Jan 31, 2007

Ron Struthers: New commodities index is a lie

Ron Struthers, editor of Struthers' Resource Stock Report, reports that the new Reuters/CRB commodities price index, introduced in July 2005, shows a plunge in commodity prices even as a calculation of the index according to its former parameters shows a steady increase continuing. The new index, Struthers writes, "has only one purpose and that is to mislead the investment community. It is simply another tool in the Fed/government's chest for the management of economic data."

Read on...
(you can find Struthers' report here: http://www.playstocks.net/RSUV13_2.1Jan232007CRB.asp)

Commodity, another normal correction

I believe I am the only one following and aware of the manipulation of the commodity index. This time the divergence between the new index and the old faithful index can be described as nothing but enormous.

It appears to me that 99% of investors are like sheep being led over a commodity cliff by the media and the Manager's of economic data.

Here is the two commodity charts, it says it all

New CRB Index Weekly Chart

You can see that this new index, while it only has data from July 2005, hit it's high in May 2006 and has dropped a whopping 75 points or about -22% from the 365 point high. The index is at an all time low and looks like commodities have reversed and started a new long term down trend.

Old CRB Index Weekly Chart

The old index has consistently measured the same commodities, in the same way and this fact is the reason that any prudent analyst would only use this index to measure medium to long term trends and direction.

What a difference, how could the two indexes show two totally different pictures. The real answer is simple, this new index has only one purpose and that is to mislead the investment community. It is simply another tool in the Fed/Government's chest for the management of economic data.

These two charts prove beyond any doubt that this new CRB index has be designed to amplify any decline in commodity prices while limiting the upside.

However, it does not change the facts, but it is fooling the vast majority of investors because this new CRB index is what all the media and analysts are quoting and following. As far as I know, I am the lone voice on how the investment community is being mislead.

Commodities only in a Modest correction

The old CRB index hit a new high in late November of 2006 while the new index showed a mild rally from a 60 point decline and remained about 40 points below its peak.

Take a close look at the chart of the Old CRB index. It looks like nothing more than a normal correction from the November 2005 high. The same type of correction we have experienced numerous times since the uptrend began in 2002.

Old CRB Index Monthly Chart

Looking at the monthly chart, we can see that there were significant corrections as measured by length of time in 2003 and 2004. The corrections in 2005 and 2006 were short in duration. I believe the current correction of 2007 is going to be significant, at least like we seen in 2003 and 2004.

This might be driven by my expectation of a slower than expected U.S. economy and the correction we have seen in oil and gas prices has been the first significant correction in this bull market and if we are to go higher from here, it will at least take a significant time of base building for the energy related commodities.

How could this new measure of commodities decline so much?

It cannot be explained with facts and numbers because the calculation on the new index is a 'black box'. We do know that the index is continuously rebalanced and weighted to commodities that are falling in price. That is all that we have been told on the Reuters/CRB web site.

However, I once again went through an exercise to try to figure out how there was such a large decline.

The new index started back in July of 2005 around 310, the same price as the old index on that day. Since then it has declined to 290 or a drop of about - 6.5%, yet the commodities it is suppose to measure are no where close to reflecting this. I might add in the same time period the old index shows an increase of about 23%.

Energy is 33% weighting, the 2nd highest in the new index

Oil and heating oil are about the only commodities that are down and about -10% from July 2005. Gasoline is about the same price.

The biggest weighting in the new index at 42% is Nat Gas with metals, corn, cattle and soybeans. Nat Gas is down slightly but has been down at these levels all year so it has not really contributed to the decline.

All the metals are still up 50% or more above the July 2005 prices

Corn is up about 80% from July 2005

Soybeans are up slightly

And cattle prices are up about 18% from July 2005

Foods, sugar, cocoa, coffee with cotton have a 20% weighting in the new index

These are all up between 10% and 25% since July 2005

So how can the overall index be down -6% when its biggest weighting is up about 50% and the 2nd biggest weighting is only down about -10% if that, and the 3rd largest weighting is up about 18%.

The only way that could happen is if about 85% of the weighting switched to Oil as it started to decline or the other reason and the real truth is this index is bogus and another scam by the Government to manipulate economic data

Crude Oil Chart Weekly

In fact the new CRB index looks exactly like the oil chart since July 2006. The new CRB index plunged with oil prices from July to October of 2006 and then showed the modest rally in November of 2006 and then the move to new lows in January of this year. So in reality the new CRB index has been nothing more than a measurement of the oil price decline in that time period.

But by the chirping of the media and main stream analysts, you would think we seen a huge correction in all commodities.

I will have more on where I see commodity price action going in my 2007 Outlook issue, for now you may want to refer to my earlier issues on this new CRB Index called

Commodities, Bull Market or Bullcrap December 2005 at:



Commodities, the sleight of hand November 2006


(c) Copyright 2007, Struther's Resource Stock Report

Miners ask UN to stop China excluding them from Africa

Miners ask UN to stop China excluding them from Africa

The Times January 29, 2007

  • Companies query safety standards
  • Chinese sweeten deals with dams

  • The world’s largest mining companies are turning to the UN and the World Bank in an attempt to prevent China freezing them out of Africa, The Times has learnt.

    The heads of more than a dozen mining companies representing assets of more than $700 billion (£357 billion) met in secret at the World Economic Forum at Davos last week.

    The group, dubbed the “governors”, met at the Hotel Fluela on Thursday in a six-hour session covering all major issues facing the mining industry.

    Among those present were Paul Skinner, the chairman of Rio Tinto, Tony Trahar, chief executive of Anglo American, Jonathan Oppenheimer, chairman of De Beers, Alexei Mordashov, chairman of SeverStal, and Wayne Murdy, chairman and chief executive of Newmont Mining.

    One of the most pressing issues facing the industry is competition from state-owned Chinese companies, which are signing deals in Africa and freezing out Western miners.

    Africa has vast mineral resources that are largely untapped and, with metal prices at record highs, companies are rushing to grab the best assets.

    China is particularly keen to sign deals with African nations because its booming economy needs access to raw materials such as copper, nickel and zinc.

    Western mining companies are struggling to compete when negotiating deals because the Chinese can offer huge incentives to African nations. Chinese engineers are building dams, telecoms equipment, football stadiums, roads, railways and power stations across the continent. In return for these deeply discounted or gifted projects, they are winning rights to explore and exploit vast areas.

    The World Bank estimates that China last year spent more than $10 billion on infrastructure projects in Africa, including motorways in Nigeria, a telephone network in Ghana and an aluminium smelter in Egypt.

    China is also putting significant efforts into its diplomatic relations in Africa. Hu Jintao, China’s President, is to start a ten-country tour tomorrow. Last year, 48 African leaders, including Robert Mugabe, President of Zimbabwe, went to Beijing to discuss business partnerships and received $5 billion in development loans.

    The most ambitious plan of the mining “governors”, and perhaps the most fanciful, is to ask the UN to mandate that countries must sign deals that require participants to meet high environmental and safety standards. Chinese miners have a poor reputation in these areas and one chief executive who was at the governors’ meeting said that Africa was being “raped and pillaged” by China.

    This charge has been levelled at Western mining companies for years. However, environmental legislation and lawsuits have forced Western companies to raise their game and now they want China to play by the same rules.

    Another strategy developed by the governors was to contact the World Bank’s International Finance Corporation (IFC), which invests in projects in developing nations. Partnering the IFC would let Western miners offer the same sort of incentive-laden deals as China.

    The governors also want to work with environmental groups and organisations such as Oxfam to encourage African leaders to demand more guarantees from China.

    Not all the governors agree about the effectiveness of these strategies. One big miner is seeking joint ventures with the Chinese, swapping its know-how for access to the Chinese market. It also wants to partner Chinese companies in Africa.

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    Jan 29, 2007

    Even more gold and copper at Pebble as Rio Tinto cements interest in Alaskan mega deposit

    Northern Dynasty Minerals (NDM-TSX-V $9.51, NAK-AMEX $8.07)

    Rhona O’Connell
    '26-JAN-07 17:00'

    LONDON (Mineweb.com) --Northern Dynasty is about to undergo a partial change in its shareholder base and has also reported its latest drill results, which have led to an expansion of its Pebble East deposit in Alaska. Pebble is regarded as the largest unmined gold and copper resource in North America.

    Northern Dynasty Minerals Ltd is listed on the TSXV and on AMEX under ticker symbol NDM and is held currently as to 20.7% by Galahad Gold Ltd. Galahad is listed on AIM, ticker symbol GLA and in pursuance of its announcement at the end of November 2006, in which it said that it was evaluating its options with respect to its holding in NDM, has stated that it has entered into an agreement to sell half of its NDM holding to QIT-Fer et Titane Inc., an affiliate of Rio Tinto plc.

    Galahad stated at end-November that the exercise was part of the intention to reduce or remove the discount to net asset value that was prevailing over Galahad’s stock price in order to improve shareholder value. Galahad’s other primary interests are a 79% holding in International Molybdenum plc, which is carrying out a pre-feasibility study on the Malmbjerg molybdenum deposit in eastern Greenland, and an 11.6% shareholding in UraMin, a uranium development company with interests in South Africa, Namibia, Central African Republic and Canada.

    Payment on completion, which is due on 1st February, will be C$94 million (£40.3 million or US$79 million) in cash. This represents a purchase price equivalent to C$10 per share, a premium of 6.8% to NDM’s closing price on 25th January. There are additional terms to the transaction, which would resulting Rio Tinto paying Galahad part of any profit that it might realise in the event of a third party offer for all of the Northern Dynasty stock, and also a partial payment to Galahad should Rio Tinto acquire further stock at prices in excess of C$10.

    The Pebble deposit has obviously exercised the imagination of Rio Tinto, one of the world’s largest copper producers. Pebble is an advanced stage copper-gold-molybdenum projects. Located in southwest Alaska and covering 153 square miles, there are two major deposits on the property; Pebble West is a 4.1 billion tonne open pittable deposit, while Pebble East had been estimated as a 1.8 billion tonne bulk underground deposit with the scope for expansion.

    The 2006 drill programme has done precisely that. The programme completed 74,000 feet of core drilling in 9 holes with a view to determining the overall size, geometry and copper-gold-molybdenum grade distribution of the deposit.

    Pebble East now extends over 7,000 feet north-south by 4,000 feet east-west with grades in excess of 1% copper equivalent and it remains open to both the north and the south. The company reports that “importantly”, there were significant amounts of high-grade copper mineralisation in both the northernmost and southernmost holes, indicating their proximity to mineralising centres that not only look to be open, but to be strengthening to the north and the south. Drilling is due to recommence in the first half of this February.

    Highlights from the drill programme include the following:

    Hole 6338 intersected 1,225 feet grading 1.29% copper equivalent (CuEQ) comprising 0.45% Cu, 1.03 g/t Au, 0.040% Mo, including a 527 foot interval grading 1.72% CuEQ (0.55% Cu, 1.64 g/t Au, 0.035% Mo).

    Hole 6339 intersected 2,051 feet grading 1.32% CuEQ (0.84% Cu, 0.49 g/t Au, 0.032% Mo) including a 661 foot interval grading 2.04% CuEQ (1.44% Cu, 0.78g/t Au, 0.024% Mo).

    Hole 6348 intersected 949 feet grading 1.92% CuEQ (1.24% Cu, 0.74 g/t Au, 0.042% Mo) before the hole was unfortunately lost in high grade (1.82% CuEQ) mineralisation. This hole is located at the southern end of the area drilled. Plans are to drill this hole to deeper levels early in 2007 along with completing additional holes further to the south.

    The 2007 drill programme will also focus on Pebble East and will comprise delineation and infill drilling. The former is planned to amount to approximately 100,000 feet and will concentrate on extending the deposit to both north and south as well as defining the eastern and western limits; the latter will be approximately 150,000 feet and will concentrate on upgrading the resource classification of the highest grade one billion tonnes of the deposit.

    The company also commenced preliminary engineering in 2006 with a view to assessing Pebble East as an underground mine; the results to date have been most encouraging, with copper and molybdenum recoveries of 95% and 75% respectively, and gold recoveries of 50%, giving a 32% copper concentrate. The schedule for 2007 will focus on determining the best project parameters and to start the Integrated Development plan for Pebble East and Pebble West, with the study due for completion in early 2008.

    This is already understood to be a world class deposit. The fact that Rio Tinto is becoming involved may well stir up some further interest.

    CHRYSOTHERAS CAVEAT: Do your own due diligence before taking a position and parting with your hard earned cash to buy stocks!

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    Jan 26, 2007

    Gold Rush 21

    Have a peek at GATA's Gold Rush 21 conference DVD. It was held in Dawson City, Yukon Territory, Canada, in August 2005:

    The DVD contains the proceedings of Gold Rush 21, including addresses by:
    • GATA Chairman Bill Murphy.
    • Sprott Asset Management Chief Investment Strategist John Embry.
    • Gold banker and scholar Ferdinand Lips (delivered by his business partner, J.P. Schumacher).
    • Gold price-fixing lawsuit litigator Reginald H. Howe.
    • James Turk, editor of the Freemarket Gold & Money Report and founder of GoldMoney.com.
    • Former assistant HUD secretary Catherine Austin Fitts.
    • Gold market analyst John Brimelow.
    • Samex Mining Corp. CEO Jeff Dahl.
    • Monetary historian Antal E. Fekete.
    • Chris Powell, GATA Secretary/Treasurer
    • Gold market analyst Alf Field.
    • Former Harmony Gold Chairman Adam Fleming, now chairman of Wits Gold.
    • Robert K. Landis of GoldenSextant.com.
    • University of British Columbia geologist J.K. Mortensen
    The DVD can be purchased with a credit card at GATA's main Internet site, www.GATA.org, and at www.GoldRush21.com.

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    Jan 25, 2007

    The Gold Price-Fixing Conspiracy

    The following is a sobering interview about a foul play on our money that every economically active individual walking on the surface of this planet should KNOW AND ACT UPON!

    The Gold Price-Fixing Conspiracy

    By Doug Hornig
    January 23. 2007

    For many years now, a number of people in the financial arena have been alleging that there is an active conspiracy to suppress the price of gold. Some see it as a sinister backroom affair. Others claim that it’s just the way the world works, and that it happens right out in the open, if only you know where to look.

    Among the latter is the Gold Anti-Trust Action Committee (GATA), the source of much of the material that has been written on the subject in recent years. In order to get their take, we sent our own Doug Hornig to interview Chris Powell, cofounder and secretary/treasurer of GATA.

    GATA’s interest, Chris says, is in “public policy with regard to the rigging—or ‘regulation,’ if you prefer to be polite—of the currency markets, and specifically gold, by the central banks.

    And we don’t have to speculate on what they’re doing, because they’ve confessed in several ways. Of course, it’s not like they’ve gone out of their way to let people know what they’re up to. They don’t go around to the major news organizations and ask them to understand it. But if you look reasonably carefully, you can find these confessions in the public record in various places.”

    We asked Chris to define specifically who they are.

    The central banks and their agents, the bullion banks,” he replied. “The central banks include the ECB [European Central Bank], as well as those of virtually all the European countries, including Britain, along with the Federal Reserve and Treasury Department in this country. Any of the big Western holders of gold. All of whom communicate directly with each other and also through the BIS, the Bank for International Settlements [the subject of an article—‘The Most Powerful Bank You’ve Never Heard Of’—in the March 7, 2006 issue of What We Now Know].”

    The world of international money movement can sometimes be confusing, even for those of us who follow it on a regular basis, so we wondered if the central banks are bullion banks, as well. Chris notes that they can be, but the definition is broader than that.

    A bullion bank is any investment house that deals in the gold market, buys or sells, borrows or lends gold. It need not be a ‘bank’ per se. It could be a big brokerage house like Goldman Sachs.”

    That addressed who might be manipulating the market. But it raised more questions than it answered: What are they doing? How are they doing it? And why do they bother? Chris took the first one first.

    “There’s a general currency market regulation scheme among the central banks, coordinated to some extent by the BIS, in which all the central banks are represented. They’ve pretty much acknowledged this.

    “I first got onto this around 1998, when I began reading the writings of Bill Murphy [a futures trader and the co-founder of GATA]. He was ranting about what he saw as collusion to restrain the gold and silver price, which always seemed to involve the same suspects, Goldman Sachs and Morgan Chase and Citibank and institutions like that. After he went on like this for a few months, I emailed him saying there seemed to be a lot of circumstantial evidence supporting what he was saying, but if what he was saying was true, it would be against U.S. anti-trust law, against the Sherman Act and the Clayton Act and various others.

    “Those laws prohibit any collusion to interfere with the free market price of any good. Which is exactly what the banks are doing with regard to gold.” Chris and Bill created GATA in order to try to raise public awareness of what was happening and, if they could, to prod government regulators into doing something about it. A tough job, considering that a major government agency, the Treasury Department, was up to its eyeballs in the whole thing.

    As the two men got to work, and began posting on the Internet, others who had been looking into the matter surfaced and contributed their own research and evidence to GATA.

    “It’s embarrassing to admit,” Chris says, “that it took us a few years to figure out that the bullion banks are just fronting for the central banks, providing cover for them in the gold market. What we were complaining about was indeed happening, but it wasn’t an ordinary anti-trust violation, it was simply the cover being lent by nominally private entities to international central bank and treasury department policies.” That is, the central banks decide what they wish the gold price to be, the bullion banks carry out those wishes.

    GATA believes that the cover under which central banks have been acting has now been blown so totally that only the wilfully ignorant can fail to see it. And they point to the public record to bolster their claim.

    For instance, there were a few key words uttered by former Fed Chairman Alan Greenspan when he appeared before Congress in July of 1998. Greenspan was testifying as to why the Commodity Futures Trading Commission (CFTC) should not concern itself with regulation of derivatives traded in the over-the-counter market.

    Greenspan argued that, “There is no reason to believe either equity swaps or credit derivatives can influence the price of the underlying assets any more than conventional securities trading does.”

    One might think the chairman guilty of a surprising naïveté, or perhaps something a bit more sinister, but that’s a topic for another day. The relevance here is that gold, in addition to being a fundamental currency, is also a commodity, and as such the CFTC is responsible for oversight of its market.

    Greenspan waved off the necessity for the CFTC to regulate gold derivatives, telling Congress to fear not, that the “central banks stand ready to lease gold in increasing quantities should the price rise.

    Oops. Bet he wishes he hadn’t let that slip. As Chris points out, “Greenspan was telling Congress that the purpose of gold leasing was not what the central banks had been telling the world—to earn a little money on a dead asset. The real purpose of gold leasing was to suppress the gold price. His remarks are still posted on the Federal Reserve’s Internet site.” [they are—we checked]

    Other confirmations of the central bank price rigging scheme include a rather blatant admission from William R. White, head of the Monetary and Economic Department of the BIS. In late June of 2005, White delivered the opening remarks to the Fourth Annual BIS Conference on the “Past and Future of Central Bank Cooperation,” an elite gathering of “central bankers and academics.”

    Among the latter were “economists and economic historians,” as well as, for the first time, “political scientists interested in political and other processes, and the development of institutions to support such processes.”

    White’s speech enumerated five “intermediate objectives of central bank cooperation.” The fifth, and last, of these was “the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful.” [emphasis added]

    Useful to whom? Well, probably not to the average investor.

    Then there is the Washington Agreement—signed in September of 1999 by representatives of the ECB and the central banks of Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, Switzerland, and England—which spelled out how the banks would cooperate in the regulation of the gold market. (The U.S., while not a signatory, hosted the announcement of the agreement, and may be assumed to be supportive of it, if not a direct participant.) It placed a limit on how much they could collectively sell in any given year.

    The alleged reason for the Washington Agreement was to control the amount of gold being sold by central banks, in order to keep the price high and protect the value of those banks’ holdings. That makes sense. It would, additionally, serve as a self-checking mechanism for the signatories, should any of them be tempted to sell off too much of their reserves.

    But Chris isn’t buying.

    “I think the reasons they gave were very disingenuous,” he says, “and in fact the opposite of what they were in there for. They said they were going to regulate the gold market by coordinating their sales and leasing in order to support the price. I would argue that they were in there to control the price and see that it didn’t get out of hand, and to protect their agents, the bullion banks, and the short positions the bullion banks had undertaken in gold at the behest of the central banks.”

    In other words, to keep the gold price lower than it should be. Chris sees the agreement as a smokescreen, a way of deceiving all but the insiders as to what’s actually going on. It allows the central banks to say that they’re taking the initiative to limit gold sales, which is true of physical gold. But while they do that with one hand, with the other they ramp up the action in the derivatives markets—forward sales, options, swaps and shorts—thereby maintaining the artificially low price of gold.

    That argument is bolstered by BIS statistics showing that gold derivative transactions ballooned from $234 to $354 billion, an all-time high, in the first six months of 2006. Conversely, though, it has been a very uneven progression. For all of 2005, derivatives activity actually fell. So a firm conclusion is difficult to draw.

    Nevertheless, the argument that the central banks have worked hard to suppress gold has merit. To understand why the banks would do that, rather than acting in what on the surface would appear to be their own best interests, one has to understand what was going on behind the scenes during gold’s long bear market.

    Chris explains: “I’m convinced that the gold price suppression scheme wasn’t really aimed at gold itself. Gold was the tail on the dog. It was aimed at boosting the government bond market, keeping interest rates down and making the dollar look strong.”

    In order to accomplish that, the central banks had to give bullion banks some incentive to cooperate. Which they did.

    “By the bullion banks shorting gold,” Chris says, “they deceived the world about the level of inflation and money supply growth, and basically they shorted gold to buy U.S. government bonds and collect the difference. If you’ve been assured that the gold price is going down, you short the metal and use the proceeds to buy government bonds. You’re getting 5% on government bonds and the gold price is going down 5% a year, enabling you to close the short profitably, so you have a risk-free trade. You’re getting 10%, as long as the central banks are willing to back you with more gold sales to keep the gold price going down. And Ithink everybody was happy with that. Financial houses, recruited as the banks’ agents, were happy with their easy profits. The Treasury Department was happy because it boosted bond prices and kept interest rates down. And the whole world was deceived about the vast growth that was going on in the money supply. It worked for a while. Until they started worrying that they were running out of gold reserves.”

    Are they? we asked.

    “That’s the zillion-dollar question,” Chris says. “The trouble is, Fort Knox hasn’t been audited since the Eisenhower Administration. Now, the central banks claim to have more than thirty thousand tons of gold in their vaults, but our research has found a lot of double counting, and in fact the IMF issued its own paper some months ago admitting that its rules were allowing the double counting of gold by member banks.”

    By double counting, we assumed he meant that they’re counting both physical and leased gold. That’s correct, he says, and jokes that “the actual disposition of Western central bank gold reserves is a more closely guarded secret than the plans for the construction of nuclear weapons, which are posted on the Internet today. You’ll never find out exactly where all the gold is and who really owns it.”

    The question of ownership is an important one, and it really muddies the waters. Who owns what, and where, is complicated by the use of gold swaps. We asked Chris to explain what a gold swap is.

    “Basically an exchange. Say the Bundesbank and the U.S. Treasury Department get on the phone and Treasury says to the Bundesbank, ‘hey, the gold price is getting a little high, we’d like to sell twenty tons over the next month to tamp it down, or at least lease twenty tons, could you do it from over there to keep our fingerprints off it?’ In return, they say, ‘we’ll give you title to twenty tons in the depository at West Point.’ The Bundesbank says, ‘no problem.’ They dispose of twenty tons in Europe through the London Bullion Market Association, and they get a note from the Treasury Department saying ‘ok, you now have title to these bars in the vault at West Point.’ And hopefully for the sake of the Bundesbank, they’re numbered bars and they can come visit them every once in a while.”

    We had to say that it all sounded very convoluted. It must be difficult to coordinate.

    "Not really," Chris says. "The central banks are constantly talking to each other and they're all members of the BIS, which compiles extensive data on gold reserves, as well as derivatives and leasing.

    “They need to talk, because they have to know whose gold is going out into the futures pit today. And most Western central bank gold, or a lot of it anyway, is held in trust by the U.S., whether it’s in Fort Knox or the basement of the Treasury Building in New York, or in the vault up in West Point.

    “The West Point gold, by the way, was quietly reclassified a couple of years ago from ‘gold bullion reserve’ to ‘custodial gold bullion.’ No reason given by the Μint, no indication of who we were acting as custodian for. Then in July of 2001, the Mint re-designated 94% of the U.S. gold reserve as ‘deep storage.’ Go figure.”

    Thinking about all this, it seems to us that the Treasury Department, the Fed, and the European central banks were engaging in some mighty risky behavior. Chris agrees and says that, in fact, the house of cards almost came tumbling down when gold spiked in late 1999, in the aftermath of the Washington Agreement, and created a short squeeze.

    With the Long Term Capital Management meltdown fresh in people’s memories (it had happened only a year earlier), the central banks feared that the gold squeeze could be even worse, taking down several major trading houses and possibly setting a whole row of dominoes falling.

    In the words of former World Bank consultant Frank Veneroso, it was “an explosive gold derivatives crisis” and “the official sector intervened to prevent [it].”

    The intervention worked. Gold retreated back under $300 and stayed there for two years. Traders were able to unwind their short positions without massive losses. Since then, of course, steadily rising demand has driven the gold price ever higher. Ongoing market rigging has been unable to suppress it, but has served to prevent the metal from finding its true equilibrium point, in Chris’ opinion. He believes that a day of reckoning will come. And what will that look like?

    “Well, I don’t want to make any hard predictions about what will happen, or when,” he says. “But what I think is that we’re going to wake up someday and find out that the Western central banks have met—along with, maybe, some of the Asian central banks—and there are going to be new currency arrangements.

    Maybe in the name of helping the poor countries, the central banks are going to be buying gold at $1,500 an ounce or something like that. It’ll probably happen overnight, because I don’t think the central banks can withstand a steady escape from the paper currencies into the monetary metals. If they do it overnight, everybody’s locked into the fiat system, there’s no getting out. Either you’ve got your gold and silver or you don’t, and there’s no incentive to get out of the hole central bank system.”

    That sounded to us like a sudden and massive devaluation of the buck.

    “Yeah,” Chris says, “I tend to expect that. In fact, that’s what the whole Plaza Agreement was about, back in the ‘80s under Reagan. It was a devaluation of the dollar. They don’t tell you these things are going to happen, they tell you they’ve already happened.”

    Since up to that point, we’d been talking about the central banks and the executive branch of the federal government, we asked if Congress knows about all this, too.

    “The leadership in Congress does,” Chris says. “We told them. A friend of a friend got GATA a private meeting with Dennis Hastert, speaker of the House. The GATA delegation met with Speaker Hastert in his office at the Capitol on May 10, 2000 and we laid it all out for him. Also for Spencer Bachus, the Alabama Congressman who chaired the subcommittee with jurisdiction over gold and silver. Not that we really needed to. A couple of months later, I was able to deduce that we’d been given that meeting not because the speaker wanted to hear what we had to say, but rather wanted to know how much of this was leaking out, how much was known, how much of the whole thing was compromised. I can’t explain exactly how I know that, because it would put my source at risk, but trust me, I do.

    “Look, right now the Comptroller General of the U.S. is going around saying that we’re bankrupt and we’ve got to do something about it immediately. So everyone in government knows what’s happening. As I said earlier, my request to the world is not to look at GATA as some conspiracy nuts. We just want to point out the public record and ask people to pursue it and draw their conclusions. We’re not issuing wild charges or anything. We’re just trying to call attention to the admissions that have been made. And to get people to look at those admissions in a new light. Or in any light at all, as far as I’m concerned.”

    Forewarned is forearmed.

    In Chris’ words, either you’ve got your gold and silver or you don’t.

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    Jan 24, 2007

    IMF to make central bank gold lending data more transparent

    IMF to make central bank gold lending data more transparent

    Dorothy Kosich
    '23-JAN-07 08:00'

    RENO, NV (Mineweb.com) --A Blanchard & Company study calling for greater transparency in central bank gold lending accounting has apparently helped to convince the International Monetary Fund to adopt a landmark accounting change in the way central banks account for gold loans.

    The December 2006 study by Blanchard Vice President and Director of Economic Research Neal R. Ryan suggested that if more transparent governance was implemented in central bank gold lending, “gold prices will experience exponential growth because they will become a reflection of a fair and equitable market for all participants.”

    “The IMF has essentially stated that they believe the market should receive correct accounting on loan information. The final test will be the implementation of the new accounting rules,” Ryan said at the time.

    On Monday, New Orleans-based Blanchard announced that newly adopted IMF accounting changes mean that central banks will no longer include the amount of gold they have loaned and sold into the market as part of their reserve total assets,” according to Blanchard Chairman and CEO Donald W. Doyle, Jr.

    Ryan declared that the IMF action “changes the entire landscape of the gold market for the betterment of all participants involved, because there is now data available that has never previously been published. A transparent market is a healthy market, and the gold market just got a lot healthier.” He added that it will take the IMF some time to institute the new accounting procedures.

    Central banks have their purchases and sales of gold tallied by the IMF International Reserves and Foreign Currency Liquidity Statistics Department, and are updated every three months by the World Gold Council. Ryan asserted that while central banks report sales and purchases to the IMF, they do not report their levels of holdings on loans. He contends that “gold swaps between banks have just as large an impact on the market as gold loans, and even less is known about them in the marketplace.”

    Blanchard is the largest U.S. retailer of American rare coins and precious metals. Its economic research unit provides precious metals market analysis for the financial and consumer media.



    Jan 23, 2007

    What's in store for 2007?

    Well it's not much of a surprise that the world is literally drowning in liquidity. The monetary kind that is. Fiat flooding everywhere. And things are getting worse year over year...

    So, what better way to hammer the message into our heads than a all-singing-all-dancing New Year's e-card prepared by no other than the real estate genius himself, Sam Zell.

    Sam has put his empire up for sale and the bid, so far, is a staggering $38 billion!
    So, turn your speakers on, pump up the volume and enjoy Sam Zell's card...

    Jan 21, 2007

    Leading Canadian banker recommends gold, denounces fiat system

    By Anthony S. Fell,

    Chairman RBC Capital Markets
    Vancouver Client Appreciation Dinner
    Four Seasons Hotel, Vancouver
    Thursday, January 18, 2007

    .... I would not want to close off the evening without tabling one opportunity for all of us to make money, safeguard our wealth, and protect ourselves from the ravages of inflation over the next many years -- and that is gold bullion.

    Gold bullion is a secretive, opaque market with little transparency. Gold can be volatile, is almost impossible to forecast on a short-term basis, and requires great patience, and, accordingly, it's not for short-term traders but rather for serious long-term investors.

    Is gold a currency, a commodity, or a store of value?

    The answer is all three, but gold bullion is primarily a currency and a store of value and is a hedge against fiat paper money and inflation.

    As an economic consultant in 1966 Alan Greenspan wrote: "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. Gold stands in the way of this insidious process."

    At Royal Bank we trade gold bullion off our foreign exchange desks rather than our commodity desks because that's what it's is -- a global currency.

    As J.P. Morgan said in 1913: "Gold is money and nothing more."

    It was Alan Greenspan again who said in a 1999 testimony before the U.S. House Banking Committee that "gold represents the ultimate form of payment in the world."

    Gold bullion is the only currency worldwide which is freely tradable and which is unencumbered by vast quantities of sovereign debt and prior obligations.

    Gold bullion is the one investment and long-term store of value which cannot be adversely impacted by corrupt corporate management or incompetent politicians -- each of which are in ample supply on a
    global basis.

    As a currency and a store of value gold has stood the test of many centuries.

    At the current level of about $625 per ounce, gold has risen about 250 percent over the last five years.

    Nevertheless, I believe gold bullion is now in the very early stages of a long-term secular bull market which will carry it to much higher levels over the coming decade.

    I don't think there's any point in speculating how high the price of gold might go in the course of this cycle because no one can be that precise.

    Suffice to say I anticipate a material increase.

    History doesn't repeat but it's well to remember that from 1970 to 1980 gold rose 2,300 percent so it shows what can happen.

    Reflecting on the long-term outlook for gold, it is important to fully appreciate that we now live in a world of fiat paper money.

    Just as a reminder, fiat paper money, according to the Oxford Dictionary, is inconvertible paper money made legal tender by government decree.

    The real question over the long term is: How much confidence do you have in politicians and central bankers to maintain the purchasing power of their currencies?

    Since the U.S. moved to fiat paper money in 1971, the dollar has lost 80 percent of its purchasing power.

    Since the Federal Reserve was established 93 years ago, the dollar has lost 98 percent of its purchasing power.

    The new fiat U.S. dollar system has been in place for only 35 years -- not long when you consider the sad and sorry record of fiat paper money around the globe throughout the past century or two.

    I would say the jury is very much out on this new system.

    What will the record of the U.S. dollar be in another 20 or 30 years?

    Recent history does not augur well and it could be much worse.

    The U.S. annual trade deficit, now running at a rate of more than three-quarters of a trillion annually, or 6.3 percent of GDP, is a huge concern.

    It's not prudent for the U.S. to depend on foreign bond buyers to finance domestic consumption.

    Asian countries produce low-cost goods which are shipped to the United States, the U.S. ships dollars back to Asia, and then the Asians purchase U.S. treasuries.

    One could say this is a giant international Ponzi scheme. I don't think this model is viable or sustainable. Asian central banks will not want to accumulate U.S. dollars at the current rate forever.

    There is no free lunch. Virtuous circles like this, where everyone appears a winner, always come to an unhappy ending.

    We have never before experienced imbalances in global trade and foreign exchange of the current magnitude -- not even close.

    Major currency realignment is coming, and the longer it is delayed, the more the risk of the crisis. You can't hold back the tide.

    The ingredients are here for major trouble in global financial and foreign exchange markets.

    For all these reasons, I believe the stature and reputation of the U.S. dollar as a store of value have been greatly diminished and undermined over the past decade.

    In light of all this, I believe gold bullion will gradually re-emerge as an accepted alternative asset and investment.

    Over the past few years the price of gold has been in a clear uptrend against the U.S. dollar, the euro, the yen, the Indian rupee, and the renminbi.

    I think this trend will continue and accelerate as events unfold.

    Another factor is that I believe over the past decade there has been a substantial increase in systemic risk in the global financial system, which has benefited greatly from an extended period of incredibly low interest rates, easy credit, and what can only be described as massive liquidity.

    History shows that such an environment can, and usually does, foster a degree of complacency.

    In the financial and investment business memories are short and every generation has to learn the hard way.

    Leverage in virtually every area of the financial markets has increased.

    Financial products are now infinitely more complex.

    There is, at present, an unwarranted optimism that the business cycle is a thing of the past, that central banks with infinite wisdom are in firm control and will be able to thread the needle between inflation and deflation, and that we will never again have a major foreign-exchange or financial crisis.

    Well, I don't believe it, and the record shows that gold bullion represents a solid store of value in times of economic and financial distress.

    Over the coming decade, global gold production will be static to declining while governments around the world continue to increase the money supply at a rapid rate.

    If there is an "event" and a crisis develops, they will print money even faster.

    The arithmetic is compelling.

    Total gold production since the beginning of time is estimated at 5 billion ounces valued at about $3.2 trillion at current prices now scattered around the world in jewellery, artifacts. and gold bars in safety deposit boxes.

    Annual gold production is now running at about 76 million ounces, which means that the above-ground stock of gold is increasing at about 1.5 percent per year.

    In contrast, central banks around the world are probably printing money and creating credit at the annual rate of 5 to 10 percent per annum.

    Recently in China the money supply has been increasing at a rate of 18 percent.

    These numbers dictate that gold prices are destined to go much higher.

    In short, the global supply of fiat paper money is increasing perhaps four times faster than the physical supply of gold bullion, and sooner or later this will be reflected in the market.

    It's like a coiled spring.

    Major gold companies are not replacing reserves and major discoveries are incredibly rare.

    Investors forget that at most gold mines you have to move 35 to 40 tons of dirt and rock just to get one ounce.

    On the other hand, fiat paper money can be printed by pressing a button on a computer.

    It's quite interesting if you've noticed what's happening to paper money.

    Not so many years ago millions of dollars seemed like a lot of money. Then we started talking about hundreds of millions and then we were thinking in terms of billions.

    Then a billion became petty change and we started to talk in terms of hundreds of billions and now you hear the word "trillion" more and more.

    The next stage will be hundreds of trillions.

    Recently an "old master" painting was auctioned in New York for $94 million.

    Just based on common sense, we have to ask ourselves: Is that painting really worth $94 million, or has the U.S. dollar become just like so much confetti?

    I think we know the answer.

    When Mr. Nardelli was recently fired as CEO of Home Depot he received a settlement of $210 million. The CEO of Pfizer received a settlement of $240 million when he was let go.

    A condo in New York trades for $80 million.

    What does all this say about the value of money?

    Finally, there is a great deal of skepticism about the future of gold, which is a very positive factor.

    Investors forget that bear markets start when the skies are blue and bull markets start when despair and apathy are in the air.

    At present most major investors now regard gold and gold shares with apathy and even distain and are vastly underweight the sector.

    The vast majority of investors are so short-term oriented they just don't see the big picture unfolding.

    When the price of crude oil bottomed out at $10.70 a barrel on Christmas Day in 1998 and the front cover of the Economist magazine was forecasting a glut of oil and a price of $5 a barrel, you couldn't give oil or gas stocks away.

    Now just seven years later, even after the recent decline, the price of oil is up five times.

    What a difference a few years can make.

    Similarly, with the price of uranium at $7 a pound at the end of December 2000 you couldn't give away either uranium or uranium stocks. Now that uranium has increased by 1,000 percent to $70 a pound, investors are driving uranium stocks to all-time highs.

    The market just didn't see it coming -- it happens all the time.

    So it is my view that, after a 20-year bear market from 1980 to 2000, the past few years represent a major positive turning point in the fundamental long-term outlook for gold bullion.

    Gold is a hedge against inflation and, as a result of the excesses of the past 15 years, I believe there is more inflation in the pipeline than is generally anticipated -- perhaps quite a bit more -- just like the 1970s.

    I believe any surprises on the inflation front will be on the upside.

    To some extent, I regret to say, all paper currencies are becoming somewhat suspect, and accordingly it is my view that gold bullion, rather than being the barbarous relic described by John Maynard Keynes, may well become the asset of choice for many investors over the coming decade.

    I have always been told to buy quality assets that are vastly undervalued and that have been ignored by the marketplace for a prolonged period.

    Notwithstanding the modest rise in gold prices over the past few years, that is where gold bullion is today, and it represents a great opportunity.

    * * *


    "Silver in the Vault"

    A New Service For Silver Savers In Mexico

    Hugo Salinas Price

    Banco Azteca, which has about 1,000 branches throughout Mexico, is about to launch a new service for those who like to save silver. It is the first bank in Mexico to offer this service; other banks are expected to follow suit, sooner or later.

    The new service is called "Silver in the Vault". This service will provide savers with a safe place to store their one ounce silver "Libertad" coins, which Banco Azteca has been selling for some time now, having taken over the sale of these coins from its parent company, Grupo Elektra, which operates stores that retail durable household goods.

    Only "Libertad" one ounce coins will be accepted for "Silver in the Vault". The coins in the Banco Azteca vault will remain the exclusive property of the depositor and the custody is the responsibility of the Bank.

    The service will entail a small charge, payable quarterly.

    Buyers of silver will be able to buy silver from Banco Azteca and place the silver coins in the Vault, all on-line, with a charge to their Banco Azteca account. They may also take delivery of their coins, at any time.

    Sellers may also sell their coins to Banco Azteca, on-line, with a credit to their account.

    Buyers may also continue to purchase their silver coins at the teller windows of Banco Azteca and take immediate physical possession of them, and sellers may also bring their coins to the tellers, for immediate sale.

    Those who already own coins may bring them to the Bank for deposit in "Silver in the Vault" accounts.

    Since the "Libertad" coin is legal tender, albeit with restrictions which impede its use as money, the purchase and sale of these coins causes no Value Added Tax, which exists in Mexico.

    All the details will be made public very shortly and this service should be in operation throughout Mexico in the course of the month of February, after an initial pilot run and gradual introduction to all branches.

    This service is available only to Mexican residents.


    This is an important preparatory step to the possible monetization of the "Libertad" ounce, which is the objective of the Mexican Civic Association Pro Silver. A Bill to this effect will shortly be presented in the Mexican Congress. There is vast popular support for this Bill; the only opponent, the Central Bank, may be hard pressed to defeat its approval.

    Once monetized, the "Libertad" ounces held in the custody of Banco Azteca would acquire an ascertained monetary value, closely based on the value of silver; the monetary value would rise as the price of silver in pesos rises, but not be reduced in the event of a fall in the price of silver. (At present, the value of the "Libertad" ounce fluctuates in accord with the international price of silver.)

    After monetization, these custody accounts in Banco Azteca would immediately serve as unquestionable collateral for instant loans by the Bank, at low interest rates. The silver would remain the property of the borrower (who has borrowed fiat pesos) but blocked in guarantee against the payment of the loan. Once the loan is paid back, the owner of the silver can once again dispose of it.

    The monetization of the silver ounce would provide a great incentive to saving, without the need to entice the saver to save by means of paying interest on his banked funds, which are actually a loan to the bank holding the depositor's funds.

    This would ensure that the population of Mexico would always have at hand at least a small amount of real, tangible money savings outside the scope of the banking system which, like banking systems throughout the world, is vulnerable to unexpected financial events.

    The monetization of the silver ounce would thus place silver permanently in circulation in Mexico, in parallel with paper money and bank deposits. The fiat peso would remain the official currency of the country.

    Hugo Salinas Price, President
    Asociación Cívica Mexicana Pro Plata, A.C.
    Mexico City.

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    Jan 20, 2007

    Attacking Iran: The market impact of a surprise Israeli strike on its nuclear facilities

    The financial markets are assuming that an Israeli and/or
    US attack on Iran is unlikely. However, bellicose rhetoric
    from Israel and an imminent build-up of US forces in the
    Gulf suggest that they could be in for a shock…

    Attacking Iran
    The market impact of a surprise Israeli strike on its nuclear facilities

    An imminent attack would seem unlikely, given the weakness of the Israeli and US administrations, and hopes for regime change in Iran. However, Iran’s threats to Israel’s existence, and fears that it will acquire nuclear weapons within two years, suggest that President Bush may sanction action before he leaves office at the end of 2008.

    However, within a month the US will have two aircraft carrier battle groups and a new expeditionary Marine strike force in the Persian Gulf, which might provide a shield for an Israeli bombing of Iran’s facilities. Israel reportedly has the weaponry to at least delay the nuclear programme.

    A key imponderable is the extent of Iranian retaliation. Although missile and terrorist attacks on Israel and US interests would be likely, the threat of massive US retaliation, regional conflict and long-term damage to its political and commercial interests might limit Iran’s response.

    The financial market impact would be dramatic, even if Iranian retaliation were restrained. Risk assets have risen strongly over the past three years, and a surprise attack on Iran would catch out markets pricing in little volatility. The US dollar, government bond yields, stock markets and industrial raw materials would all fall. Oil and gold prices, could spike, boosting related equities, debt and currencies. Other credit spreads would widen, and the unwinding of carry trades would see funding currencies benefit, although Japan, dependent on Iranian oil, might lag others such as the Swiss franc. A prime casualty might be the Turkish lira, which could fall 10-20%. The duration of these effects would depend on the extent of Iranian retaliation: a constrained response would make them short-lived.

    ...to read the entire ING Bank compelling analysis on a Iran war impact (in Adobe 'pdf' format) please CLICK HERE.

    Jan 17, 2007

    Richard Russell ruminations on the US economy...

    The venerable "investment guru" Mr. Richard Russell gave us a piece of his mind yesterday on the way economic things are going in the U.S. of A. (and it ain't a pretty picture I can tell'ya!)

    ..Faye and I spent an afternoon at our largest local mall. It was an eye-opening experience. People were buying excitedly in almost every specialty store and department store we visited. I got the feeling that the buying was reaching frenzied proportions.

    The whole spectacle reminded me of various past periods of crowd behavior. I'm talking about almost abnormal crowd behavior. There's the mad Dutch era of wildly-priced tulip plants. I've read books about the crazy Salem period when people accused their terrified female neighbors of being "witches." I seen films of the wild-eyed crazed look of Germans masses as Hitler drove by in his giant bullet-proof Mercedes. I was there during the insane McCarthy era when the entire nation seemed paranoid about the "Commies" that McCarthy warned about but never found. More recently, all of us can remember the insanity of tech stock-buying during the late '90s when people begged their brokers for more and more worthless IPOs.

    Now there seems to be an almost pathological desire to buy -- buy $10,000 hand bags, buy $25,000 wrist watches encrusted with diamonds. Buy women's shoes starting at $500 and going into the thousands of dollars. Every celebrity is now out with his or her own expensive perfume. Classic art is selling in the multi-millions of dollars. Gambling casinos are packed to overflow around the clock. Top of the line Bentley cars are selling at over $300,000.

    But it's not just the rich who are spending the big money. We saw the mall filled with average people, intent on buying something, almost anything. The role models today are the "celebrities." Super markets feature six different celebrity magazines at the check-out stands. Today every young lady want to be "drop-dead gorgeous" like Britney or Lindsay or Paris. Expensive boots are "in" -- even here in Southern California where the last thing a lady need are high leather boots. Designer coffee sells everywhere at $1.50 to $4.00 a paper cup, no refills. Designer sun glasses sell for over $300 a pop and are a must as are special blue jeans that can cost into the thousands of dollars.

    At any rate, I really get the sense of Americans on a buying binge. Strange, and this buying phenomenon is accompanied by a below-zero savings rate. Are people losing faith in their money -- would they simply prefer to have the goods? Or have Americans lost their fear of debt? Buy now and pay later -- but above all, buy.

    Ironically, we see economists worrying about the lack of savings in the US and the steady rise in debt. But at the same time, economists are cheering any increase in consumer spending. Which one do they want? Well, they'd like both. But why worry -- there's always massive defense spending, and an expensive war.

    Speaking of the military and the US empire, we now have 460,000 military stationed in 144 foreign countries. The miracle is how the dollar has held up for this long!

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    Jan 14, 2007

    Special Report: In search of Odysseus's Ithaca

    Here's a (non-economic) newsworthy item from UK's Channel Four.

    A British businessman is trying to prove the birthplace of Odysseus really does exist.

    Compelling new evidence announced today about the location of Homer's Ithaca

    • New scientific evidence closes in on western Kefallinia as Homer’s Ithaca
    • Catastrophic rockfalls and landslides triggered by earthquakes believed to have filled in ancient sea channel and created a landlocked isthmus
    • 122 metre (400 foot) borehole at isthmus meets no solid limestone bedrock
    • Greek Geological Institute survey pinpoints submerged marine valley
    • Bulgarian scientists locate microscopic marine fossils caught up in the rockfall
    • American ground-penetrating radar confirms channel contours
    • Ancient roads interrupted by landslides still visible on the surface
    • Detailed scientific findings and supporting photographs provided
    • Channel 4 News film update broadcast at 19:43 GMT on Jan. 9
    (read the Press Release - requires Adobe Acrobat reader)

    Jan 13, 2007

    Big Trends Outlook

    Here's how David Galland, Managing Director at Casey Research sees the Big Picture in US and global economy (excerpt from The Room - a subscription only ezine):

    "..Trading patterns are likewise accelerated, with money whipping around the globe at the speed of light, with traders claiming to be chasing this trend or that, but in actual fact what they are chasing are shadows.

    Here we take a deep breath and step aside, refusing to be dragged into the mad scramble of the herd.

    The bigger trends, the ones that will count most in helping us place our speculative bets and build our fortunes, are not hard to see, once you poke your head out of the dust thrown off by the thundering herd.

    As the International Speculator has so carefully laid out, the trends to keep a steady eye on at this time break down as follows…

    A. War.

    War is inflationary. It is a drain on national resources and a major contributor to already unimaginable deficits.

    B. The dollar is doomed.

    It is a currency without backing, “managed” by individuals who are on record as saying that the quantity of the stuff in circulation is of no serious import. Monetary inflation leads to price inflation and a weaker dollar, the most positive environment for precious metals and other tangibles.

    C. Resource stocks are owned by almost no one.

    When the broader field of investors realize that precious metals are going to go up as the dollar goes down, the influx of buying will send these stocks to the moon.

    Embedded in these trends there are other important nuances, probably the most important being the sheer quantity of dollars now in the hands of foreigners, foreigners who we seem to have no qualms about poking in the chest.

    The abuse of the U.S. government of its currency, and it’s hubris in foreign policy, will, inevitably, push the foreign holders to diversify out of the dollar. But it won’t happen in the blink of an eye, at least not at first.

    Success in playing these trends will take patience, and you have to be willing to hold through the inevitable downs. But a year from now, your portfolio of the stocks we favor around here should be far healthier than it is today.

    David Galland
    Managing Director
    Casey Research, LLC