Thai Guru's Gold und Silber ... (Informationen und Vermutungen)

From The King Report:

Our friend Pat alerted us to this CBS Marketwatch story: "Layoffs at U.S. corporations jumped 17 percent in February to 108,387, boosted by increased merger and acquisition activity, international outplacement firm Challenger Gray & Christmas reported Wednesday. February was the fourth month in the last five in which announced job cuts exceeded 100,000. Layoffs were up 40 percent from February 2004's 77,250." http://cbs.marketwatch.com/new…7B06F63908%7D&siteid=mktw

From a Café member in England:

Interesting facts (need to be verified)

Greenspan started Apr-87 or so ?
Since then US M3 money has gone from 3.5 trillion to 9.5 trillion
US 'official' govt debt from 2.3 Trillion to 7.7 trillion
DJ from 2,500 to 10,000 approx
Gold from c.450 USD per oz to c.430 today !!
Silver from 8-9 USD per oz (quite volatile 18 years ago) to c.7.2 today
!!
Platinum c.600 USD per oz to c.860
Oil is up considerably too
And derivatives !!!!!

The next guy will have quite a job
Regards
stefano

-END-

Greenspan Humbled By Asia's Central Bankers: William Pesek Jr.

March 2 (Bloomberg) -- Asia's economies are rolling the dice with an enterprise that may alter the complexion of the global financial system, affecting powerful central bankers like Alan Greenspan on the other side of the world.

It's called ``The Asian Bellagio Group,'' a name that is borrowed from the European Bellagio Group, a gathering of academics started in the 1960s. Asia's group includes officials from Japan, China, South Korea and Southeast Asian nations who met in Bangkok last week to discuss the dollar's slide…

http://www.bloomberg.com/apps/…lumnists&sid=aKmRPPpmFAfg

-END-

When it comes to gold demand, China eventually will be an India. That demand is going to grow and grow and grow. Keep in mind China only opened up the gold market very recently to its public:

China's Consumer Demand for Gold Rises 12.8 PCT in 2004
BEIJING, March 3 Asia Pulse - Consumer demand for gold in the Chinese mainland increased 12.8 per cent last year from 2003, according to the World Gold Council (WGC).

The mainland's consumer demand for gold reached 234 tonnes in 2004, up from 207.4 tonnes in the previous year, according to WGC statistics.

-END-

Want to stress the importance of the paper by Dr. Eckart Woertz, Vice President Fixed Income and Structured Products at CFC Securities Limited in Dubai, UAE, titled, "The Role of Gold in the Unified GCC Currency."

GCC stands for Gulf Cooperation Council.

Its members are Saudi Arabia, Oman, UAE, Bahrain, Qatar and Kuwait. The GCC was founded at the beginning of the 80s as defense cooperation in the light of the Iran-Iraq war and gradually expanded cooperation to economic and cultural issues. This paper will be read, or is being read, by some of the most significant money players in the world. As this work is coming out of the Arab world itself, the financial people in these Arab countries will take its contents very seriously.

You might like to know Dr. Woertz told GATA’s Ed Steer, "there is an Arabic translation in the making and will be ready shortly."

As far as I am concerned, this paragraph is primo:

"The likely outcome is the current manipulation scheme of the gold price will fail like the Gold Pool in the sixties. Once it fails, it will be highly difficult and expensive to accumulate a gold reserve. This is especially true for central banks that have low gold reserves like those in the GCC countries."

Basically, Dr. Woertz sums up his notations on GATA’s efforts by saying we are correct. Central bank gold has been used surreptitiously to artificially hold down the price. As a result, half the central bank gold is no longer there. Should Arab central banks wish to accumulate gold at a reasonable price, they had better do so in the near future before the price takes off and it becomes prohibitively expensive.

To emphasize the significance of this gold report, GATA sent out the following press release this morning to business editors in the US AND to the business editors throughout the entire Middle East in English and Arabic - and to Israel in Hebrew.

BW)(TX-GATA) Dubai Study Endorses GATA's Findings on Gold
Market Rigging, Warns Oil Producers

Business Editors

¶ DALLAS--(BUSINESS WIRE)--March 3, 2005--A study published by a research foundation in Dubai has endorsed the Gold Anti-Trust Action Committee's findings that Western central and commercial banks have rigged the gold market but have much less gold than they claim to have and so are vulnerable to rising demand for gold. The study recommends that the oil-producing countries of the Middle East diversify their ever-depreciating U.S. dollar holdings into gold.

¶ The study, "The Role of Gold in the Unified Gulf Cooperation Council Currency," was written by Eckart Woertz, vice president of CFC Securities in Dubai, for the Gulf Research Center. It quotes the work of GATA's consultants, including Frank Veneroso, and predicts that the gold price suppression scheme of the Western banks will fail just as their similar scheme of the 1960s, the so-called London Gold Pool, failed when the drain on Western gold reserves became too great. Once the scheme fails, the study says, "it will be highly difficult and expensive to accumulate a gold reserve. This is especially true for central banks that have low gold reserves like those in the Gulf Cooperation Council countries."

¶ The study concludes: "The paper dollar standard is a dead man walking. Its debt, accumulated over the recent decades, is too high to be effectively repaid. It will either default or be inflated to such an extent that it will not 'hurt' to pay it back. Therefore, the accrued imbalances in global finance and the inherent weakness of worldwide growth models that rely on a continuance of U.S. deficit spending are likely to usher in a serious crisis of currency systems in coming years.

¶ "Gold will be a suitable means of asset protection and ultimate payment in such a scenario. It will preserve the wealth of individuals and central banks alike and will ensure important maneuverability for the latter."

¶ GATA believes that the study is likely to have a profound influence on governments, banks, and investors in the Middle East and may accomplish there what the similar report by Sprott Asset Management of Toronto -- "Not Free, Not Fair: The Long-Term Manipulation of the Gold Price" -- is accomplishing in the West.

¶ The Middle East's oil-producing countries are especially obliged to heed the Gulf Research Center's study because their economies are based on a wasting asset, oil, whose depletion will leave them with little more than sand if the payment they receive is substantially depreciated or defaulted upon. In exchanging a real asset for paper assets that represent only unpayable debts, oil-producing countries are at imminent risk of massive expropriation.

¶ The study has been posted at the GATA Internet site here:
http://www.gata.org/The%20Role%20of%20Gold%20Digital.pdf

¶ GATA urges its supporters to publicize the study around the Internet and in communications with mining companies, investment houses, and news organizations.

--30--EF/da*

CONTACT: Gold Anti-Trust Action Committee, Dallas
Bill Murphy

KEYWORD: TEXAS UNITED ARAB EMIRATES INTERNATIONAL AFRICA/MIDDLE EAST
INDUSTRY KEYWORD: BANKING MINING/METALS PRODUCT
SOURCE: Gold Anti-Trust Action Committee

ZZZZZ
#1119211

From Business Wire to GATA:

Bill,
I just wanted to follow up with you about the distribution of your GATA press release today to our Middle East circuit in case I was unclear. It will be distributed across the newswires in the Middle Eastern countries in Arabic, and in Israel in Hebrew. A full list of the media points it reaches is available on our website under "Products and Services."

http://home.businesswire.com/p…dia_view&circuit_id=10742

Emily

-END-

MIDAS does not see eye to eye with the mainstream precious metals analysts on silver either:

ANALYSIS-No silver lining seen for sterling metal

By Lewa Pardomuan
SINGAPORE, March 3 (Reuters) - Buying silver may no longer be a sterling idea these days.

Despite recent lofty prices, the outlook for the precious metal that was once widely used in photographic film is dimming due to oversupply and a switch to digital pictures.

"Digital cameras are replacing traditional cameras and it will affect silver demand," said Ellison Chu, a senior manager at Standard Bank London in Hong Kong. "The overall supply for silver is quite large."

Gone are the days when investors relied on the photography industry to suck up large amounts of silver for film processing. And while a small amount of silver is used to coat the paper photographs are printed on, digital camera buffs increasingly don't bother to print their work.

Some analysts see growth prospects in the electrical and electronic sectors, which make up nearly 40 percent of the market. But oversupply, seen at more than 30 million ounces this year, and decline in silver use for photography, which accounts for a quarter of current demand, are major concerns. Analysts said the metal's rise to an eight month high of $8.15 an ounce in December was solely driven by speculators inspired by gains in gold and copper and not by fundamentals. Silver currently trades around $7.31 an ounce.

"We believe that the rally in silver is getting rather long in the tooth. We forecast that silver will average $5.80 in 2005 and $5.60 in 2006," said John Reade, precious metals analyst with UBS Investment Bank in London.

The outlook for digital cameras is indeed rosy. Japanese makers, who account for about 80 percent of global output and include global brands like Canon and Olympus, expect to ship 72 million cameras this year, up 21 percent. Sales of rolls of old-fashioned film sales are projected to fall 17 percent to 2.9 billion rolls in 2008, from 3.5 billion rolls in 2000, photography industry figures show.
Because of its industrial use, silver often tracks base metals prices. Silver has excellent heat and electricity conducting property and is used in electrical switches, contacts and fuses.

Jewellery and silverware account for around 30 percent of the market but analysts said this demand would be stagnant as owners of silverware and old jewellery cash in on the high price and recycle rather than buy new silver items.

"While the metal may still challenge and break $7.0/7.50 an ounce once more on speculative buying, we expect the move lower in other commodity prices to drag silver lower later this year," said Reade.

Analysts said a recent sharp hike in lead and zinc prices would lead to increased mining for these metals. This will result in more silver being produced as a by-product, further depressing prices.

A dealer in Singapore, who also sees silver falling below $7 by mid year, said investors should not be swayed by recent big movements.

"Silver is so cheap compared to the price of gold. That's why the funds can push a lot volume around and that can really have a big impact on the market," he said.

Some dealers also said there was concern China, one of the world's main producers of silver, could be an active seller of the precious metal in the coming months.
Hong Kong dealers said China's silver export quotas this year are believed to be slightly higher than last year's 3,050 tonnes, or 98 million ounces.

-END-

From Canada’s Minister of Finance:

From: re-FINEMail@fin.gc.ca [mailto:re-FINEMail@fin.gc.ca]
Sent: Wednesday, March 02, 2005 11:58 AM
To: Phil Ogden
Subject: your correspondence of February 4, 2005

March 1, 2005

Mr. Phil Ogden
pogden@fivecounties.on.ca

Dear Mr. Ogden:

Thank you for your correspondence of February 4, 2005, in which you argued in favour of gold revaluation by the International Monetary Fund (IMF) to reduce third world debt. You also suggested the rebuilding of Canada's bullion store as part of its reserves.

First of all, I appreciate your suggestions and share your desire to help the world's poorest countries without disrupting world gold markets. In fact, Canada has been a leading advocate of debt relief for the world's poorest and most indebted countries, supporting broader, deeper and generous debt relief under the Heavily Indebted Poor Countries Debt Initiative and through its own Canadian Debt Initiative.

Building on Canada's leadership in debt relief, in February 2005, Canada announced its commitment to cover its share of the debt service obligations of reforming low-income countries to the International Development Association and the African Development Fund. For the IMF, Canada has called on donors to agree on the need to provide further IMF debt relief and to identify the best way to finance this cost.

.../2
Gold revaluation, or off-market gold sale, is just one possibility to finance further IMF debt relief. The IMF Managing Director has agreed to bring forward proposals, covering the IMF's gold and other resources, at the April 2005 Spring Meetings of the IMF and World Bank. Mobilizing the IMF's gold reserves, however, is a complex issue, which needs to be carefully considered. Besides the IMF's responsibility to avoid causing disruptions to the functioning of the international gold market, several heavily indebted poor countries, including Ghana, Mali and Tanzania, are gold producers themselves. Moreover, we need to consider the impact of gold revaluation on the financial position of the IMF itself. It is worth noting that an IMF gold revaluation requires an 85 per cent majority, or almost unanimous support from the IMF's 184 member countries.

As part of Canada's February 2005 debt relief proposal, Canada also called upon donor countries to pay for 100 per cent debt service relief on IMF claims directly, if gold-related financing options negatively affect the IMF's financial position or disrupt world gold markets.

Regarding your suggestion to rebuild Canada's bullion reserves, the purpose of Canada's reserve holdings is to provide a source of funds needed to help promote orderly conditions for the Canadian dollar in the foreign exchange market, and to provide general liquidity. Canada invests its reserves in high quality, highly liquid assets such as securities issued by a sovereign borrower, an agency or an international financial organisation and bank deposits, to ensure that funds are available when needed. The level of reserves is broadly in line with that of other comparable countries. Adding gold bullion to Canada's reserves would not be consistent with Canada's reserves policy.

I hope that I have been able to address the issues raised in your note.

Yours sincerely,
Ralph Goodale

***

Thank you for your response sir/madam on behalf of Minister Goodale. I believe Canada is headed generally in the right direction as regards debt relief and I fully support your exploring with IMF the alternatives to selling gold as you have indicated.

However as concerns Canada's gold selling/holding policies I genuinely believe we're headed 'off the cliff' along with the other short-sighted western central banks/governments (chiefly the US, Britain, and Germany). When financial stresses abound both individuals AND countries have always found gold bullion the safest place to maintain wealth. And the world is now in very pronounced monetary, trade, and currency stress, more than it has encountered in many decades, if not in history: the rapidly declining US$ as its trade deficits go parabolic; the imbalances between the Yuan, Yen, Euro and US$; the wholesale creation of un-backed fiat by many western countries and the parallel wild growth in M3; the fragile US economy, having lost its manufacturing base in large part; and very importantly the fire sale of their gold bullion by short-sighted and arrogant western governments, to essentially those with a longer term perspective and strategy for pulling themselves up economically to par or even to surpass the West - the Chinese, the Russians, the Indians, plus many savvy mid-Easterners, Japanese, Koreans, etc who have bought our gold at dirt cheap prices. Diversifying reserves into currencies that are also inflating at high rates isn't a strategy for long-term economic stability. A country must have the old relic when the above-mentioned stresses create world monetary crises. Holding a lot of over-inflated US dollars as reserves won't be a sound defence when S.D. 3 or 4 economic, banking, financial or political events occur. If we hold gold then will be on much firmer ground.

Buy gold; it's been a protective asset for thousands of years and they aren't finding much anymore. Rubin, Summers and Greenspan have not done anything to change that reality.

Yours sincerely,
P. Ogden

Can’t get in this site, yet a perfect email to bring to your attention on this egregious Gold Cartel day:

Dear Bill,
I have been reading your recent articles linked from kitco.com. Very interesting as usual!

I was just comparing my two favourite Unit Trust funds here in the UK. They are Merrill Lynch Gold & General and JPMF Natural Resources, about the only Unit Trusts available in these areas (OK there are one or two more but that's about it). These are probably the two "Big Name" funds.

I hope you can see this (I can because I am a member of this site). Look at that massive divergence starting early December 2004 after a long period of parallel movement!
JPMF Natural Resources - Interactive Investor 1 year chart

What does this mean to you and your campaign? I think this is one chart to be quoted in an article by one of you guys. It is stunning!

Checking on a longer time scale just confirms the above:

JPMF Natural Resources - Interactive Investor 5 year chart...

The charts were in lock step most of the time until 3 months ago

What started happening December 2004? It's certainly not a strong dollar phenomenon!

Best regards,
Dave Bellamy.
http://members.aol.com/synthchap/

70s and 80s Synths

-END-

Many Café members sent this intriguing bit of info to me:

Bush's Greatest Fear: Russian OPEC & Gold Ruble
by AL MARTIN

On Feb. 21st, Russian foreign minister Lebedev said in a press conference shown on C-SPAN that he had, in recent weeks, spoken to the heads of state of all of the non-OPEC oil-producing nations about the coordination of oil policy with the Russian government. He also pointedly reminded everyone that Russia is now the world’s Number Two oil producer and the leading producer of natural gas. What does this imply?

This is the Bush Regime’s greatest fear -- that Russia has also been purchasing gold in recent weeks for the first time in years. To finance the purchase of gold, it has been selling platinum and palladium, which it had been previously withholding from the market in order to support the price during the last year. This is one reason why the price of palladium and platinum has come under pressure in recent weeks, because they are, after all, thin markets.

The Russian government has announced that it has made early repayments of all of its remaining IMF loans. Russia has also announced that she will act to readjust her payment schedules on foreign debt to pay off ahead of schedule the remainder of Russia’s $126 billion state debt.

Very simply put, Russia is flush with cash and is now running the largest net surplus budget accounts of any nation-state on the planet –even exceeding the surpluses that the government of China is maintaining. This will allow Russia to completely pay off all of its state debt within 10 to 12 years, instead of the 16 to 28 years that it had originally planned. And this original plan, by the way, is only 12 months old.

In order to do this, Russia, the world’s largest exporter of commodities, needs to maintain commodity prices at high levels. This is particularly true with oil, its chief export. In order to do so, Russia is attempting to develop a new second OPEC by stringing together all of the so-called non-OPEC oil-producing nations into one new group under Russian control.

(The preceding excerpted from "The Bush Regime’s Greatest Fear: A New Russian Based OPEC and a Gold-Backed Ruble" by Al Martin)

For the rest of this analysis, subscribe to Al Martin Raw.com
(http://www.almartinraw.com)
log on to Al Martin Raw.com (http://www.almartinraw.com)

Subscribe to Al Martin Raw.com") and get Political Economic and Financial Intelligence you can use to protect your assets. Log on and subscribe to AlMartinRaw.com: Political, Economic and Financial Intelligence (http://www.almartinraw.com

* AL MARTIN is an independent economic-political analyst with 25 years of experience as a trader on NYMEX, CME, CBOT and CFTC. As a former contributor to the Presidential Council of Economic Advisors, Al Martin is considered to be a source of independent analysis for financially sophisticated and market savvy investors.

After working as a broker on Wall Street, Al Martin was involved in the so-called "Iran Contra" Affair as a fundraiser for the Bush Cabal from the covert side of government aka the US Shadow Government.

His memoir, "The Conspirators: Secrets of an Iran Contra Insider," (http://www.almartinraw.com) provides an unprecedented look at the frauds of the Bush Cabal during the Iran Contra era. His weekly column, "Behind the Scenes in the Beltway," is published weekly on Al Martin Raw.com, which also publishes a bimonthly newsletter called "Whistleblower Gazette."

Al Martin's new website "Insider Intelligence" (http://www.insiderintelligence.com) will provide a long term macro-view of world markets and how they are affected by backroom realpolitik.

-END-

This from the First Associates page today:

Golden Star Resources (GSC-T: C$3.70 BUY C$7.75 target): We listened in on the company's presentation to institutional investors yesterday and liked what we heard. The Market seemed to like it as well, as the stock posted the majority of its gains after the presentation. Important points: The company stated that they do not need to issue equity to get through their $105 MM CAPEX program. They have $50 MM cash/investments, will generate $45 MM cash from ops., they have a $25 MM CAT loan, and will have a $50 MM credit facility available shortly. Bankers who were on-site recently for due diligence apparently came away happy. The second issue that is a sticking point with investors is the illegal miners at Bogoso/Prestea. The Regional Mines Minister recently issued a statement requiring all illegal miners to apply for a license or they will be removed from regional forces. This marks the first time the Government has taken action and is a huge step for Golden Star. It doesn't get rid of them but should allow for some control of the situation. I get the sense that we have seen the worst. The recent low of C$3.38 is hopefully the end of the sell-off. Golden Star offers outstanding production growth (tripling '04//07), rock-bottom valuation (0.7X NAV vs. 1.2X-1.8X for peers, $34/oz. of total resource vs. $100/oz. for peers) and has the best gold beta of the stocks we cover. The next few months will still see high cash costs from Wassa (until they are tied into the electrical grid) but at least the market will get a sense for production volumes, grades, and recoveries. BUY, C$7.75 target.

-END-

Houston’s Dan Norcini says it all to a fellow Café member:

Hello Tom:
Believe me when I say that I share your sense of outrage. Words cannot express the disdain and contempt that I feel towards those who perpetrate this fraud. As my buddy Bill Murphy says, until the gold cartel is carried off the trading floor of the Comex on stretchers, gold is going to struggle.

They are intent on holding the line here and are doing their worst to absorb every bit of the fund buying coming into the gold market. Open interest continues to increase and is now some 37,000 contracts higher than its low made when gold hit bottom a few weeks back just above the $410 level. All that buying has been aborbed by the cartel - simple as that. For all that, gold is sitting only $20 higher. That is simply pathetic.

It is as you are saying - crude oil is going ballistic along with most of the rest of the commodity world and gold and silver are simply going nowhere. The cartel cannot break it down as the physical market will not let them but the funds are being stymied by the price capping or, more appropriately, the legalized theft continues while the gold world is quiet as a church door mouse

Tom, I have traded futures for a living for many years and if there is one thing I have learned, it is this - no one EVER ATTEMPTS TO STAND IN FRONT OF THE BIG TRADING FUNDS when they are establishing positions - no one. They simply step back and led them either bid up the price or offer it down and will either scale up sell or scale down buy. GOLD is the only market that I have ever witnessed where the upward progress is deliberately resisted. Again, this is not the action of commercial hedgers looking to obtain maximum profits; it is the kind of price action that clearly and demonstrably reveals price suppression as anyone with the least bit of market price action knowledge will tell you.

The proof of what I am saying can be seen the past week in the grain complex - there the trading funds had been massively net short for some time. The South American weather turned hot and dry in southern Brazil where a good portion of the bean crop is grown - result - commodity funds were forced to cover their short positions and buy like there was no tomorrow. Did we see the commercials come in and deliberately fight the funds and sit on the upward price movement? Hell no they didn't! The simply sat back and let the funds bid the market up for them before selling into the rally and were THRILLED to do so. All that means is that they sat there and let the market give them a better price for their product before selling. Any selling they did along the upward trek was minimal. Why fight what is in their own interest? That is called smart, wise trading and is exactly what TRUE HEDGERS should do.

The only place where we observe self defeating price idiocy is in the gold market. The commercials (and they are not hedgers but professional speculators masquerading as hedgers and obtaining hedger's margin rates) cannot wait to hit every bid that surfaces and even offer it down further instead of stepping aside and allowing the funds to bid the price up and then begin a judicious scale up selling program. I can tell you this - even if I did not know what GATA has been saying - I would know that they are correct MERELY BY WATCHING THE PRICE ACTION. As a professional trader, that is enough for me and is icing on the GATA cake of research!

They are right and the rest of the gold world who ridicules them are simply flat out wrong, inept and incompetent. Pick your own adjective and fill in the blank.

The cartel thieves will go down in flames when the big Asian Central Banks have had enough of accumulating scraps of U.S. Treasury paper I.O.U.'s. Gold is not going to lose its historic role of thousands of years merely because some smart ass Western monetary elites swallowed the swill of the pestilential J. M. Keynes.

Keep the faith. Gold and Silver are real money and nothing else is.
Dan

The gold shares continue to trade as if the gold market is manipulated and the price capped. Odd, don’t you think? The XAU lost 1.03 to 97.09. The HUI fared worse, dropping 3.04 to 210.19. At least it held 210 support.

Tomorrow should be a wild one. Short-term … who knows? What with The Gold Cartel bent on taking gold back to the stone age and the commodity prices surging on a daily basis, anything could happen. Meantime, GATA pounds away to expose this fraud. The faster the truth is known, the faster the price will SOAR and go to where it should have some time ago.

Wonder what all those Arab business editors will do with our GATA press release?

GATA BE IN IT TO WIN IT!

MIDAS

Jesse: Some of the things in here are obvious, and some are not quite right, but the way the author casts this information and the analogy to 1929 is interesting.

***

http://www.alwayson-network.co…ents.php?id=8853_0_24_0_C

The Three Desperados
AO's economic agnostic proposes an explanation of the magic behind low interest rates.

ericjanszen [Trident Capital]

On February 2, 2005, the Fed completed its sixth quarter-point rate hike since June 30, 2004. At the time of that first rate hike, the target Fed Funds Rate was 1.25%, while the ten-year US Treasury bond closed that day at 4.62%. Eight months and six rate hikes later, the target Fed Funds Rate is 2.50% and the ten-year US Treasury bond is yielding 4.16%, even lower than when the Fed started tightening. So while the Fed Funds Rate has doubled, the long end of the bond market has actually declined. The effect is often referred to as a "flattening yield curve," in reference to the chart line of rising short-term interest rates approaching the chart line of rising long-term interest rates.

Ten-year US Treasury bond yields that seem stuck near 40-year lows—and the low mortgage rates that are derived from them—explain the mystery of the seemingly never-ending real estate bubble. But isn't this circumstance of diverging short- and long-term interest rates during a Fed tightening cycle highly unusual? A recent CBS MarketWatch article put it this way:

"Most likely, both short- and long-term yields would be rising with the Fed tightening, but with the short end of the curve rising at a faster clip.

"Short-term yields are indeed rising. But their longer-term counterparts are not.

'If this curve were to invert, which I don't think it will, it would be the first time since Bretton Woods [economic summit in 1944] that the curve was flattening with short-term and long-term rates going in opposite directions,' said Liz Ann Sonders, chief investment strategist with Charles Schwab."

What gives?

The same article quotes David Gilmore, a partner in research firm Foreign Exchange Analytics, offering the most commonly expressed explanation: "It is scary when one realizes that the U.S. yield curve is not really representative of inflation expectations in full, but reflects the visible hand of governments, the orgy of currency intervention in Asia, the recycling of $50 a barrel oil by OPEC, and more recently a determined effort by U.S. firms to reduce under funded pension liabilities."

In other words, long treasury bonds are so expensive, and yields so low, because they're so darned popular among The Three Desperados: Asian central banks, OPEC, and U.S. corporations.

Another view belongs to Federal Reserve Chairman Alan Greenspan, who said in testimony two weeks ago: "For the moment, the broadly unanticipated behavior of world bond markets remains a conundrum." The "I don't know" response may or may not be honest, but it certainly sounds honest, and that's usually enough if you're running a central bank. Last week, however, Greenspan's predecessor Paul Volcker, speaking before a group at Stanford, lamented about the apparent unwillingness of the current Fed and others to try to understand what is going on.

Maybe Volcker is not aware that there is another theory which both explains the peculiar demand for treasury bonds—and thus the low interest rates—and resolves Greenspan's conundrum. While it isn't comforting, at least it's an attempt to get at the truth.

Back when I was doing bubble research in 1999, I came upon a scholarly book called Debt and Delusion by Peter Warburton. The book has become something of a cult favorite among professional, contrarian financial analyst types. In fact, if you want to buy a copy today, it will cost you $100 used, because it's out of print and in demand. In Chapter Seven, titled "Risk Markets and the Paradox of Stability," Warburton supplied—six years ago—a framework for understanding the peculiar bond price and interest rate movements that we are seeing today. Warburton explained:

"There is an even more serious dimension to the meteoric rise in the use of financial derivatives; the implicit credit system that operates within it. Quite apart from the inherent gearing of futures and options, relative to trades in the underlying securities, it is possible to use unrealized gains in financial assets (including derivatives contracts) as collateral for future purchases. The persistent upward trend in asset prices has amplified these unrealized gains and has enabled and encouraged the progressive doubling up of "long" positions, particularly in government bond futures. It is easy to envisage how the cumulative actions of a small minority of market participants over a number of years can mature into a significant underlying demand for bonds. While financial commentators are apt to attribute a falling US Treasury bond yield to a lowering of inflation expectations or a new credibility that the federal budget will be balanced, the true explanation may lie in progressive gearing."

If we accept Warburton's thesis of the effect of progressive gearing of bond derivatives on treasury yields, and that this applies to current circumstances—not as a factor of the anomaly of a flattening yield curve as suggested by Gilmore and others, but rather as the primary cause—we're still left wondering how this may be resolved. For an answer we turn to Martin Mayer, writing on the Over the Counter (OTC) derivatives market as a Guest Scholar in Economic Studies at the Brooking Institution in the same year (1999) when Warburton wrote his book:

"Derivatives markets guarantee a winner for every loser, but they will over time concentrate the losses in vulnerable sectors. Nature obeys Mayer's Third Law, which holds that risk-shifting instruments will tend to shift risks onto those less able to bear them, because them as got want to keep and hedge while them as ain't got want to get and speculate. The logic behind margin requirements in stock markets and capital requirements in banking also holds in the derivatives markets. Permitting highly leveraged institutions to hold private parties behind closed doors is the political version of selling volatility: the predictable likely gains will one day be overwhelmed by an equally predictable disastrous loss."

Warburton draws similar conclusions: "What is clear is that when the next global bear market in equities and bonds arrives, the unwinding of highly geared derivatives positions will trigger financial explosions in every corner of the developed world."

Back in 1999, many of us thought that the coming pop of the stock market bubble (which finally took place in 2000) was destined to be The Great Crash of our century. But in reality, those of us who worried about a repeat of the fallout of the 1929 equities crash were guilty of fighting the last war. The 1929 crash resulted largely from the unwinding of many years of intertwined, non-transparent and highly leveraged investment vehicles called Investment Trusts, the hedge funds of their day. But the damage to the real economy actually happened later, because the banking system had supplied most of the credit for those leveraged bets, so when the stock market went down it took the banking system with it. The real economy soon followed.

But banks did not participate much in the 1990s stock market bubble, thanks largely to post-Great Depression government regulations that limit banks' exposure to equities. Instead, to generate the profits denied them by regulations and regulators in other markets, today our nation's banks carry the liability of several trillion dollars of replacement value for the modern version of the intertwined, non-transparent and highly leveraged bets of the 1920s, but in the bond markets via OTC derivatives, rather than in the equity markets.

Under the rare anomaly of a flattening yield curve may lurk the seeds of the greatest risk to the financial system and the real economy to be seen since the last time the nation's banks supplied credit for massive, highly leveraged financial bets. AO members are invited to discuss this theory. Let's start with three questions: How might an unwinding of these OTC derivative positions in the bond markets come about? What impact might this unwinding have on the economy?

***

The Coming End of the American Superpower
By PAUL CRAIG ROBERTS
March 1, 2005

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions. http://www.amazon.com/exec/obi…553X/counterpunchmagazine

He can be reached at: pcroberts@postmark.net
The US economy is headed toward crisis, and the political leadership of the country--if it can be called leadership--is preoccupied with nonexistent weapons of mass destruction in the Middle East.

The US economy is failing. The afflictions are serious. They could be fatal even if diagnosed and treated. America is losing the purchasing power of its currency and its ability to create middle class jobs.

The dollar's sharp decline and projections of continuing trade and budgetary red ink are undermining the dollar's role as reserve currency. A number of central banks have announced that they will be diversifying their currency holdings and will not be buying dollars at the same rate as in the past.

This will put more pressure on the dollar. At some point the flight will begin. Instead of buying fewer dollars, central banks will sell dollars hoping to get out before the dollar hits bottom.

Suddenly, the advantage of being the reserve currency becomes a nightmare as the world's accumulations of dollars are brought to market. An enormous supply and weak demand mean a very low exchange rate for the once almighty US dollar.

Overnight those cheap goods in Wal-Mart, which are the no-think economist's facile justification for Wal-Mart's decimation of communities, small businesses and employment, shoot up in price.

Interest rates will escalate as the government struggles to finance its endless red ink. Heavily indebted Americans with adjustable rate mortgages will attempt to sell homes just as rising mortgage rates reduce buyers. Real estate assets, the rising value of which have been keeping the economy going, will give back gains.

The US has lost its ability to create middle class jobs or for that matter any jobs. During the last four years the US has experienced a net loss of 760,000 private sector jobs (January 2001 - January 2005). Think what this means for graduating classes and people coming of age to enter the work force.

Moreover, the composition of jobs has changed away from high-value-added, high-productivity jobs in tradable goods and services toward lower productivity domestic service jobs that cannot be outsourced.

Even here in this last remaining area of employment for Americans, the US work force is losing job opportunities to foreign nurses and school teachers brought in on H-1b work visas as a result of budgetary pressures on local school budgets and hospitals.

No-think economists and politicians continue to propose unemployment insurance and education as remedies for the jobs problem. These proposals are mindless to say the least. The same incentive to outsource holds for all tradable skills. If truth be known, job outsourcing and offshore production sound the death bell for US higher education.

Americans unable to find jobs in export and import-competitive sectors find themselves searching for jobs in nontradable domestic services, where their inflow into those labor markets is augmented by illegal immigrants and foreigners on H-1b visas. Obviously, the pressure on wages is downward.

No-think economists explain away the difficulties as a "globalization adjustment" that will require Americans to curtail their consumption of imported goods. These economists are ignorant of American's dependence on imported manufactured goods. Even American brand name goods are made abroad in whole or in part. Tightening the belt will mean much more than cutting out foreign made luxuries.

The dollars' decline will drive up the price of all inputs except US labor which is being substituted out of production functions and replaced with foreign labor.

Oblivious to reality, the Bush administration has proposed a Social Security privatization that will cost $4.5 trillion in borrowing over the next 10 years alone! America has no domestic savings to absorb this debt, and foreigners will not lend such enormous sums to a country with a collapsing currency--especially a country mired in a Middle East war running up hundreds of billions of dollars in war debt.

A venal and self-important Washington establishment combined with a globalized corporate mentality have brought an end to America's rising living standards. America's days as a superpower are rapidly coming to an end. Isolated by the nationalistic unilateralism of the neoconservatives who control the Bush administration, the US can expect no sympathy or help from former allies and rising new powers.

March 4 – Gold $433.60 up $4 – Silver $7.34 up 15 cents

CRB Continues To Soar / "Memories of the Souk al Manakh" Revisited

Life is either a daring adventure or nothing. To keep our faces toward change and behave like free spirits in the presence of fate is strength undefeatable...Helen Keller

GO GATA!!!

It’s hard for me to imagine a more tedious and infuriating line of work than watching gold trade, or not trade as it were. I would like to single out today as unusual by using adjectives like blatant, obvious, outrageous, etc., however, what would be the point? Today is like almost every other gold up day. The farce just goes on and on and on.

Let me go get my recording that I have used 75 times over the recent years: Gold popped up sharply during the first hour of trading and then went sideways for the rest of the trading session.

The fact that the dollar was slammed and commodity markets kept going up and up an up meant nothing. The only thing that matters in this market is what The Gold Cartel does. The only thing that matters to them is how much money they can steal from you and how they can hold down the world’s number one inflation barometer (gold) in order to con the public. To add insult to injury the cabal trots out their obsequious bozo, Wall Street propagandist Larry Kudlow, on CNBC to point to the flat gold price as proof there is no real inflation in the US. Never again will I pan a bad B-movie for being too absurd as far as the plot is concerned. Compared to this gold farce, they could all pass for non-fiction.

The CRB, adding 1.66 to 309.18, shot up again like it does every day in this non-inflationary American economy:

April CRB
http://futures.tradingcharts.com/chart/RB/45

Now compare the CRB with gold – makes me want to throw up:

April gold
http://futures.tradingcharts.com/chart/GD/45

I am too ticked off to write any more at the moment. Time to go for a run so I will hand off my commentary to a veteran Café member and staunch GATA supporter, the very savvy James McShirley:

Bill,
As we watch another ($6) limit up day early, followed by dead in the water trade the rest of the day, with mainstream reporting of "dollar decline supporting gold" I thought you would enjoy reporting from a different planet- lumber. Here is an excerpt from a broker at the CME on Tuesday after 4 out of the last 5 trading sessions being limit up:

The Lumber Comment
Leonard Commodities, Inc.

The Market Recap:
The upside pressure is relentless down here. Most traders are frozen in thought process as the market goes up. It seems as if most want to argue the fact that the mills are in the mid 420's and futures are rallying to par. The only real selling is roll by the funds. The roll has been large, but has had no effect on the market. I like to summarize these rallies as the future market that lacks selling. But this market has 1 seller for each buyer. What I am saying is the market has upside momentum. The spread was active today trading from $6 out to $11 later. The cash market was seeing activity at the 426 area. New home sales came out down 9.2%. This was lower than expected but did little to the market down here.

No limit tomorrow in March

Quick Summary: shorts bailing

***

When has gold ever had relentless upside pressure described?
When has gold ever had futures rallying to physical described?
When has there ever been an absence of gold sellers?
When has gold ever been allowed to have upside momentum?
When have the gold contracts spread trade widen dramatically in a session?
When has gold been given a VERY bearish number- e.g., housing down 9.2%- and blow it off?
When have the gold shorts ever bailed on a signal failure?

Lumber like the rest of the CRB is reflecting escalating operating costs while still seeing decent demand. Note I said decent, not even like the deficit demand of gold or silver. If housing were running out of trees to make lumber (like silver) it would already be on allocation at double the price. Anybody that denies gold price management could look no further than a 3-year lumber chart to see unfettered price discovery. Keeping gold and lumber side by side on my screen is truly a tale of 2 markets.
James McShirley

Long live The Matrix and Stepford Wives. Hail to the Orwellians.

To give another look at just how rigged the gold market is, compare the weekly gold price (which went down this week even though the spot CRB went up every single day) to the CRB weekly. The divergence is noticeable over longer periods of time; however, that divergence went bonkers the past few months as the CRB has roared into new high ground, while gold is more than $20 away from making new highs:

CRB weekly
http://futures.tradingcharts.com/chart/RB/W

Gold weekly
http://futures.tradingcharts.com/chart/GD/W

Goldman "Hannibal Lecter" Sachs was a seller during the day and SMOTHERED the close.

Gold in euros went DOWN, closing at 327. 65, down .16. The market was so managed today they wouldn’t even let gold up to its upper limits of the $6 Rule. At its high it was up $5.50.

The financial markets as a group made NO sense unless you understand they are all about manipulation (price management) and liquidity. The Working Group on Financial Markets (PPT) and The Gold Cartel had a field day.

The stock market took off because investors supposedly loved the jobs number. OK, so why did the bond market take off too, especially with the commodity markets on such a tear? It rose a full point to 112 30/32. If the jobs number was so great, why did the dollar get battered? It fell .78 to 82.53. The euro rose 1.36 to 132.48. There can only be one conclusion in my book. This will all end very badly.

March euro
http://futures.tradingcharts.com/chart/EC/35

March dollar
http://futures.tradingcharts.com/chart/US/35

Technically, gold is in OK shape. It went back to fill the gap it left a week ago Tuesday and couldn’t quite do it. It also held critical support again a few times during the week at $430. Yet, what does this all mean in a rigged market? Until spot gold takes out The Gold Cartel forces at $437, we are nowhere. Gold will NEVER go sharply higher until the physical market buying overpowers the crooks holding down the price, which is one of the reasons the desperados want IMF gold to enter the market. They want a way to divert surging gold demand.

The good news is The Gold Cartel is in trouble. They don’t have enough supply to meet the surging demand. Thus, I remain an angry frustrated super bull. Both gold and silver could, and should, explode at any time.

The John Brimelow Report

Gartman intimidated out

Friday, March 04, 2005

The Indian Bullion markets were closed today, in solidarity with a three day strike of jewelry manufacturers protesting the imposition in the recent Union (e.g. Federal) Budget of a 2% tax on branded jewelry products. This was unfortunate from the point of view of the nerves of gold’s friends World gold being $3.50 - $4.00 below yesterday’s levels would no doubt have produced heartening premiums. In itself, the tax change appears to be of limited interest to overseas bullion market observers. No doubt it effectively favours pure investment products over jewelry, and old-fashioned informal bullion jewelry over more modern forms, but it does not seem likely to influence overall Indian gold consumption much.

Latest reports are that the dispute has been resolved. It is possible that closing the fabricating shops slowed Indian demand a little, which presumably will be recovered next week.

TOCOM displayed a modest appetite. On volume up 23% to a still low 11,903 Comex equivalent, open interest edged up 669 Comex lots to the equivalent of 100,797 NY. The active contract was down 4 yen and world gold stood 20c below the NY close. (NY yesterday traded 43,578 lots; open interest slipped 940 contracts.)

On Thursday, the manifest capping of the gold market broke the nerves of some participants. Standard-London summarises

"Gold opened in TOCOM at 432.50 and good 2 way business flowed in the market…It was only with much effort that physical demand coupled with a slightly firmer dollar boosted gold to the day’s high of 433.25 bid. After the high had been achieved, things started looking downhill…COMEX opened at the high…Then …gold slipped gradually lower with good Fund sales seen. Good physical demand cushioned the fall all the way to 429 where it bottomed out and closed, straddling 430…"

In other words, once again, buyers found the way up blocked by a serious seller. But the physical market still underpinned the current price.

One of those whose nerve broke was The Gartman Letter, which sold its gold positions on the open, ostensibly for lack of momentum. So the heavy seller of the past week was successful in damaging sentiment in one influential quarter.

Another successful damager of sentiment was the SA Finance Minister Trevor Manuel. His declaration of support for IMF gold sales was a gratuitous blow to gold confidence which brought back to mind the South African announcement of Reserve Bank lending of gold in the turbulent days following the first Washington Accord in ’99. As the ridiculous rand-carry trade- distended exchange rate also indicates, the ANC government in SA caters to Northern Hemisphere "rentier" (or Central Bank) community at the expense of domestic economic activity to a richly ironic degree. The former Apartheid regime would have found this laughable.

JB