that France, announced today that it is considering selling up to 500 tons of its gold reserves by 2009 because it wants to earn "interest" in paper money.

By the way, Monsieur Noyer (are his first initials "A. N." by any chance?), the French central bank president, was only in late March heard to say that discussions of maybe selling France's gold were "non-existent." Hmm.

Add to all of this the fact that the paper-price of gold is still rubbing it's knees from a two day, 20-plus dollar fall, and then consider the very strange occurrence of the notoriously anti-gold mainstream press reporting that gold is expected to move higher despite all of the aforementioned gold-control efforts.

How weird is that?

Now pile on top of that the fact that the data for these reports (in both the Hindu Business Line and Financial Times, then later picked up by Reuters) came from none other than Gold Fields Mineral Services, the company that has soured so many gold investors' hopes during the nineties by insisting that there was no such thing as a gold supply shortage, and by stubbornly claiming that world central banks had leased only about 5,000 tons of the metal when the GATA team's research evidence pointed to far higher figures.

Guess the Financial Times editorial committee (or its heandlers) figured that this news piece had to be "balanced", so today they come out with the following title: "Going, going, gold" in which they predict the ignomious demise of gold as an investment altogether.

Then there is Bloomberg, predicting that gold is heading for its biggest decline in three months. And AP is weighing in - belatedly - about the planned French sales.

The spot above my right temple, where I usually scratch when I am scratching my head in wonderment, is not just getting bald - I may need a scalp transplant there very soon, if all of this doesn't stop.

Is there stress in the financial world, then?

Nooooooo. Not a trace!

In fact, we are doing so well that the financial press is speculating about the return of a "goldilocks economy."

Everything is just perfect. We are in the middle of a last-ditch, exclusively printing-press-fed economic recovery that, so far, in over two years, has utterly refused to add jobs so that the press had to contort numbers from the Department of Labor to make it look like 308,000 non-dairy jobs were added when there were an unreported equal number of offsetting losses elsewhere.

The dollar has fallen almost uninterruptedly for over two years now. Finally Americans are getting some welcome relief (aided tremendously by the slanted payroll numbers reports), seeing the dollar rebound to multi-month highs, and we see the stock market (that has done just dandy while the dollar was falling) drop like an inverted rocket in response to this great item of creative news reporting. Corporate earnings are rising, and the Dow craters. Gold stays tame (thanks to all of these herculean efforts by our leaders who will let no economic harm befall us before an important election) and the bond market starts to look like the surface of the moon.

Meanwhile, the Fed is busily destroying the last remnants of its credibility by coming out in force with the calming message that inflation remains totally under control - only two weeks before Forbes calls the sudden rise in general price levels "alarming," sending US treasuries to the bottom of the sea.

Just today, Bernanke came out again and said inflation was "okay" or something. You just know these guys are lying when they are trying in such force to convince you of the exact opposite of what you can observe with your own eyes.

Gold has survived its last assault with flying colors, rallying back from below $400 to near $430 an ounce, so now we see a coordinated public news blitz about how "worthless" it has become.

What's the bottom line in all this?

Believe me, the financial powers of the world KNOW that gold will continue rising. Unlike us poor little gold bugs, they have no doubt in their minds. Why would the House of Rothschild quit while prices are rising? Does it foresee the impending circular distribution of that which is currently hitting the proverbial fan?

Some of those powers want to see gold rising. Their camp is broken up into those who want a "managed" rise (the euro faction which is busy engineering a smooth transition away from a dollar-dominated financial system), and those who want a sudden, dollar-destructive, rise (the fanatical Muslim faction which only wants to see the dollar burn).

In the other camp is the dollar-faction (mainly the US, with Britain sort of "hanging on," mainly for old friendship's sake) which realized far too late in its arrogance that the euro-threat was for real, and that the days of the dollar are numbered.

Spice is added to this world-wide financial policy war by the fact that the euro-zone, by fulfilling its mandate to engineer an alternative reserve currency that will not suffer from chronic deficit syndrome like the dollar, has condemned itself to eternally dwell in economic purgatory. To keep the euro's attractiveness high, the Europeans were forced into a kind of "credit-bubble austerity program" which did not allow them to lower rates as much as the US was able to do, htereby temporarily resucitating its economy from advanced stages of cardiac arrest.

Because of this, the euro itself is now threatened, offering the very interesting possibility of two (the two only existing and viable) reserve currencies failing at the same time.

What will that do to gold?

More rampant and unfounded speculation on that topic is coming up in the next (May 2004) issue of the Euro vs Dollar Currency War Monitor.

Got gold?


 

Author: Alex Wallenwein

Alex Wallenwein
Editor, Publisher
The Euro vs Dollar Monitor

Just like driving your car, investing only makes sense if you can see where you are going. The Euro vs Dollar Monitor is your golden windshield wiper that removes the media's greasy film of financial misinformation from your investment outlook. Don't drive your investment vehicle without it!

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