The U.S. $ and its Prospects

By: Julian D. W. Phillips | Fri, May 26, 2006
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The U.S. $ and its prospects
The O.E.C.D. has issued warnings that are positive for gold and silver and platinum. The O.E.C.D. has stressed that governments are unable to deal with deteriorating global current account balances, which could, if allowed to continue, lead to "an adjustment which could turn unpleasant" and even "brutal".

The E.C.B. was advised by the O.E.C.D. against raising interest rates but the Fed was encouraged to continue its interest rate raising. China was urged to raise rates and allow its currency to appreciate.

The O.E.C.D. expects oil prices to stay high. They feel that the major downside of globalization was increasing oil and commodity prices.

We mention this as support for our own stance on the decaying global economy, a theme we have followed for some considerable time. We continue to do this as we see World leaders continue to posture their own nations interests in a global economy desperate for them to act in concert in the interests of the globe. We don't see this happening as the very nature of national politics and leadership can only consider global interests, once national interests have been satisfied. As a prime example of this we include this item on John Snow, U.S. Treasury Secretary, where his very words could not have made this point clearer:

"U.S. Treasury Secretary John Snow insisted on Friday there has been no weakening in the United States' commitment to a strong dollar and vowed to hold China's "feet to the fire" over promises to make its currency more flexible. On CNBC Television, Snow was asked whether the Bush administration has become less forceful in advocating a strong dollar and so effectively has endorsed a decline in its value. "I don't think so. It's the policy. It's in our interests," Snow said. "But we also say as well that currency values should be set in open, competitive currency markets, to be in line with underlying supply and demand and market forces," he added. He also said that neither the United States nor other key trade partners should follow "beggar-thy-neighbor" currency policies that seek to gain an advantage by pricing exports unfairly cheaply." - Q.E.D.

The Oil Crisis
The Russian Trading System, Russia's premier stock market, announced that it would start trading in gold, oil, and oil products on June 8. The announcement comes in the wake of President Vladimir Putin's state of the nation address May 10, when he said Russia, as a leading oil-exporting nation, should establish its own oil exchange to trade crude and petroleum products for Rubles.

The stock exchange also said it would start trading in futures and options on oil and oil derivatives, including Urals-brand diesel fuel, jet fuel, and fuel oil. Trade will be in Rubles based on prices calculated by the Platts agency. The settlement period for a contract is one month and the minimum security guarantee on a contract is 10% of its overall value. The derivatives section of the RTS, known by its Russian acronym 'Forts', will trade futures and options on gold in Rubles based on the London Stock Exchange evening fixing rate. The settlement period for a contract is one month and the minimum security guarantee on any contract is 5% of its overall value. The statement said RTS would collect a 1-ruble commission for each concluded contract.

The chipping away at the use of the $ for all oil contracts worldwide is about to begin in earnest! The first place we expect the numbers will be reflected will be the figures of Treasury purchases each month. Last month saw the U.K. and Caribbean Banks buy a disproportionately large amount of U.S. Treasury assets. It appears that this is part of a international $ liquidity management programme. If this is correct the two centers will buy even more from now on, as other foreigners reduce their purchases of the U.S.$. The process may take some months to be fully visible, but we are watching to see just how the waning role as global reserve currency affects the U.S.$ exchange rate.

Hurricanes on the way and threatening!
The U.S. National Oceanic and Atmospheric Administration said 2006 could see up to 10 hurricanes, a dark cloud over the Gulf of Mexico, which last year saw offshore platforms toppled, undersea pipelines ruptured and several coastal refineries flooded.

About 20% of the Gulf's 1.5 million barrels per day of crude oil output has been shut since the record 2005 storm season along with 13% of the region's 10 bcfd of natural gas production.

Whilst the oil price is declining at the moment, the first serious hurricane hit on the oil region of the Gulf will see prices rocket and the fight over global supplies rise to new levels. The impact of the hurricane in the oil market will hit growth in all nations of the world one way or another. The eventual rationing of oil in nations unable to secure sufficient supplies is now becoming a more distinct feature of this future. Gold will reflect the increase in these global tensions as it has been doing this year so far.

Angolan Oil - Street smart Producers?

  1. Total SA of France and Brazil's Petrobras won contracts to lead international consortiums to explore two offshore oil fields in Angola. Total is to head exploration in a deepwater field called Bloc 17. As lead operator, it is to have a 30% stake in the field, with SSI taking 27.5% and Sonangol holding 20%. In Bloc 18, Petrobras was granted a 30% share, with SSI taking 40% and Sonangol 20%. Smaller local companies took the remaining stakes. Total is to pay Angola US$670 million (€525 million) and Petrobras US$310 million (€243 million) in "signature bonuses" - a one-time cash payment made upon signing a contract
  2. The largest stakes in the two blocs are to be held by SSI, a joint venture between Angolan state oil company Sonangol and China Petroleum & Chemical Corp., or Sinopec. Sinopec did not yet have the technical knowledge to lead exploration in deepwater fields. Sinopec is Asia's largest refiner by capacity.
  3. Earlier this month, Italian energy company Eni SpA paid $902m to secure a controlling stake in Bloc 15. Total and Petrobras are part of that bloc's consortium.

Petrol Producers from Russia to Venezuela and down through Africa are ensuring that both the East and the West will get their oil. This not only gives the Producers power over whom they supply, but allows them to play one off against the other, gaining huge leverage in the process. No longer will the West be able to exert pressure on them, because of this, but will have to tolerate the antics of small oil supplying governments as we are seeing in Latin America now.

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Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.

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