August 31, 2007 by david.pennington.

by: Greg Robb

The following statement by Fed Chairman Bernanke is scary if you think about it. Does he think a complete economic collapse is near? Is one inevitable? Why else does he say the Fed will be vigilant? Got gold or silver?

THE FED Bernanke tells market the Fed is on the ball By Greg Robb, MarketWatch Last Update: 10:07 AM ET Aug 31, 2007 JACKSON HOLE, WY (MarketWatch) — Federal Reserve Board Chairman Ben Bernanke on Friday told global financial markets what they wanted to hear: that the Federal Reserve is on the ball and prepared to act as needed to prevent the turmoil in financial markets from gathering enough strength to hurt the U.S. economy.

Bernanke, speaking at a closely-watched annual Fed conference, said the central bank will be paying “particularly close attention to the timeliest indicators” to assess how the recent credit crisis and financial market turmoil is impacting the real economy. Bernanke said the economy continued to expand into the summer despite the weakness in housing but “in light of recent financial developments, economic data bearing on past months or quarters may be less useful than usual for our forecasts of economic activity and inflation.” In his remarks, Bernanke repeated the Federal Open Market Committee pledge to act as needed to limit the adverse effects on the broader economy that may arise from the disruptions in financial markets.

The Fed chairman said the tightening of credit standards, if sustained, “would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effects on consumer spending and the economy more generally.” “Inevitably, the uncertainty surrounding the outlook will be greater than normal, presenting a challenge to policymakers to manage the risks to their growth and price stability objectives,” Bernanke said. He said it is not the responsibility of the Fed to protect lenders and investors from the consequences of their financial decisions, but quickly added that “developments in financial markets can have broad economic effects felt by many outside the markets and the Fed must take those effects into account when determining policy.

“Well-functioning financial markets are essential for a prosperous economy,” Bernanke said. Bernanke said the central bank stands ready to take additional steps to provide liquidity and promote the orderly functioning or markets. One positive note was that past efforts to strengthen capital positions and the financial infrastructure “place the global financial system in a relatively strong position to work through this process,” Bernanke said.

Greg Robb is a senior reporter for MarketWatch in Washington.

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August 30, 2007 by Mike Sr..

By now, you have probably heard about the new bull market in precious metals. Of all the metals classified as precious, none offers both the strong demand and relative affordability as silver. Here is why analysts see silver as undervalued at its current price and the excellent profit potential for those who enter in this market now:

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August 29, 2007 by david.pennington.

Author: Jim Sinclair

People do not have a clue what is really happening.
All the talk everywhere, even by well placed people without a bone to grind politically and economically, keep calling this a failure in sub prime loans. This is presented as if securitized bonds (with the assumption that the collateral for the bonds were mortgages themselves) has lost all its value. This is not the case. What is worthless is a the mix of credit and default derivatives that make up the vast majority of many instruments held by financial and commercial paper dealing entities, both private and public.

Even if you forget that the economic figures recently released are whoppers and take them at face value as commentators are, you still have to ask why the equities market fails to do better. The answer is simple. Rallies in the equities are presently being supplied by those that understand the grave nature of the present problem.

This is why the attitude of the Fed is not commensurate with the gravity of the global problem being caused by the meltdown in credit and default derivatives.

If it was simple mortgages it isn’t apparent because as bad as the mortgage market is they have not all failed simultaneously as if all sub prime mortgage holders have been foreclosed on at once. That alone should give you a hint that the problem is not the advertised, but much larger.

The Fed altering their banking regulations has to give you a hint that the problem is not the advertised problem, but much larger.

The financial difficulty going global has to give you a hint that the problem is not the advertised problem, but much larger.

When you see bank after bank needing liquidity in substantial amounts, this has to give you a hint that the problem is not the advertised problem, but much larger

The hope for every central bank is that the real problem can be kept from public view. The truth is the public, even professionals in Wall Street, have no clue what the problem is. They know it has something to do with derivatives, but none realize it is a more than $20 trillion dollar mountain of unfunded, unregulated paper that has just been discovered to not have a market and therefore any real value.

This is why I have suggested you plan for the worst and hope for the best. Taking cautionary action before a problem occurs only requires some of your time. If you wait and try to clean up the mess after a problem happens usually there is no action that can be taken.

When the US dollar realizes the seriousness of this situation, be that now or sometime soon, the bottom will drop out.

The dominos are falling and only a few really know why. Sometimes I wish I did not understand derivatives. I would certainly be held in better light.

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August 28, 2007 by david.pennington.

This article is courtesy of Lemetrololecafe.com
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In 1933, slavemason Franklin D. Roosevelt confiscated the gold and silver of the American people thereby making them slaves of Pharaoh.
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Recently Richard Butler, (former United Nations chief weapons inspector in Iraq) CNN’s Ambassador In Residence and expert on the Middle East, linked the funding of al Qaeda to secretive gold transactions in the Middle East. On February 17th Douglas Farah of the Washington Post wrote an article entitled “Al Qaeda’s Road Paved With Gold.” The “gold cartel” has rolled out the heavy artillery. It’s not a stretch to infer that the American people are starting to be “conditioned” to see gold as evil – a link to terrorism.

Last week Chris Powell, speaking for GATA at the Press Club Luncheon in Washington, said it was certainly possible that our Government might confiscate gold. His reasoning was that the Government would need all the gold it could get its hands on to keep the bullion banks afloat, when the price of gold explodes.

For the last 20 years, I have found the subject of gold confiscation intriguing. I have thought about it, written about it, talked about it and researched it. I am concerned, as the owner of a precious metals firm who has survived a two decade-long bear market in the precious metals industry, that as the price of gold is finally starting to take off, the Government may well decide to intervene, and confiscate our “real money” – gold, the metal of Kings.

Does this sound a bit extreme? Well, consider that ownership of gold in the United States is a privilege, not a right. Yes, the law is still “on the books” granting the government the right to recall privately owned gold. Let’s take a look at the background.
It was in April, 1933 and in his first “official” act in office; President Roosevelt declared a banking “holiday” and issued the order to confiscate gold:

Executive order: By virtue of the authority vested in me by Section 5(B) of The Act of Oct. 6, 1917, as amended by section 2 of the Act of March 9, 1933, in which Congress declared that a serious emergency exists, I as President, do declare that the national
emergency still exists; That the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice, and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people. “Therefore, pursuant to the above authority, I herby roclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possessions of gold and silver be tendered within fourteen days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government. All safe deposit boxes in banks or financial institutions have been sealed, pending action in the due course of the law. All sales or purchases
or movements of such gold and silver within the borders of the United States and its territories, and all foreign exchange transactions or movements of such metals across the border are herby prohibited. “Your possession of these proscribed metals and/or your maintenance of a safe-deposit box to store them is known to the Government from bank and insurance records. Therefore, be advised that your vault box must remain
sealed, and may only be opened in the presence of an agent of The Internal Revenue Service. “By lawful Order given this day, the President of the United States.”

In this act of theft, the citizens of the United States of America were compensated at the “official” price of $20.67 an ounce. That was the “official” price of gold for 97 years. Following the confiscation, the dollar was devalued by 40% - and the price of gold was revalued upwards to $35 an ounce.

Under the authority of the Emergency Banking Relief Act, President Roosevelt issued Executive Order No. 6102 which allowed the Government to confiscate all privately owned gold in the United States. The owners would be repaid in paper dollars whether they like it or not.

Dentists, jewelers and coin collectors were exempt from this Executive Order, and were allowed to own gold. (In terms of coins, the actual terminology used was “gold coins having a recognized special value to collectors of rare and unusual coins.”)
In the mid-eighties, Representative Ron Paul (still fighting the gold battle for us, God bless him) served on the Gold Commission in the House of Representatives. Paul wrote: “If it gets bad enough, they’ll declare a national economic emergency. They’ll take over the banks, all business and industry. They may even try to confiscate our gold. I served on the Gold Commission for eight or nine months while I was in Congress along with fifteen other members. I brought up the subject of confiscation. The power to confiscate gold is still on the books as the law of the land. I urged the full Commission to recommend Congress repeal the power to confiscate gold in an economic emergency. We pushed it to a vote and I was the only one that voted to recommend to Congress that we never again contemplate taking the gold of the American people. The fifteen other members voted it down. The power is still there on the books, and they can do it any time they wish.”

Unfortunately, our current Administration has turned a deaf ear to the gold manipulation problems uncovered by GATA and Bill Murphy. The Treasury and the Fed still have a free rein to do whatever necessary to hold back the price of gold. No doubt, those advising President Bush believe it is a matter of National Security to continue this outrageous practice. I really do believe that there is a high probability that the Bush Administration will eventually resort to confiscation. They have the legal justification to do it, and it would allow them to continue their active suppression of the price of gold.

The (large amount of) confiscated gold would give the Government a much needed new source of supply they could use to provide to the bullion banks, to help them off-the-hook. This would help them repay their gold “loans” to their friends at the central banks. Or the Government may use it to “re-stock” Fort Knox (assuming our gold reserves have been sold out from beneath us).

In the late 1980s Dr. Franz Pick (a highly respected economist and currency expert) wrote a well received book The Triumph of Gold. Pick wrote: “I am afraid that one day the government will indeed call gold in. Gold bullion will be subject to confiscation. This is the one big advantage of numismatic gold, such as Double Eagles. It’s an idiosyncrasy of governments that although they may prohibit ownership of gold in any form, they are reluctant to touch collections of numismatic gold coins.”

“Today there are some 49 countries which forbid ownership of gold by their citizens, but do allow holding gold coins for numismatic purposes. Even the Soviet Union and Eastern countries legally tolerate the acquisition of numismatic gold coins. For these are the only gold holdings that could be kept in your safe deposit box without any fear of confiscation.”

During WWI Congress passed The 1917 Trading With the Enemy Act. This act is still in place. Its article 5(b) states: “That the President may investigate, regulate or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange for the export, hoarding melting, or earmarking of gold or silver coins or bullion or currency.”

There you have it. With this awesome power, the President of the United States may do what he pleases with our money or with gold if he deems our monetary system to be in jeopardy. If you’ve been following the articles in LeMetropolecafe it is very obvious that our financial system is in grave danger, and a rising gold price is all it will take to create the crisis.

Roosevelt used section 5(b) in 1933 to confiscate gold. President Carter used it to freeze Iranian assets during the hostage crisis. Will President Bush also use it when we take our money out of the banks (like they are starting to do now in Japan) and rush to buy gold or wire money off shore? Do not bet against it!

Historically, governments have banned the ownership of gold when their citizens lose confidence in government issued paper money. Why will it be different here this time? It has already happened before. All that is required (because of the Trading With The Enemy Act of 1917) is for President Bush to issue a decree.

1933, 1934, 1954, 1984 and tomorrow: Roosevelt justified his executive authority because of the national emergency. He empowered the Treasury to maintain complete control over all transactions in gold, silver and foreign exchange. His executive order demanded COMPLETE SURRENDER OF GOLD COINS, GOLD BULLION AND GOLD CERTIFICATES still in the possession of individuals. The owners had 25 days to turn their gold into a Federal Reserve Bank. FAILURE TO COMPLY WAS PUNISHABLE BY A FINE OF $10,000 OR 10 YEARS IN PRISON OR BOTH.

In 1984 the IRS proposed new legislation that distinguished between bullion and numismatic gold and silver. This could be used in the future as a standard to define what is exempt from confiscation. They said that gold or silver coins or bars must be worth at least 15% more than their metal value on sell back to qualify as a collectable rather than as bullion. Why would they possibly make such a distinction unless they planned, at some future date, to recall the bullion?

Our best defense against confiscation is The Eminent Domain Clause of the Fifth Amendment. The clause states, in part ….”nor shall private property be taken by the government for public use, without just compensation.” In 1933 the Government paid the “official” price of $20.67 for an ounce of gold. Why did Roosevelt exempt gold coins “having a recognized special value to collectors of rare and unusual coins?” His Executive Order did, after all, call for the confiscation of “all gold coin.” What is a “just” price for a “numismatic” gold coin? It would have been a monumental task to administrate the grading and pricing of each individual gold coin. Note the wording here – exempted from the surrender requirement were not the “owners” of rare gold coins, nor the “holders” of them, nor persons who “possessed” them, nor even “investors.” On the contrary, the order specifically focused on an individual’s motives for having rare gold coins, exempting just one classification: “Collectors.”

A clear distinction was made between the “collector” and the “investor”. A collector’s primary interest in rare coins is enjoyment for historical, aesthetic or cultural reasons. An investor’s interest in rare coins is financial, to make a profit. Roosevelt clearly intended to exclude only the collector. As a result of FDR’s decree, most of the gold was now in the hands of the Government, which increased their holding from $4 billion to $7 billion and foisted “paper money” on the citizens in return.
This was a sad day for freedom in America. What ever happened to the laws laid down by our founding fathers? As they stated in the Constitution of The United States of America, Art. 1 Sec. 8 and 10: “The Congress shall have the power to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.. no state shall make anything but gold and silver coin as a tender in payment of debts.

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August 27, 2007 by david.pennington.

J.P. MORGAN BANK SAYS GOLD TO $1,000

Gold may rise to more than $1,000 an ounce as demand from India, China and exchange traded funds increases and production of precious metal falls, according to JP Morgan Chase & Co., the third-largest US bank.

Gold, which has risen 5.2 per cent this year, may reach $850 an ounce in the “medium term,’’ on the way to $1,000, analysts from JP Morgan led by John Bridges said in the report dated June 6. They didn’t specify what the medium term was.

Gold-mining companies reduced output to a 10-year low of 2,471 metric tons in 2006, according to London-based researcher GFMS Ltd. Demand for gold from India, the world’s largest buyer, rose 50 percent in the first quarter of 2007 while demand in China gained
31 percent, according to the World Gold Council.

“We would continue accumulating gold and silver positions looking to higher prices by year-end,’’ the analysts said. “A four-figure gold price looks quite feasible to us given the tight supply demand situation in the gold market.’’

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August 24, 2007 by david.pennington.

I wish to announce to you today the launching of a new business that’s been in the making for the last fifteen years - www.penncocoins.com. It is an Internet site dedicated to advising investors on matters relating to Gold & Silver. In today’s volatile and occasion chaotic environment, it’s important for everyone to own some Gold and/or Silver to protect their family’s financial future. Over the past thirty years, the U.S. dollar has lost 95% of its purchasing power and additional significant decreases are expected in the next decade. Gold & Silver investments are the perfect hedge to protect your assets from this decline.

Just buying gold or silver coins on the internet is easy. What’s distinct about Pennco Coins is that we will take the time to asses your individual situation and provide you with the most prudent advice possible to help you make an informed decision. There are no costs, fees or commissions charged anyone. We only hope if you decide to purchase coins in the future you will use the services of Pennco Coins.

As many of you know, I have an extended background in providing individual financial planning specializing in retirement. However, for the past fifteen years I have also studied the Gold & Silver markets extensively and have been a very active and successful investor/trader personally. I would now like to assist others and Pennco Coins provides that opportunity. So I encourage you to visit our website at www.penncocoins.com, and either call me or e-mail me with your questions at the resources listed below.Even a small monthly committment is a step in the right direction. Gold & Silver are about to explode upward as today’s global economy becomes more erratic and unpredictable. I will not bother you again with this, but please contact me as soon as possible and let me help you get started.

MIKE PENNINGTON
P.S. If you know of anyone else who might be interested or could benefit from our services, I’d appreciate you sending them a copy of this.
425-503-8425
425-868-4966
mpennington14@yahoo.com

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August 16, 2007 by Mike Sr..

By Michael Pennington

In the past two weeks we have seen the stock market, including gold and silver shares, correct violently. Many portfolios of the typical goldbug have declined at least 25% during this timeframe. Ironically, the prices of the metals, gold and silver, have not declined at all. How can this be you ask? Isn’t the price of gold supposed to follow the trend in the gold shares as measured by the XAU and/or HUI indices? Isn’t the price of silver supposed to follow the price of gold?

To understand the dynamics of the situation you first have to understand that government works hard to keep the price of gold as low as possible. This premise is based on governments need to sell the illusion to all that their fiat currencies are strong, that there is no inflation and that governments can spend as much money as they want without repercussion. The truth is that all fiat currencies eventually fail. You only need to be a casual observer of historical events to understand this. Governments can’t help it, but their need to spend, spend and spend more is unquenchable. As a result, purchasing power of the currency is reduced until it eventually ends up worthless. We see that our $1 today has declined approximately 95% over the past forty years. You haven’t seen anything yet! Our triple budget deficits are worsening and now we are seeing the dangers of free and unabated credit wreak havoc on Wall Street. This can only end up very badly for the innocent citizen who trusts that their government is looking out for their family’s welfare.

There is only one way for you to protect your family’s financial future – buy gold and silver bullion. Owning gold and silver shares exposes you to the volatility of that asset class. If the stock market crashes, gold and silver shares crash as well. Historically, we have seen them recover faster post-crash, but who wants to subject themselves to the trauma and anxiety of a market crash. Furthermore, in the event of a global financial disaster, there are no true safe havens except for gold and silver bullion. Gold is the only asset that has no liability against it. It has served mankind as a value of barter since the beginning of time on earth. That’s a pretty good track record!

If you’re beginning to see the light and desire to preserve your assets I suggest you exchange your FRN’s (Federal Reserve Notes) which continually decline in value for gold or silver, which will only increase in value during periods of deflation or inflation. I recommend buying Silver Eagle coins. Gold can be confiscated by governments and have been in the past. Silver has never been confiscated because it is a commodity and needed for commercial uses. Silver eagles are beautiful coins, limited in number of population, and pursued by millions of investors every day.

In conclusion, I recommend owning bullion coins instead of gold shares. If you’re interested in accumulating the best bullion coins for you, give me call and let me recommend a strategy that’s best for you based on your own particular situation.

- written by: Michael Pennington

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August 15, 2007 by david.pennington.

Well M. Pennington Sr. seems to be right on the bullion when he mentions in his previous blog post that China, India and the Middle East is investing in precious metals. Reuters posted this today:

“NEW YORK, Aug 15 (Reuters) - Global gold demand in the second quarter jumped 19 percent year-on-year to 922 tonnes as less volatile prices spurred jewelry buying in India and around the world, industry-sponsored World Gold Council (WGC) said Wednesday.Total jewelry demand for the second quarter rose 29 percent year-on-year to 675.1 tonnes, propelled by a 89-percent gain in top consumer India, as well as China and the Middle East, WGC said in its quarterly “Gold Demand Trends.” … India was by far the largest consumer of gold with 240 tonnes in the second quarter, up sharply from 166.4 tonnes in the year-ago quarter. China and the Middle East also posted sharp gains, while jewelry demand in the United States slipped 4 percent.”

Personally I went and bought some jewelry recently and was suprised to see the major jewelry retailer not selling platinum anymore (or just a small percentage). The general manager said the price is too high for the consumer so they are primarily selling gold and silver inventory.

I think this demonstrates that consumer and industrial purchasing of gold and silver are increasing… this should excite the precious metal investment community.

At the same time that the middle east and asia are buying up gold and silver there have been many reports that the Fed is printing money left and right in hopes to end the fears of a slowing economy.

“The US Federal Reserve said Wednesday it may pump more money into the jittery financial system when the stock markets open for trading to meet increased liquidity demands.
The Federal Reserve Bank of New York said that market conditions suggest that an injection will be needed in the federal funds market “to accommodate heightened reserve needs.” The operation would be conducted at the bank’s desk opening at 9:30 am (1330 GMT), it said in a statement. The Wall Street markets open at that time.

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August 2, 2007 by david.pennington.

By: Jim Sinclair and Mike Pennington

The real rate of interest has been near zero since Oct 2001 The Consumer Price Index is ridiculously low in the true measure of consumer price inflation. Given the paltry yields offered by short-term TBills, gold and silver will continue to receive a lift for some time into the future.

The rise in foreign holdings of US assets increases our vulnerability to foreign abandonment The accumulation by foreign entities, principally central banks, has gone parabolic in the last couple of years until recently. In the last couple of months, Asians have noticeably withdrawn their demand for our securities. This could portend trouble ahead, and a strong motivation to own gold. One should be careful to note that dishoarding of their positions would be inflationary to prices in Asia, while deflationary to prices in the USA. A liquidity flood would take place in Asia, but an economic drag of huge proportions would take place in the USA.

The money supply increased over 70% since Jan 2001, close to 100% rise since 1991 The money supply continues to rise steadily. The majority of new money seems to go toward consumer debt and insurance against higher interest rates. This is bullish for precious metals.

A return to federal deficits from recession and wartime economy, security spending An economic recovery usually brings about a gradual removal of red ink to the federal balance sheet. Not this time. Well, the claim of recovery has sounded less than honest, if not totally fallacious, even politically expedient. To me, it is ludicrous and fraudulent. Federal deficits have remained quite steady, in the $400 billion range for the last three years. The Iraqi War has resulted in $70 to $100 billion costs last year, and about the same this year, with no end in sight. Whenever the federal budget is cited, one should be certain to mention that the Social Security Trust Fund is routinely pilfered to pay for today’s federal bills, even as future bills escalate. Coming years will see more dreadful deficits from additional commitments like the Medicare Prescription Drug bill, which will add roughly $550 billion over three years to the deficit. In the next few years, talk will emerge of eventual and inevitable US Treasury default.

With rising world tension, desire for safer safe haven, the geopolitical threat to peace In the last several years, Iraq became a passionate theatre for conflict. Open season was declared on oil pipelines. The Middle East is a powder keg. Geopolitical peace is nowhere to be seen, except in South America and Australia. When war breaks out, the precious metals explode upward.

Glass-Steagal Law repeal now heightens risk of financial cluster failure in progress The law was instituted immediately after the Great Depression in order to protect from systemic ripple effect damage, extending from banks to brokerage houses to insurance companies. Now all three are vulnerably linked. The topic receives little if any attention. Giant financial conglomerates like Citigroup and JPMorgan possess dangerously large and unregulated derivative books. Each owns a major brokerage arm subsidiary. Citi owns a major insurance firm. Following the World Trade Center attack, insurance companies have been under enormous strain. As a group, they publicly state justification for rising insurance premiums to be increased risk of attack and disruption. If the truth be told, it is more due to severe drops in their income from fixed income investments, since Treasury yields are pathetically low. Brokerage houses are the tail on this dog. The two critical pieces are banking (loaded by derivative risk) and insurance (strained by low yield income and continued terrorist risk). If one arm falls, the others are dragged down.

The world perception of American institutionalized dishonesty A new wrinkle to US lack of pursuit for truth came in February 2003, as the US put forth questionable arguments and documents to justify Weapons of Mass Destruction existence in Iraq. The current administration alienated European leaders and NATO. We parted ways with a stodgy inactive United Nations, which had its own massive fraud controversy with Iraq’s Food For Oil Program. In the last 20 months, US prestige has fallen more due to the ongoing war, its narrow coalition of support, and regular pipeline attacks. At the time of the last article, our prestige was under assault by a string of fraud cases, led by Enron and WorldCom and mutual fund controversies. The stock bust in 2000 had its aftermath.

The likelihood of systemic banking shock waves from debt collapse and derivative chain reaction Derivative books have continued to grow. Exact measurement is impossible. It would not be surprising to learn that in 20 months, the notional value of US-held derivative might have increased by 20% or more. During this time span, two bond revolts occurred, one in July 2003 (led by Fanny Mae convexity), another in March 2004 (led by a false start in jobs growth). Since bonds comprise at least 75% of derivative portfolios, they should be closely watched to signal trouble in the highly leverage arena of derivative trading. Low rates are kept low, in part by leveraged contracts to protect the entire financial system.

The reduction of the US Dollar usage as both a store of value and as a banking reserve asset. Several developments have undermined the USDollar as primary store of value in hard asset reserves. The euro has risen 60% in the last three years. The Canadian dollar is almost even par with our dollar and it will probably exceed it soon. The European and Middle East (OPEC and Arabs) have turned increasingly to diversification. Asians and Russians have also publicly announced a diversified intention, which includes gold. Islamic nations have begun to tinker with bilateral commerce settlement in Gold Dinars. China recently opened its first Gold Exchange. The winds are blowing away from the USDollar as the primary reserve currency.

The sharp increase of savings across Asia in the form of gold The Chinese opened a Shanghai Gold Exchange which marks a critical event. Rumors run rampant on a constant basis that China is accumulating gold for a future bank system foundation. Promoting gold for citizen savings only reinforces the direction seen as coming. Rumors even include China eventually backing their yuan currency with gold. Those who spread such stories should beware that a quantum jump in their currency exchange rate would cause two immediate effects. Their export business would be harmed badly. A rise versus the US$ but more stable exchange rate with the euro would preserve export potential to the European Union. Their import cost for raw materials and energy supplies would also drop in price. At some point, when their middle class grows even more, such a compromise might be welcomed.

The Islamic world is planning gold-centric internationalcommerce, distancing itself from the USDollar. The Gold Dinar is openly discussed in the Islamic world. Now even Iran and Indonesia have followed through with stated plans to settle on trade with gold. Other bilateral agreements are either hatched or in the works. Some Arab nations are deeply in debt, such as Saudi Arabia (the #1 nation in per capita debt). Other Islamic nations and Arab emirates continue to sock away large surpluses annually. The Middle East continues to see strong gold demand. Whether a more formal gold-backed system of commercial settlement occurs among Islamic nations, in defiance of western standards, we will see.

The Bank for International Settlements has targeted the US dollar for a corrective decline Leaked internal reports indicated a desire to weaken, if not bring down, the Soviet Union back in the 1980 decade. They were seen by the BIS as a threat to world security. In the 1990 decade, similar reports indicated a desire to remove the unstable dynamic to the world economy owing to the uncontrollable growth in USDollar creation and its excessive appreciation. This is a shady organization, not corrupt, but rather secretive. The BIS serves as the central bank for all major central banks. They have tremendously powerful means to effect change, by restricting credit flow and managing large leveraged portfolios. It is reported that they would like to see a hard asset like gold more involved in the world monetary system. Little can be verified. So take this assessment as conjecture.

The reversal of miner hedges, end of gold leasing, and reducing supply. In the last couple of years, total gold miner hedge book forward contracts are reported to have declined by between 60% and 70%. Their contract buybacks continue, which might provide an ironic support to the gold price, offsetting the gold cartel assaults. As for gold leasing, it has not ended by all accounts; lease rates continue to be tiny. Skirmishes continue with members of the European Union. While small nations like Netherlands (I believe) expressed lost interest in gold sales, Germany and Switzerland continue the practice of gold dumping. It is unclear how much gold remains in Fort Knox. Actually, what remains of our national gold treasure is reportedly guarded at West Point.

The dismantled mining supply apparatus, from systemic price below production. It still takes a long time to bring a revived mine into production. Fifteen years of neglect did not completely end in 2002, when gold reversed in price. In the last 20 months, numerous little gold companies, and many larger companies have opened shuttered mines. Many properties have made early steps toward returning to production, bringing permits up to date, hiring operators, obtaining funds, and completing environmental impact studies where required. A shortage of operators and equipment is reported in the fieldin Canada.

A paradox: high gold price leads to higher demand, and high price leads to lower supply This statement is hard to prove. Demand was nearly non-existent for gold at the autumn 2001 low. Demand is growing nowadays. Gold fever has come and gone, sure to return. In the last cycle, people were lined up around street corners in 1980 to purchase gold coins at the peak price. Expect the same this time, over several rounds of price jumps. Paradoxically, as the gold price rises, cash is taken out of gold miner operations to pay down forward contracts before they burn acidic holes in balance sheets. Gold reserves have not markedly increased in the last 20 months from new discovery. In fact, new deposits seem in most cases to be of low grade, with between 5 and 30 grams per ore ton. Despite a $240 rise off the gold low price, no acceleration in supply brought to market has occurred. My claim is that both demand and supply for gold are inelastic.

The accelerating worldwide currency turbulence The number of days with over 100 basis point currency moves in the euro and yen are a commonly used measure of instability. Exact data is not at my disposal. To the currency observer in FOREX activity, it seems clear that the number of days with big moves described has steadily risen. Hardly a month passes without several days with 100-bpt movements. Last autumn, following the Qatar G-8 Meeting, currencies started flying, as ministers gave vague signals of consensus desire to see the US$ much lower. Currency volatility is much worse than in the recent past. They signal greater monetary earthquakes dead ahead, in much the same manner as smaller and more frequent tremors among the earth’s tectonic plates.

The rising costs from entire energy complex (crude oil, natural gas, heating oil, gasoline) Crude oil has risen over 100% in the last 3 years. Attacks on pipelines, an unstable Saudi Arabia, labor disputes in other producing nations, legal warfare in Russia, all these stress the energy complex on the delivery side of the equation. Reports from energy experts concerning Arab lack of excess capacity contribute to the speculative interest. China’s use of energy will continue to rise over the next decade as supply dwindles.

The commodity trend reversal has begun, the beginning of a new long-term trend Since November 2002, copper has exploded in price, steel prices have tripled in certain products, lumber has doubled, and cement has risen 40%. More importantly, cement has gone critical with outright shortages, only to stall some large construction projects. Grains and soybeans are up more in the past year than in decades. Yes, a commodity trend reversal has not only begun, marking a new age of shortage. The long-term trend has become firmly established. Shortages are so acute, owing to China’s development. The focus is likely to be on construction materials and food supplies. The gold versus USTNote has begun to signal a trend reversal as well, away from paper-based securities and toward hard asset investments.

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August 1, 2007 by david.pennington.

Because of the depreciating dollar, ever increasing US triple deficits, increasing inflation and growing global geopolitical risks, we find Precious Metals in a long term Bull market which I estimate will last for the next 5-10 years at least.

There are more than 6 million people investing in Silver Eagles now. As for gold, there is a finite amount that has ever been mined since the beginning of time. If all the gold in the world were melted down it wouldn’t be bigger than our house.

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