Bloomberg published two important items recently on the likelihood that China
will not only continue to diversify out of part of its $875.07 billion of U.S.
dollar holdings into yen and euros, but increasingly into gold.
Also published, was an article commenting upon Russia and other oil producing
nations who are expected to diversify out of U.S. dollars, partially into gold.
Last week, gold rose by some $20 an ounce. Apparently, according to the
Bloomberg report, this surprised the majority of analysts. However, it will not
have been a shock to our readers.
We have long forecast a major increase in the price of gold. In the last quarter
of 2006, in particular, we pointed to some potentially giant buyers — central
banks.
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As we have said in that past, the U.S. dollar ruled supreme as the world's most
important reserve currency from 1945 onwards. Even with the first "oil shock" of
1983, Dr. Henry Kissinger very cleverly persuaded the OPEC governments to accept
only U.S. dollars in payment for their oil. This provided a large underpinning
of the dollar and bought time for the U.S. Treasury.
Sadly, successive American governments were tempted to abuse the recommendations
of English economist Lord Maynard Keynes. They took deficit financing from a
short-term economic "remedial" policy to a political art form in buying the
votes of their people.
America was not alone. Other democracies followed suit, but having smaller
economies they could not get away with such massive amounts that American
governments have.
The situation became obvious when private investors, increasingly distrustful of
paper currency, sort refuge in gold as a store of wealth, driving it from $35 an
ounce to $850 an ounce, or 24.3 times in just 8 years.
This, currency depreciation measurement (of 24 times) against "real" money
(gold) embarrassed the governments of the major democracies to such an extent
that, led by America, they decided to "de-monetize" gold. They sold off massive
amounts of their official gold reserves (the hard-earned wealth of their
citizens) in order to destabilize the international market for gold and so
destroy gold's credibility as a store of value.
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These massive sales were coordinated through the Bank of International
Settlements (BIS), in Switzerland. At today's prices, the British taxpayers
alone have been relieved on many billions of dollars by their government.
American taxpayers and future generations have been swindled out of many more
billions.
Indeed, our government was so coy in making these sales of American wealth, they
were made covertly, via the BIS, in the name of Germany!
This massive sell-off of the gold reserves by the old western democracies,
contrasted starkly with the accumulation of gold by those governments with
surplus finds from the Middle East, the former Communist block and OPEC.
Clearly the less reserves, especially gold, a nation has backing its currency,
the more attention is focused, by international currency dealers, upon their
current, budget and trade deficits.
With a Republican President and Republicans up until recently controlling both
House of Congress, it seems quite amazing to us the our national finances have
been run with such profligacy that our national financial ratios are now
approaching those of a banana republic.
Clearly, we are not alone in our view.
Last year it became increasingly clear that nations holding large surplus
accounts were increasingly skeptical of holding ever-larger amounts of
depreciating dollars. They were so worried that they were even prepared to
diversify into the euro, a currency that we and major bankers, such as Morgan
Stanley, feel is intrinsically flawed.
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profits before the panic headlines begin.]
The increasing evidence of a spreading European grass roots revolt against the
euro and statements by European politicians against their continued membership
make us yet more concerned about the euro's long-term survival.
Why do surplus central banks not buy gold, you may ask? The answer is that they
conspired with other central bankers to "kill" monetary gold. They do not now
want to be seen, by their fellow conspirator central banks as the first to "cut
and run" from their gigantic plot against their own citizens.
However, Russia has recently talked of plans to raise its gold holdings to 10
percent of its vast reserves.
If China, who holds only one percent of its reserves on gold, were to follow
suit, it would mean their buying some $100,000,000,000.00 of gold and that is
just China!
When you add in the potential purchases by other surplus nations, you can begin
to see what Anthony Fell; head of RCB Capital Markets, was getting at. Speaking
at the RCB Conference, way back on November 9, 2006, he said, "Gold's emerging
role as a reserve currency would push the metal above its all-time high of $850
an ounce."
As we have said for many months, we recommend our conservative readers to
continue to accumulate gold at what may prove to be bargain prices.
Try to get in ahead of the massive buying power of the central banks.
Editor's Notes:
