* Introductory Update
* Gold Consolidates at the Gate
* Background Pressures Build for Gold
* China Applies Massive Pressure
* Commodities Show Positive Signs
* Global Economy Shock Waves

Issue #62
Jim Willie CB, 
“the Golden Jackass”
20 May 2009

"[Bill Gates of Microsoft] told me that he had recently figured out who his competition was. It was not Apple, Lotus, or IBM. He waited a couple of beats. It is Goldman Sachs."
Rich Karlgaard of Forbes Magazine (regarding competition for hired talent)

"It is absurd if two important trading nations such as ours continue to carry out our commerce in the currency of a third nation." -- Luiz Inacio Lula da Silva (President of Brazil, speaking with the Chinese delegation)

"The US should be afraid, very afraid. China is questioning the dollar's status as a reserve currency and, at US$1000 an ounce, gold has become the world's de facto currency."
John Ing (Maison Placements in Canada)

"We are having a bear market rally within a larger bear market rally." -- Art Cashin (NYSE floor from UBS)

" Technical Analysis is a windsock, not a crystal ball." -- Carl Swenlin


The United Arab Emirates has decided to exit the planned monetary union of Gulf Coop Council, the bloc of oil-rich Gulf States. They object in typical Arab rivalry. They object to the decision made two weeks ago to locate the Monetary Council in Riyadh Saudi Arabia, a factor openly understood by observers. See the Bloomberg article (CLICK HERE). Political fallout might be negative on the Riyadh location decision, since it could be perceived as the USGovt maintaining hidden control over its function from its State Ward Protectorate in Saudi Arabia. The council will evolve into a central bank. Dubai is a major financial center with a gold trade center, a major city (along with Abu Dhabi) in the emirates that form the second largest Arab economy. Riyadh is not either, but is a major city with enormous Aramco petro-chemical presence. Bilateral relations between the UAE and Saudi Arabia must be under strain. UAE had been the first country to offer to host the central bank, and is clearly feeling insult. Their central bank points out their nation has no official body affiliated with the GCC on its territory. The GCC headquarters is in Riyadh.

One economist declared the single currency is dead, likening the UAE exit to France exiting the euro. Not so! Clearly the UAE decision is bigger than the Oman move to pull out in 2007. Saudi Arabia, Kuwait, Qatar and Bahrain are still part of the project. A single currency would enable Gulf States to achieve some independence, to pursue a monetary policy apart from the US sphere, to achieve some stability, to win more flexible trade, and to grow in prestige. The January 2010 target date is long gone, but other objectives are achievable. The UAE central bank governor al-Suwaidi pledged to keep the peg to the USDollar. He said, "The UAE will continue to maintain its expansionary monetary policy and will keep the exchange rate of the dirham pegged to the dollar." John Sfakianakis is chief economist at the Saudi British Bank in Riyadh. He provides a better perspective when he said, "Emotions and egos are prevailing over rational decision making and the UAE is voicing its dissatisfaction by going against the union. An important participant is now out. But it does not mean the union is coming to an end, just some convincing has to be done to get them, the UAE, to re-enter. I hope they re-enter and emotions will not prevail." A major chess game is being played. One might wonder if the USGovt called in a favor, made a backroom deal with a secret offer, or threatened the UAE in some way.

My best source in the gold banker world denied that the US called in a favor. It was told to me today, "You will all be mightily surprised what will transpire as time progresses. Cannot tell you more. I have been sworn to secrecy." He hinted that one should consider the security needs of the Gulf region and a new provider for that security. Something big is brewing, of greater importance than the plainly stated news item. The source provides little more clear information. Whenever the Persian Gulf faces big decisions, one must factor in military security and protection, since the entire region has none of its own. The new Gulf dinar has enormous geopolitical implications that run against the United States interests. Anything that undermines the USDollar deeply affects the USMilitary, since USTreasury Bonds supply financial fuel to the war machine. The two main traits of the Persian Gulf nations are its oil supply and huge savings accounts, better regarded as creditor war chest. Enter Russia, which has common oil interests and newly growing creditor status. Enter China, which has crude oil needs and established creditor status. The UAE leading city state is Abu Dhabi. They are flexing their financial muscles after rescuing Dubai in a big way recently from collapse. Abu Dhabi probably does NOT want a continued alliance with Riyadh if the USGovt tentacles remain attached. Abu Dhabi might regard the Saudis are a fading oil giant on the gradual decline, unable to extricate themselves from the US influence, to cut the cord with those ugly tentacles. The dirty secret is that the Saudi oil business struggles with decline, long ago having resorted to tertiary methods used on their giant Ghawar oilfield. Instead, the UAE might court a new partner in Russia, with lesser ties coming to Saudi Arabia. My source did mention that "with Riyadh in the mix, other Gulf States would be subjected to enemas at the hands of WashingtonDC." The Gulf States have had 50 years of subjugation, and are fed up!

WE ARE WITNESSING EARLY STAGES OF A GLOBAL POWERFUL PARADIGM SHIFT, SIMULTANEOUSLY  WITH CHINA AND THE PERSIAN GULF. So in my view the UAE has turned its back on the Saudis, and is in the process of appealing to Russia for a new security alliance, with gestures made to China to possibly be merged with a creditor alliance. The end result is that a new alliance might be coming that includes crude oil supply, military security, and creditor solidarity. We are seeing initial rumblings that could quickly expose a new Arab-Russia-China alliance. What we are seeing, completely unrecognized, might be a coming out statement by the UAE that they can forge a new alliance without the Saudis and their American baggage. The error made by many analysts, perhaps me too, is that ANY NEW CURRENCY must have a military security component, with subtle linkage. That is my best interpretation of events. What effect in the markets? Gold makes a huge move up. Debtors are put through the wringer with pain. The geopolitical balance of power shifts to a new axis. The US & UK are left out in the cold, a place increasingly resembling a well-dressed Third World nation. China increases its hidden influence over the United States. Europe moves more into the arms of Russia. The global sphere of Russia is certain to expand.


The path referred to is US West coast to Hong Kong to Singapore to London, where the large inter-bank loan failed and defaulted. Numerous dispatches were sent to friends and associates last week, who sent the query further to their own contacts. This note came from a fellow who is a good source to a friend of mine: "My contacts (who are very very good in this area) knew exactly what I was talking about the minute I opened my mouth, and also repeated the path it went without me bringing it up. It was Yellowstone Partners and it was only $3 billion. The risk spreads would have moved, if it was much larger. That is what to key on to help validate if it is something large. The $3 billion (not $30 billion) used to be pretty large, but it happens on a regular basis now." The party involved in the failed loan was Yellowstone Partners Wealth Mgmt, out of Idaho. The size of the failed loan might not be sufficiently large to cause a systemic shock more than a big hiccup. If such failures repeat, then they surely will cause some seizures and backup of sewage in the banking system. It seems that Market Skeptics picked up a circulating email from me to several well networked friends who have reliable information sources themselves. Little has been added to the story by other sources outside my circle of circles, unfortunately. See the Market Skeptics rendition of my news item (CLICK HERE).


◄See the Special Report entitled "USTreasury Default Risk Grows" for the May Hat Trick Letter. The USTreasury Bond complex stands at tremendous risk, and that risk grows by the month. As preface, note that the volume of theft and fraud approximately equals the current level of federal debt. Former USGovt Comptroller David Walker has been making a tour to herald the worsening condition of USTreasury insolvency, as expenses rise in frightening fashion, obligations having skyrocketed long ago in ongoing commitments. He points out the risk of downgrade to the USTreasury Bond credit rating. The risk of USTBond default is no longer a secret. The USEconomic recession has rendered the revenue stream from all income tax deep damage, thus creating greater need for debt security issuance. The printing press will be the main tool soon when auctions fail left & right, in order to finance federal deficits. The US has dreadful bank leadership, dating back to the beginning of the Greenspan Era and continuing with even more ineptitude with during the current Bernanke reign. They can make no reforms, only amplify the volume of failed policies. In fact, the USFed very likely will not be in a position to reverse course and drain excess liquidity from the banking system, for political reasons as well as financial reasons. DOING SO MIGHT KILL THE USECONOMY AND BANKING SYSETM ALTOGETHER. Thus price inflation will arrive with a vengeance, and gold will react powerfully! The US banking leaders are totally ignorant of a pending paradigm shift that will place the United States in Third World status.

◄$$$ BIG US BANKS WANT TO RETURN T.A.R.P. FUNDS TO CONTAIN FRAUD $$$. Much hubbub has come over the big US banks wanting to return TARP funds lent by the USGovt. They tell us of unwanted interference in executive compensation, in Board member makeup, in perk spending, in accounting practices, in reserves and loan loss management, and generally in their bank operations. THOSE ARE SMOKE SCREENS. The real reason they want to exit TARP funds is to eliminate the risk of lower level officials from discovering sordid details of their extreme fraud and counterfeit activity in illegal syndicate operations. Imagine the number of lower level people from the USDept Treasury, Congressional Budget Office, Govt Accountability Office, and various Congressional Banking Committees who have had access to records, the paper trails. Eight months have passed since TARP funds were injected into big banks, giving way too many eyes too much access. The situation is not manageable, an unexpected grand intrusion after fund confiscation. Such evidence must be kept from the distrustful public and maverick media, like naked stock shorting, like targeted hedge funds, like failed USTreasury sales, like counterfeit USTreasurys or USAgencys, like funneled CIA narcotic funds, like defense contractor fraud, like gold futures suppression, like even stolen TARP funds, and many more illegal activities that have become routine for the Wall Street crime syndicate.

By the way, the USEconomy is not looking anything remotely healthy, or even on the verge of recovery, surely not turning around. What is happening is that the USDept Treasury has enabled the banking sector to stop strangling and starving the mainstream economy. The change in credit denial does not mean imminent rebound and recovery. General insolvency remains the plague. President Obama just appointed a blue ribbon Economic Recovery Advisory Board, headed by former USFed Chairman Paul Volcker. Let's see what authority they have, and how they can overcome the stifling dominance of Goldman Sachs in USGovt financial policy making.

◄$$$ ALLEN STANFORD CASE, ANOTHER HIDDEN DRUG TALE $$$. When Allen Stanford surfaced not in Texas, where the arrest warrant was granted, but in a Virginia suburb of WashingtonDC, the light bulb went on. The CIA has headquarters in Langley Virginia. He went there for instructions. The intrepid lapdog US press failed to make the easy connection. Information came to me from other sources that Stanford Bank had significant assets from CIA accounts. Two weeks ago, Stanford was told that no felony charges would be made against him, that he was free. Silly trumped charges have been made against the chief information officer. Since January the legal authorities have seized the entire records of the bank in both the US and Antigua offices. Upon hearing of that seizure, a second light bulb went on. Stanford Bank has offices all through Latin America. Reports of large scale missing funds have circulated. If $5 or $11 billion is missing from the Stanford Bank, my best guess is that the CIA has conspired with Stanford to steal it from Latino drug cartels. The authorities might have staged the charges to coerce Stanford to permit the theft, and promote a phony story of a second grand Ponzi Scheme. Remember that the CIA is in the narcotics business, with conscience lost long ago. The British Broadcast Corp (BBC) broke the story two weeks ago that Stanford was in cahoots with the USGovt Drug Enforcement Agency (DEA), thus the third light bulb went on. One should consider the DEA as both a syndicate cop and inventory manager. In addition to chasing down tax haven accounts in Switzerland and various Caribbean bank centers like Cayman, the USGovt uses various illegal tactics elsewhere in attempts to isolate money flow from narcotics operations associated with competitor drug cartels in Latin America. The US security agencies are at war with Colombia and Mexico over supremacy across the American Hemisphere in narcotics. The USGovt protects a growing global monopoly in narcotics, whose production is centered in Afghanistan. That is what the war is all about! Close to $400 billion in profit per year is plenty motivation to maintain the charade called the War on Terrorism. Most of Europe regards the war as phony, as do the minority enlightened in the United States.

The UK Telegraph broke the story (CLICK HERE). They wrote, "A Panorama investigation has suggested that Sir Allen was shielded from an earlier inquiry into his activities because he co-operated with a US Drug Enforcement Administration (DEA) attempt to track money laundering by Latin American drug cartels& Panorama claimed some US officials were aware of Sir Allen's cartel links as long ago as 1990. It reported that Sir Allen paid a $3.1 million check to the DEA in 1999 after that sum was invested in his bank by another Mexican drug gang, the Juarez cartel of Amada Carillo Fuentes." There is your precedent for theft of cartel accounts.

This from a subscriber from who has numerous ties to Southern California, Las Vegas Nevada, and the Miami Florida areas. He said, "I just met a woman in Fort Lauderdale who lives in Panama and knows all about the CIA and DEA running drugs back during the Contra/Reagan era. Young Panamanian guys were allowed to join the US Army. That way they could fly MAC and their luggage was never inspected. For every five kilos of narcotics they brought in they were allowed to keep two. That is just the basics of the story." Reminds me of matched 401k pension funds by employers.

◄$$$ CELENTE WARNS OF WAR FOR FINAL DIVERSION $$$. Gerald Celente is director of The Trends Research Institute. His past forecasts have made him a recently established legend. He warns of war in the wind. Here are some key messages from Celente. Phantom dollars are being used in rescues, bailouts, and stimulus, but they are printed out of thin air, backed by nothing. One should therefore expect no solution by using the same devices and medicine that caused the original problem. Whisky cannot straighten out the drunk. The previous major bubbles did not produce anything except profound losses. Some truly special technology was developed and produced simultaneously, but the bubbles did not produce them, and the bubbles inhibited their full deployment into any economies. Celente describes the 'Bailout Bubble' built atop another colossus of paper, with a core center of USTreasurys. Just as with the other bubbles, the USGovt has created a bubble that will also burst. Celente warns that this USGovt 'Bailout Bubble' is a system killer. Unlike the Dot-com and Real Estate bubbles, when this USGovt bubble dissolves, no future bubble is possible since this bubble is at the very foundation of what manufactures bubbles. No fiscal fixes or monetary policies will be available to inflate another bubble, since the machinery would be destroyed. A series of big bubbles is now lodged in the machinery. My better analogy is that cancer has entered the monetary machinery itself, so that when it bursts, no effective reaction can take place as the machinery is ruined by the cancer itself. Since the 'Bailout Bubble' is neither called nor recognized as a bubble, its abrupt and spectacular explosion will create chaos.  A panicked public in the eyes of authorities and leaders must be diverted. Expect a shift of the blame for the catastrophe away from the policy makers and Wall Street conspirators, onto some scapegoat. Expect the ultimate diversion, WAR.

Celente warns: "This is the Mother of All Bubbles, and when it explodes, it will signal the end to the boom/bust cycle that has characterized economic activity throughout the developed world. All of this terminology is econo-jargon. It is like calling torture 'enhanced interrogation techniques.' Washington is inflating the biggest bubble ever: the 'Bailout Bubble.' This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors, and financiers the hardest.  However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework was left intact. But when the 'Bailout Bubble' explodes, the system goes with it. Given the pattern of governments to parlay egregious failures into mega-failures, the classic trend they follow, when all else fails, is to take their nation to war. At this time we are not forecasting a war. However, the trends in play are ominous. While we cannot pinpoint precisely when the 'Bailout Bubble' will burst, we are certain it will. When it does, it should be understood that a major war could follow." Even Russian leader Putin warned at the London G20 Meeting to avoid the temptation toward a wider war.

◄$$$ ECONOMIC DECLINES CONTINUE, HUGE COMMERCIAL PROPERTY LOSSES SOON TO COME $$$. The green shoots official story took some serious blows last week between data on April retail sales, weekly jobless claims, and foreclosures. These three factors feed upon themselves. The whole concept of the economy finding its footing was 'preposterous' to begin with, says Howard Davidowitz, chairman of Davidowitz & Assoc. His client list reads like a Who's Who of American business. He focuses upon rising unemployment, destruction of wealth, and the upcoming depression in commercial property. He said, "The worst is yet to come with consumers and banks. This country is going into a 10-year decline. Living standards will never be the same." He does not come across like a crazy man on a rant. He warned of big problems over a year ago. He ended the interview with mention of extreme risk to the commercial property arena, which is due for severe shocks from a struggle to refinance and roll over debt. Both General Properties and Central Properties are going through a vicious bankruptcy process, not so much from inability to service their debt payments. Their clients in malls and office buildings are solid in the majority of cases. The problem is with the significant decline in property values. So banks refuse to refinance the rollover debt in need of service, as Loan to Value looks horrible. The result is liquidation. The strain is enormous on the commercial property firms. Davidowitz cited the case of Developers Diversified, which raised $100 million in a distressed property sale at steep discount in order to raise cash. The bank losses are visible now. See the video clip (CLICK HERE).

The USFederal announced this week that certain commercial mortgage backed securities (CMBS) issued before 2009 will become eligible collateral under the Term Asset Backed Securities Loan Facility (TALF). The program will begin in July. Finally, Treasury Secy Geithner has recognized the commercial property acute risk, and he is last to know anything. The TALF is designed to facilitate renewed issuance of consumer and commercial paper, and now CMBS. The extension marks the first addition of a legacy asset class to the list of eligible TALF collateral, intended to promote price discovery and liquidity for legacy CMBS bonds. The CMBS market has financed about 20% of outstanding commercial mortgages, including mortgages on office buildings, multi-family residential properties, retail big boxes, and industrial plants. That market hit a brick wall, a standstill since in mid-2008. Newly issued CMBS bonds should be aided, but refinance of existing commercial mortgages on better terms remains a challenge, due to fallen equity. The rules are stated upfront. To be eligible as collateral for TALF loans, legacy CMBS must be senior in payment priority to all other interests in the underlying pool of commercial mortgages and meet certain other criteria designed to protect the fund from credit risk. LEGACY ASSET MEANS WORTHLESS IN THE MAJORITY OF CASES, since no market and no value, a nice euphemism.

◄$$$ THE S&P500 STILL GROSSLY OVER-VALUED $$$. How should a stock market be valued when earnings have vanished? The S&P500 price/earnings ratio is in orbit, far higher than the financial media networks report. The earnings of the financial sector firms are fictions, even after the overall S&P500 totally falling out of bed. Forward guidance has been miserable, but ignored. Solvency of many firms is a misrepresentation. Accounting fraud is not only rampant, but endorsed by regulators. In many cases, direct accounting fraud has occurred, blessed by the SEC. Expect shareholder lawsuits by next year, after the next major decline like what was seen early this year. A key note on the VIX volatility index. It has gone below 30 for the first time since September, precisely when the stock market suffered a 'surprising' 20% decline. Also, trading volume is low, and worse, dominated over 40% by computer program trades. Insider trading is also rampant. In the first three April weeks, the records show 8.3 times as many executive insider sells as buys. That is the fastest rate of selling since October 2007, the previous peak. Insider purchases of a mere $42.5 million in April through the 20th represents the smallest amount since July 1992. Expect history to repeat itself.


◄$$$ THE USDOLLAR IS IN SLOW MOTION BREAKDOWN MODE $$$. To be sure, the power of any USDollar decline has a marked effect to lift the gold price. But gold will rise from monetary inflation and price inflation, apart from currency factors. Already, the long-term USTreasury Bond has sprung a preliminary leak, featured in the Macro Economic Report. For the USTBond and the USDollar to falter simultaneously was not anticipated, and is doubly bullish for gold. The dollar DX chart looks horrible, the pathetic end of the Dollar Death Dance. It needs more Wall Street failures in order to rebound, paradoxically. One could put a nice spin and say the pause pattern from March-April was the halfway mark for the decline, which is now complete. The cyclicals look bad, and the 20-week moving average has turned down. The triple failure is complete, the last peak reaching 86 before turning down. The top for the DX chart is vividly clear. Defense at the 81 neckline could occur, but prospects are dim for any success. The next stop is 77 then 72 again, the target for the Head & Shoulders reversal failure. Expect a semblance of defense in the 80-82 range, which should be easily overrun by power. However, the rally in stocks has been built atop both phony bank accounting and phony identification of 'Green Shoots' in my view. As both facades are ripped away, the Third World fundamentals will justify at least a retest of summer lows from 2008. Also, lousy psychology could join to make a negative trifecta. This could get ugly with a well observed crash in global view! If 71 breaks down, an historic fall to 54 is indicated from a momentum swing!!!

◄$$$ THE GOLD CHART IS WILDLY BULLISH, WITH 1300 TARGET $$$. The price has broken away from seasonal patterns. In response to the crisis, especially since last autumn, the gold price has embarked on a path that greatly strays away from any known seasonal pattern. Nothing is typical anymore. It follows the central banks monetization and diverse federal fiscal stimulus worldwide. As the big banks struggle to survive, the central banks take extraordinary measures, and frontal assaults are waged against hedge funds, all patterns have been departed from. What replenishes big banks also leaks generally into the system in time. As the economic recessions show stubbornness, expect fiscal stimulus to be monstrous and almost endless. The reversal pattern is unmistakable, the classic Head & Shoulders pattern. The neckline is at 1000 and the top of the head is at 715. The nearly 300 point potential indicates a 1300 target, a number that has come up frequently in several different patterns identified. Notice the upward vector in both moving averages, as well as the cyclical index. The only resistance will be the illegal kind from naked shorting of futures contracts by JPMorgan, Goldman Sachs, Bank of America, Citigroup, Barclays, and HSBC, the usual criminals who operate at the behest of governments, protected from prosecution. They will not be able to stop what comes. Once 1000 is penetrated in clear fashion, with excitement and attention, an overshoot of 1300 could occur.

The silver chart is more bizarre unusual. My perception is of a reversal midway pattern within a larger reversal pattern, nested Cup & Handle patterns. This pattern is not in the textbook, and is as unorthodox as the gold chart is standard. The chart is crowded in the last few weeks. Not labeled is the upcoming bullish crossover of the 20-wk MA (in blue) above the 50-wk MA (in red). When (not if) that crossover occurs, great lift power will be given to the silver price rise, quickly to 17 on its way eventually to the 19-21 range. Far greater shortages of silver exist than gold. Investment demand is brisk for the shiny metal as it is for the yellow metal. Silver is poor man's gold, costly a fraction for the masses to invest. Exciting times are coming for gold & silver investors after a long patient time in the waiting room.

◄$$$ MINING STOCKS TO CHALLENGE OLD HIGHS EASILY $$$. The precious metals mining stock index looks excellent. The autumn lows have been reversed, as liquidity floods the system. The MACD cyclical has not taken a rest, a sign of extreme strength. The target can be easily calculated from the 170 low, next the 325 midline breached clearly. Thus a target of 480 is indicated. The supercharge to the continued advance upward will be the bullish crossover of the 20-week moving average (in blue) above the 50-wk MA (in red). Traders watch this closely. Gone are the days of this HUI index acting as a lead indicator for the gold price, too much corruption in the sector by USGovt thugs. As gold threatens new highs, the HUI will challenge its old highs. They will move together, in my view.

◄$$$ MAINSTREAM PRESS AWAKENS TO GOLD APPRECIATION $$$. London has a better grip on financial reality than New York City and Washington DC, by a long shot. Their publications contain a quantum leap more depth and breadth on financial matters inside the United States than American publications. Nevertheless, a worthwhile commentary came from an American, but published in London. Its shortcomings are telling. The author points out how price inflation is on the rise, the key to a rising gold price. The flaws are two-fold. First, gold is not heavily dependent upon price inflation. If so, then gold would be nearer $700 per ounce than $1000 per ounce. Second, an argument is made regarding bond spreads against the TIPS. The author must have slept during the week when the USFed announced publicly that they were openly purchasing TIPS. Their reasons were vacant. Obviously, they wished to keep down the inflation expectations, and its primary index. Their move actually worked to destroy a gauge used to reflect some actual price inflation. Why would the USFed monetize the TIPS unless they set out to undermine the gauge?

No! The real factors driving the gold price are many, and a complete listing is very difficult to provide. They are the essence of the sequence of Gold & Currency Reports here. The bullish gold prospects rest heavily on a weakening USDollar, as well as the planning and gradual installation of global reserve alternatives. The gold price rises whenever the USDollar is discredited or disrespected on the global financial stage, which is very often, and will ample justification. The gold price rises when the global banking system, especially the US & UK & European banks, show clear signs of insolvency. They are busted. Furthermore, revelation of COMEX and LME fraud brings attention to the artificial low price engineered by the gold cartel, otherwise known as naked shorting. The disparity of physical gold and paper gold price has brought great attention to gold. Shortages exist broadly. Jeffrey Nichols is managing director of American Precious Metals Advisors in New York City. See his article in the UK Telegraph (CLICK HERE). He wrote:

"From a long-term perspective, gold is a bargain at recent prices in the $900 to $930 an ounce, and will remain so even as it begins to move into a higher trading range. Recent gold market developments and technical price action, along with broader economic and financial market developments, suggest gold is bracing for a resumption of its long march upward and a retest of its historic high in the months ahead. First and foremost, the bullish outlook for gold rests on the increasing likelihood of accelerating US inflation in the years to come, and an associated unprecedented rise in investor demand for the yellow metal. This nascent inflation has not yet been reflecting in world financial markets. But, judging from anecdotal evidence and the financial press, and the warnings of a growing number of institutional investment managers, we believe a gradual, subtle, but important, upward shift in inflation expectations is already under way. Inflation doves (and others fearing imminent deflation) point to the currently low, almost negligible, rates of consumer price inflation and the narrow interest-rate spread between ordinary US Treasury securities and US Treasury Inflation Protected Securities (TIPS) as evidence that inflation and inflation expectations remain subdued. This, along with other important factors that we will discuss in subsequent posts, has helped keep gold prices down in recent months.

We think those looking at the US Consumer Price Index are focused on the wrong inflation indicator. Instead, a look at the gross domestic product price deflator, a broader, more reliable, and less volatile inflation indicator, rising at an annual rate of 2.9% in this year's first quarter, should be enough to put fear in the hearts of economic policy makers. But, as far as we can tell, they are looking at the CPI and still worrying more about deflation. Importantly, in our view, if only a small percentage of investors become worried about inflation, gold could, and likely will, benefit long before any sign of a broad based rise in inflation expectations appears in the interest rate differential between ordinary Treasury securities and TIPS, the so-called TIPS spread. In other words, by the time the broad financial markets register a worsening of inflation expectations, gold will have already made a major move to the upside. It provides an early warning or leading indicator of inflation, signaling the coming acceleration long before financial markets begin to quiver." Most early warnings are ignored. Not here!

◄$$$ HEDGE FUNDS DISCOVER GOLD AGAIN $$$. The Paulson hedge fund vaulted into the #1 position as shareholder of the SPDR Gold Trust (GLD) exchange traded fund. His fund bought 31.5 million shares of the gold ETFund during 1Q2009. Lone Pine Capital bought 2.65 million shares in GLD also. Data is according to its mandatory end-of-quarter holdings report with the Securities & Exchange Commission. These guys better hope GLD actually is in possession of gold bullion as advertised. Many hedge fund managers have been increasing their gold investments lately. About 20% of the SPDR Gold Trust ETFunds outstanding stock was owned by hedge funds as of the end of 1Q2009. The increased stakes have come when the gold price has climbed above the 900 price level. They must regard hard assets as insurance against further turmoil in the financial system, including a decline in the value of paper currency, if not bonds generally. Paulson went much further, investing $1.3 billion to buy Anglo American's (AAUK) remaining stake in South African miner AngloGold Ashanti Ltd. (AU). Paulson also recently introduced to investors a new investment instrument pegged on the price of gold. David Einhorn of Greenlight Capital has been buying more stocks in the gold mining sector, and adding to his GLD fund position during Q1 as well.

◄$$$ GERMAN FIRM PLANS A.T.M. GOLD COIN DISPENSORS $$$. This story is wild & wonderful, enabling the public investment in gold coins. A German firm plans to install gold ATMs (automatic teller machines) to meet growing demand. Thomas Geissler is CEO of, a German asset management company. The company plans to create 500 gold ATMs (called Gold-To-Go) at a cost of ¬20 thousand each in Germany, Switzerland, and Austria this year. Geissler said, "This is more than a marketing gimmick. It is an appetizer for a strategic investment in precious metals. Gold is an asset. Everyone should have between 5% and 15% of liquid assets in physical gold. In absolute numbers, the demand for physical gold is still tiny in Germany. But in relative terms, the growth is explosive, inquiries have been doubling every six weeks." Private investor demand for gold is on the rise in Germany and elsewhere in direct response to financial markets crisis. Coin sizes range from a one-gram coins costing $42 (a big 30% premium over spot price) to 5-gram coins to 10-gram coins to flat rectangular pieces from Umicore (in tin box with certificate of authenticity) to Krugerrand gold coins. The main precious metals business concept for the is its online commerce. The gold ATMs will appear at central locations such as airports, railway stations, and shopping malls. Geissler has a strategy that intends to gradually accustom people to the idea of investing in physical gold. is a subsidiary of German online investment fund company INFOS GmbH founded in 1994. INFOS now manages ¬170 million worth of assets on behalf of nearly 5000 clients. See the Yahoo Business article (CLICK HERE).

 ◄$$$ CASEY GROUP JUSTIFIES GOLD AT WELL OVER $2000 $$$. The Casey Research Group has provided yet another excellent peptalk worth reading. They offered a solid brief listing of numerous important factors that justify a gold price well above $2000 per ounce. My personal analysis is in agreement with such forecasted gold price, but my reasoning is different. It runs parallel. The breakdown of the US$-based global financial structure demands both an ad-hoc interim solution, applied by each major nation, and it demands an eventual alternative structure that evolves into a more stable permanent system. It has been my strong belief that foreign nations must create a US$ alternative for usage in the global financial structures, or else face massive and possibly irreversible damage to their own banking systems, financial markets, economies, and even their political & social structure. The longer they wait, the greater will be the damage, possibly resulting in a revolution of sorts (hopefully peaceful). The role of gold is to become crystal clear in my view, for both interim and permanent solutions. Crisis will provide the gold price its ratcheted lifts even as the shocks push gold onto the center stage.

The foundation of the Casey argument is a return to sound money, backed by gold, in synch with my perspective. The factors are realistic and founded in critical aggregate dynamics. If gold makes the same rise as in the 1970 decade, from trough to peak, then gold should rise to $6214 per ounce. According to M1 money supply, if the gold supposedly in possession by the USGovt backs the available money supply, then gold should be at $5469 per ounce. In no way does the USGovt have 287 million ounces in possession. On a global basis, if the total amount of central bank reserves was converted to gold, in such a manner as to back all the money in the world, then gold should rise to $5426 per ounce. If the USGovt gold holdings were to collateralize the entire US foreign trade deficit, then gold should rise to $31,822 per ounce. And the climax& If the USGovt gold holdings were to collateralize the entire USGovt current and future liabilities (like Social Security and official pensions), then gold should rise to $192,401 per ounce. A decline in the Dow Jones Industrial stock index is due, in order to reflect the dreadful condition of the USEconomy and US banking system. A decline in the Dow to 6000 or 7000 should lead to an equivalent gold price, like $6000 to $7000 per ounce, if the Gold/Dow ratio of '1' is honored as it was in 1980. They make excellent arguments additionally that the state of global affairs is breaking down, entering chaos, if not on fire, with numerous examples. They recommend keeping both hands on the wheel, and offer their own gold investment strategy. See the 321Gold article (CLICK HERE).

◄$$$ PRICE INFLATION IS MORE LIKELY THAN USFED DRAINAGE $$$. For an excellent discussion of how price inflation could enter the picture suddenly and significantly, see "This is Not the 1930s, part II" by Michael Pollaro (CLICK HERE). He explains the excess bank reserves, and a lot of inflation in the pipeline. Banks usually hold 3% to 4% of their reserves as excess reserves, but now they hold an incredibly high 92%. Only when an 'All Clear' signal is given on the USEconomy will banks channel the bulk of their excess reserves into loans and investments. That bulk is now being stored with the USFed earning an interest yield. Could we be witnessing a baseless 'All Clear' signal, orchestrated and phony? Yes! Chairman Bernanke will have great difficulty withdrawing USFed bank reserves, since an increasing proportion are in the form of toxic assets with no active market to sell them. Even if they could, the result would be greater strain on an already beleaguered USEconomy. For political and credit market reasons, do not expect any noticeable drain. That means price inflation awaits the landscape on a path of least resistance.

◄$$$ ROB KIRBY GIVES A TUTORIAL ON GOLD LEASING $$$. My friend and colleague Rob Kirby of Toronto is a fine expert financial forensic analyst, which means he can dissect and explain with data the financial criminal deeds. In his article entitled "Forensic Examination of the Gold Carry Trade" he gives an excellent tutorial. See the Financial Sense article (CLICK HERE). Some highlighted points follow. The World Gold Council (WGC) and Gold Fields Mineral Services (GFMS) are the two leading gold institutes that support the gold cartel in their criminal deeds. For years, GFMS refused to acknowledge the growing flow of borrowed gold, central bank hedging, commercial hedging, and producer forward sales. The result was gross under-reporting of annual supplies hitting the market. WGC would show stronger global gold demand than GFMS, which preferred to estimate both demand and supply. GFMS has the limitation of having to show supply & demand in balance. After these two august shady groups joined forces into an alliance, demand was under-reported to achieve balance. To date, the GFMS does not acknowledge central bank swap & lease programs, conveniently.

Major central bank ownership of gold bullion is officially stated at 30 thousand tonnes. In reality, it is much less. The mechanism that permits over-statement of gold bullion in possession is double counting the gold, counted once who holds it, counted again who leased it. Even the Intl Monetary Fund admits the central bank gold is double counted. Kirby explains how the gold lease rate equals the LIBOR borrowing rate minus the Forward Rate (GOFO), which is the return earned by the lender of bullion. So a negative gold lease rate comes from the LIBOR rate lower than the gold forward rate. Central banks routinely accept steep losses in the lease process during periods of time when the gold price is rising dangerously in their viewpoint. They typically sell into a falling GOFO lease rate. The only motivated institution is the central banks, who must prop up their increasingly debauched and worthless currencies.

Former USFed Chairman Alan Greenspan openly admitted in 1998 that "central banks stand ready to lease gold in increasing quantities, should the price rise."  Not only is this practice a betrayal of Congressional contractor duty, but it is stupid from a management angle. The Gold Anti-Trust Action committee in December 2007 launched a lawsuit against the US Federal Reserve under the Freedom of Information Act to obtain documents about gold swap activity. In April 2008, the USFed responded by providing a flood of documents containing mostly irrelevant information, a distraction to the lawsuit demand. The case is still open in formal challenge and appeal. Kirby concludes that the same stonewall methods are being used by the financial syndicate that today are used to prevent disclosure of TARP fund usage for the banks.


◄$$$ ARABS MOVE GOLD BULLION FROM LONDON BACK HOME $$$. London is to be isolated, just like New York and Chicago, as a gold event looms. Plans are underway to fill the Dubai Multi Commodities Center. The DMCC vault is set to store the region's gold reserves. Demands have come for London to return the gold bullion owned by the Persian Gulf nations. The new vaults of DMCC will be a home to the gold allocated to the Dubai Gold Securities (DGS) Exchange Traded Funds. Expect two quantum leaps more integrity from the DGS fund than the current popular gold & silver ETFunds managed by New York and London crooked crowd of conmen. The vault may be pressed into service as a natural choice for storage of gold reserves by central banks in the regional market. While the gold allocated to DGS is currently held at the HSBC vaults in London, the gold reserves held by other Gulf Coop Council central banks are held by various other vaults in London. HSBC is a principal gold cartel player in deep collusion with the US banks to suppress the gold & silver prices. The new DMCC vault became operational on April 26, just a few weeks ago. An official at the DMCC told Emirates Business that "We want to bring the gold held under DGS ETFs at the HSBC vaults in London to Dubai. What has been holding us back is the difference in gold specification between London and Dubai." Up to May 11th, the total number of Dubai Gold Securities traded stood at 15,200. Each security approximately amounts to one-tenth of an ounce of gold, the norm. The emirate, part of the United Arab Emirates, imported a total of 140 tonnes of gold in the 1Q2009, up 15% versus the 122 tonnes imported during Q1 of 2008, according to DMCC records.

Political cover is necessary. The reality is that the Arabs suspect a gold event is coming soon over the time horizon, as they heed counsel. They also have the legitimate need to prepare for a new Gulf currency. Private word has come that the Arabs are following the paid counsel provided by the Germans. The Germans recently demanded all gold bullion held in US custodial accounts to be returned to Germany. Indications are clear, confirmed specifically by my source in the gold industry, that the Germans are orchestrating a gigantic squeeze on the US and London gold trading exchanges, the COMEX and LME. Those exchanges are overrun by naked shorts gone amok, tools for the corrupted syndicates. The Germans removed their COMEX gold. Here we have evidence that Arabs are removing theirs from the London Metals Exchange. A big event is coming that could fracture the COMEX, discredit it, and possibly result in lawsuits, criminal prosecution, and more. The immediate risk is that London might not have the gold bullion in sufficient quantity to return it, because they leased it and sold it. The practical effect of any big event is to shut down its paper operations, no longer serving any whatsoever of price discovery, and put an end to its price suppression illegal projects that have lasted for over 20 years. Expect a chain reaction of events, toward a climax. But, and a big but, there must be both follow through and others who follow suit.

Additional precious metals ETFunds are planned for launch in Dubai later this year. The Arabs have long favored not just gold, but platinum and silver as well. Once a sheik was photographed with his pure silver Rolls Royce, the answer to Goldfinger, an obscenity to be sure. The DMCC vault will be used to store precious metals associated with these ETFs. Prominent gold dealers in Dubai justify the central banks in the region to store their gold in DMCC instead of London, which has a 150-year tradition. Jeffrey Rhodes is CEO of INTL Commodities DMCC, a Dubai-based gold dealer. He said, "It is a natural home for the central banks in the region to store their gold in Dubai rather than in London, where they have typically held their gold. Particularly when DMCC has a state-of-the-art facility to store such precious metals." In a statement released recently, the DMCC boasted that its vault combines the advantages of a 'unique' location together with the 'highest' security standards. Their statement said, "The vault is intended for both short and long term storage of precious metals and other high-value products. The vault will be open to local and international banks, corporates, high net worth individuals, and DMCC members, and uses the latest security equipment and inventory management systems." David Rutledge, CEO of DMCC went further, saying "With the DMCC vault commencing operations, we can now further support this tradition by offering state-of-the-art infrastructure and storage facilities that are an essential feature of a successful commodities hub." See the Business24 article (CLICK HERE).

My source, who has solid connections with German bankers and industrial executives, said "In the final analysis, it comes down to a question of trust, or lack thereof. Care to speculate what will happen if London does not have enough physical in their vaults to cover?" IN MY VIEW, THIS IS THE BIGGEST NEWS FOR GOLD THIS ENTIRE YEAR. IT IS AS IMPORTANT ON THE PHYSICAL SIDE AS THE LAUNCH IS ON THE PAPER SIDE FOR NEW GOLD-BACKED CURRENCIES TO BE USED AS GLOBAL CURRENCY RESERVE ALTERNATIVES. This is a physical nuclear bomb dropped on New York and London, but one that has received precious little attention. The fall from grace and the insolvency state entered by New York and London has a practical effect in that gold accounts are no longer trusted in those locations! Making matters more tenuous is the profound fraud perpetrated. In a physical vacuum can come gold defaults in the corrupt metal exchanges.

Market Skeptics sees the same systemic gold risk to the US-UK power structure. Here are some of their impressions. The Dubai Gold Securities (DGS) is a new Exchange Traded Fund that might supplant the corrupt GLD fund managed by the gold cartel syndicate. Look for unusual events soon surrounding the corrupt GLD fund, whose gold bullion might not exist in great volume after all, certainly not the required publicized volume. The Dubai decisions undermine the US-UK authorities and structure itself. See the Market Skeptics article (CLICK HERE), where they wrote:

"My reaction: London is soon going to see a huge outflow of gold.

1) DMCC's new vault became operational on April 26 this year

2) ETF gold from DGS will be moved to these new vaults

3) Gold reserves of regional central banks also likely to shift from London

4) This move by Dubai is evidence of a loss of confidence in London's gold market.

Conclusion: London is FINALLY losing its role as the world's hub for physical gold storing and trading. It is going to be very interesting to see what happens when DGS tries to move its gold from HSBC in London to Dubai. HSBC is the custodian of both DGS and GLD, which raises a major question mark about whether the gold is really there. The growing demand for physical gold together with the tons of gold flowing out of London to Dubai will result in a major default somewhere on an obligation to deliver gold. After that, paper gold (futures, GLD, etc) will collapse, and physical gold will soar."

$$$ FT KNOX IS EMPTY OF GOLD $$$. Unfortunately, House Rep Ron Paul has been smeared and labeled as a lunatic. How dare anyone suggest alternatives for the financial structure that has served the nation so well!! Security issues are not his concern for gold bullion supposedly stored in Fort Knox Kentucky. At issue now is the quantity of gold there, and its ownership. The focus of attention has been that no independent auditors have gained access to the reported $137 billion stockpile of gold bars in Fort Knox since the of Eisenhower Era. LITTLE DO THEY REALIZE IT IS ALL GONE, AND ONLY A TINY REMNANT IS STORED AT WEST POINT IN NEW YORK. The Clinton and Rubin banksters looted it. Given all the failed leverage games, laden with sophistication, concern has turned to the tangible USGovt assets that must support fast rising federal debt. Put some perspective. The amount of claimed gold in Fort Knox is less than the $150 billion written for the American Intl Group in bailouts, rescues, and defense of credit derivative fires. Legislators have seen numerous failures and frauds, and now want to be certain that the USGovt gold bullion even exists.

Paul has won 21 co-sponsors for a House Bill to conduct an independent accounting audit of the Federal Reserve System, including its claims to Fort Knox gold. He said, "It has been several decades since the gold in Fort Knox was independently audited or properly accounted for. The American people deserve to know the truth." An alternative approach from another flank is being attempted by the Gold Anti-Trust Action Committee (GATA), which has won 122 Congressional sponsors. It has hired the Virginia law firm William Olson. They demand a complete formal audit of the USFed balance sheet. They will file several Freedom of Information requests for a full disclosure of US gold ownership and trading activities. See the Seeking Alpha article (CLICK HERE).

$$$ CHINA CAUSED SHOCK OVER ITS GOLD RESERVE GROWTH $$$. China has formally admitted to building up stockpile of gold, confirming speculation. SO CHINA & RUSSIA ARE GROWING GOLD RESERVES, VERY BIG NEWS!! Beijing leaders had ordered a halt to all foreign sales of domestically mined and refined gold three years ago. Only a rock-headed analyst would conclude their government made no significant purchases in years of silence. In late April, the Chinese Govt revealed that it had been growing its gold reserves over almost six years. They increased gold holdings to 1054 tonnes from 454 tonnes since 2003, forming a hoard worth about US$31 billion. That amounts to only 1.6% of the total Chinese foreign exchange holdings, equal to one-tenth of what the USGovt claims in gold reserves (actually near zero). The Chinese ratio is paltry, surely to rise. Strangely, gold has slipped as a share of the total Chinese reserves from about 2.0%, based on end-2003 prices. Their trade surplus is growing far more rapidly than their gold accumulation. They might wish to maintain that 2% share, which would require significant steady gold purchases. The admission came from Hu Xiaolian, head of the State Admin of Foreign Exchange (SAFE). The release of this information is motivated without any doubt, to deliver cold water in the USGovt faces, since Beijing is intolerant of further currency manipulation criticism coming from the United States.

Only six countries hold more than 1000 tonnes of gold in reserves. Now China is ranked fifth, having surpassed Switzerland, Japan, and the Netherlands quickly. Speculation is thus fueled about the ability and ambition of the Chinese Govt to secretly purchase gold, from its gigantic $2 trillion foreign exchange savings account. They are actively building stockpiles in numerous commodities as well, such as copper, soybeans, strategic metals, and crude oil. They make public statements about purchases; the markets report large purchases; and analysts infer on stockpile levels. Clearly, China is a major force in commodity demand. However, the news of their gold bullion reserves caused shock waves, since their trade surplus is so vast. They can afford to upset the balance with constant gold purchases. On a regular basis they could lap up significant gold reserves, support the gold price, and even singlehandedly push that price up in a powerful fashion. Now we know of the avenue used. The weak USDollar has threatened to undermine the Chinese reserves account, dominated by US$-based bonds. They have great motive to diversify into gold, energy, and metals. In fact, we might soon see a war to counter Fed-Speak, thus neutralizing an important verbal weapon. When the USGovt talks up the USDollar, the Chinese Govt might respond by talking up gold. A balance from verbal battle has come.

Several gold analysts and gold purchasers believed China had bought the gold on the international market, having absorbed hundreds of tonnes sold by central banks and the International Monetary Fund in recent years. China has become the world's largest gold producer, producing 282 tonnes of gold in 2008. It forbids exports of gold ingots, but not jewelry products. Assuming state gold purchases were spaced evenly over time, then the Chinese Govt has been purchasing one quarter of domestic production. Factor in also the soaring domestic demand for gold as an investment, in smaller bars and jewelry. Investment demand in China rose to 68.9 tonnes in 2008 from 25.6 tonnes in 2007. That level pales by comparison to India, the clear leader in retail gold investment. Total bullion consumption topped 660 tonnes last year. The Chinese clearly have a huge upside potential for gold demand, officially and among citizens.

Ellison Chu is director of precious metals at Standard Bank in Hong Kong. He claimed the increase in Chinese gold bullion was achieved by buying all domestic output from its own producers, in addition to global sources. He said, "China has been buying via government channels from South Africa, Russia, and South America." Yao Haiqiao is president of Longgold Asset Mgmt. He said, "The comments indicate that China will buy more gold as reserve to improve its foreign reserve portfolio. This is a trend." Hou Huimin is vice general secretary of the China Gold Assn. He urges China to build its reserves to 5000 tonnes. He said, "It is not a matter of a few hundred, or 1000 tonnes. China should hold more because of its new international status, and because of the financial crisis." Albert Cheng is the World Gold Council managing director for the Far East. He said, "The financial crisis means the USDollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage." Here is an extremely surprising fact, going totally counter to my inner guesses and maybe many others. The Euro Central Bank recommends its member banks hold 15% of their reserves in gold. Among Asian nations the percentage is far smaller, leaving great room for huge gold purchases by the very nations that traditionally log outsized trade surpluses. The Chinese ratio is under 2%. With the revolt against the USDollar, discredit having come to Wall Street, staggering USGovt deficits planned, and war of words bearing the whiff of trade war, future big Asian gold purchases are immediately clear. See the article by Jesse's Café Americain (CLICK HERE).

Another response by China will surely continue, investment in foreign nations. Some analysts call it investment in new slave colonies, morbidly. It is too early to tell if progress is valid. China has in the last several years embarked on numerous extremely large projects with Russia, Iran, and nations across Africa. Some deals are complicated, and involve building of railways, port facilities, even communities, schools, and hospitals. Ding Yifan is an author and researcher with the State Council Development Research Center in China. He bristled at accusations by former Treasury Secy Paulson. By providing a flood of capital to the US in the form of USGovt Treasury Bonds and USAgency Mortgage Bonds, China has been blamed for its 'excessively' high savings rates and for causing the credit bubble. He snapped back, saying "It [the US] is really an unreasonable debtor. If we invest our capital in infrastructure programs of developing countries, there will be no such blame." See the Asia Times article (CLICK HERE).

◄$$$ POTENTIAL IMPLICATIONS FROM CHINA GOLD RESERVES $$$. Simply stated, the near-term prospects include an important fork in the road for the USEconomy, leading to hyper-stagflation, or continued economic recession accompanied by rising prices. This calls into question the continued role of the USDollar as the world's reserve, since burdened at home. Surplus nations, particularly China, are voicing their growing concern in a loud and public manner. They are exploring other, less volatile arrangements. The most circumspect eye can detect that they are slowly considering a return to the bulwark of monetary stability: gold. Be sure to know that as the world's largest gold producer, China would benefit more than any nation from a shift away from the USDollar and toward gold in global bank restructuring. China demands a bigger role in world leadership, but would prefer not to challenge the US militarily. However, in the 21st century, the weight of economics renders military might somewhat irrelevant. A nation that cannot finance a military cannot lead on the global stage. If it must depend upon debt, counterfeit, and coercion of support, then imperialism and dominance (if not hegemony) are the result, hardly respected leadership. Even with the 600 metric ton increase in Chinese gold reserve accumulation, one should regard that as a down payment on a new chapter of modern history in the making. Nevertheless, the Chinese call for a new, gold-backed reserve currency, combined with the more than doubled gold reserves, points to a major strategic trend that can be expected to spread to other surplus nations. The biggest winners, whether governmental or from private corners, will trade their US$-backed paper for gold before the inevitable panic. Private investors can ride the wave created during the obvious Chinese strategic shift by continuing to add to their gold positions. See the Asia Times article (CLICK HERE).

The commentary has grown downright LOUD on China turning to US$ alternatives, gold-backed ones too, and accumulating gold. They are giving all the signals of moving eventually to a gold-backed Chinese yuan currency. Do not wait for formal statements to that effect. Watch their moves toward creation of the yuan as a global reserve currency. Watch their simultaneous moves away from the USDollar and toward gold for reserves management. The merger of the two important strategic initiatives is a gold-backed yuan currency. In fact, that is precisely what was stated openly by Zheng Lianghao, managing director of the World Gold Council's Far East division. He expects that the Chinese gold reserves may serve as backing for the yuan currency, as Beijing promotes its usage overseas, according to the Shanghai Securities News. See the FXStreet article (CLICK HERE).

THE CHINESE ARE CLEARLY THE SPEARHEAD TO DETHRONE THE USDOLLAR AS GLOBAL RESERVE CURRENCY. As they proceed, others like the Arabs and Russians will follow, after political interference is successfully conducted by China. Any step to back the yuan, even with a partial cover clause, would give the yuan instant superiority over the USDollar. By partial is meant that say 5% of a yuan presented at the window can be redeemed in gold. The currency could later be strengthened with a decision to offer a 6% cover clause.

$$$ GULF COOP COUNCIL PROGRESS & DELAYED NEW DINAR $$$. Gradual steady important progress is being made by the GCC, the six-nation bloc in the Persian Gulf. Much goes into command and control systems for a new currency and central bank. Numerous councils, banker offices, commercial linkages, trading platforms, vaulting services, communication lines, and much more must be set up. Abdul Rahman Hamad al-Attiyah, the secretary general of the GCCouncil announced in late April that Riyadh has been chosen to host its monetary council. It will evolve into the regional central bank. A central bank HQ is a primary foundation toward advancing the Gulf State monetary union, culminating in a unified currency. It will not be a totally unified organization, but a core union is the goal, and apparent outcome. GCC officials had set a target of 2010 for the new currency launch, long in planning, but they now admit this deadline will not be met. This is a very complicated and strategically important maneuver with huge global implications. Call it a slow torturous mortal blow to the USDollar, seemingly waiting on death row. Watch for sinister actions taken against the Arab involved, like more communication lines cut undersea, like computer viruses in their systems, like terrorist attacks. All have precedent, with origins from both the US and Israel.

Nasser Saidi is chief economist of the DIFC Authority, an extension of the Dubai International Financial Center. Saidi believes that Gulf Monetary Union will be a major milestone in the financial world, a major monetary event. It will help to consolidate the region's influence on a global basis. He stresses the need for currency alternatives to the USDollar, citing the US$, euro, and yen as the major global currencies now. After the new Gulf dinar (or whatever it is called) is launched, nations throughout the world can hold the new currency in reserves, and hedge against the crude oil price. The launch of the new currency, in addition to the numerous support systems, will effectively integrate the GCC nations within a common market of 40 million people. The new dinar will enable development of their regional economy, common market, and financial structure. The global credit crisis has actually worked to motivate the GCC nations to take action. Decisions yet to be made are whether to link the new dinar to a basket of currencies such as the trio of global currencies, plus at a later date the Chinese yuan. A basket valuation is more likely than to permit it to float on the FOREX exchange. Saidi admitted that the common currency will reduce financial exposure for GCC countries, and explained the likelihood of the Arab nations pricing its crude oil in the new currency. See the article from AME Info with audio clip (CLICK HERE). Given the UAE decision to exit the monetary union, the process is stalled. Look for posturing or something much bigger.

◄$$$ VENEZUELA LOCKS UP ITS GOLD OUTPUT $$$. The Venezuelan Govt will align itself to purchase over twice as much of the gold produced inside their nation. Miner output must be offered to the central bank first. The move will increase official gold reserves and bypass past procedures to buy gold with USDollars. Their Finance Ministry ordered 70% of gold produced in Venezuela to be sold domestically, with 60% offered to the central bank on an initial basis. The remaining 30% can reach global markets. Previously, 20% had to be offered to the central bank. Foreign owned mining firms could be affected directly, as price offered is likely to be at discount. The Vancouver-based Rusoro Mining is such a firm affected. Their CEO Andre Agapov said they will still have the right to sell their gold in the open market upon central bank refusal. He understood the logistics, hinting about the hurled rock tossed at the USGovt. He said, "It is a political decision. Why ship it from Brazil when you could buy it from local producers?" No Rusoro production has yet been bought by the government in Caracas. Rusoro aims to increase production to between 175k ounces and 195k ounces of gold in Venezuela in 2009, and up to 270k ounces by next year. The Venezuelan resolution sets the pattern for South America, as they rebuild official gold reserves on expectations that the USDollar will weaken and render harm to their financial structures. They have already been damaged by the falling crude oil price. Philip Gotthelf is from Equidex Brokerage Group in New Jersey. He said, "Venezuela has decided to take a lead in rebuilding government gold reserves. If we see this as a catalyst for other emerging economies, we will probably see the value of gold rise." The catalyst for a regional boost to the gold price has substance, and the regional shun of the US$-based financial arena is palpable. See the Bloomberg article (CLICK HERE).

◄$$$ TOCOM GOES DARK $$$. Rarely are improvements shrouded in darkness. It seems Goldman Sachs reached out to Tokyo and pulled a curtain. The Tokyo Commodity Exchange has launched its Next Generation System on May 7th. Part of the reform and improvement, if you can call it that, is more secrecy like in the US and London. It will stop releasing the Open Interest by member for futures contract positions. Such data has been required for disclosure on the daily net position changes for the seven historically largest TOCOM paper gold and silver short manipulators, and Standard Bank of Japan. This is not progress!

◄$$$ GOLD INVESTMENT DEMAND TRIPLES IN ONE YEAR $$$. However, Exchange Traded Funds accounts for almost 80% of total investment demand in 1Q2009, surpassing bars and coins to become the most important vehicle used by gold investors. Investment demand for gold totaled 595.9 metric tonnes in the first quarter, up from 171.3 metric tonnes a year ago in the same quarter, according to the World Gold Council. The ETFund component represented 465.1 metric tonnes of the demand, surpassing jewelry consumption for the first time ever. Jewelry demand was 339.4 metric tonnes in Q1, down a robust 24% from a year ago. THE REDUCED JEWELRY DEMAND IS A STRONG BULLISH SIGNAL FOR THE GOLD PRICE, BORN OUT BY HISTORY. Curiously, on the supply side, recycled scrap gold accounted for 558 metric tonnes more in the last year, up 55%. That helped total supply to increase by 34% to 1144 metric tonnes, slightly more than total demand. The key question is begged: How long will recycled scrap input gold keep up this pace? Not long, in my opinion, as the public realizes that higher gold prices are coming. See the Market Watch article (CLICK HERE).


◄$$$ CHINA MUST REACT TO HEIGHTENED USDOLLAR RISK $$$. Andy Xie is an independent economist based in Shanghai, and former chief economist for Asia Pacific at Morgan Stanley with Stephen Roach. He makes a suggestion that simply is unlikely, since far too conventional. It would be slammed for political reasons right away. He suggests that the US embark on a path that ultimately would relinquish control of most US property and industry, in a massive fire sale. States control much property too, as we see now with California planning to sell some icon property. Will they let Yosemite Park go, or Big Sur coastline? Xie suggests that the United States could conduct asset sales of gigantic magnitude in order to relieve its indebtedness. However, that would write in a series of carpetbagger chapters to US history, thus forfeiting control on our own soil. The global monetary policy dictated by central banks has produced a complicated currency war, as fully expected by the Von Mises School of Economics. No currencies can claim to be safe havens. The USFed avalanche of money printing coerces other nations to expand their own money supplies in order to depress their rising currencies. Those who refuse would see their export trade vanish. The eventual result is price inflation and negative real interest rates on a global scale. That is precisely what the gold community anticipates, and precisely what it will see, which favors a rising gold price. See the Xie article on Financial Times (CLICK HERE).

Xie makes several extremely important points, that the US is being granted special privileges (not deserved), that China & the Persian Gulf nations prop the USDollar, and that the Chinese are being pushed into a reactive position to develop a US$ alternative. The flip side to propping the USDollar is deep influence on US policy and direction, if not forfeited control by the US debtor. His most important warning is that global stagnation could lead China to take defensive actions, ones that risk the collapse of the USDollar itself. His statement about a Paris Club highlights his perception that the US as a debtor is in a failed condition. The bottom line is that China is pushed to walk (not run) as fast as possible away from the USDollar system, and to develop an alternative for usage in both banking and international commerce. To walk is evolution, to run is destruction. He wrote:

"Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the US Federal Reserve's policy of expanding the money supply to prop up the banking system and its over-indebted households& The chatter over alternatives to the dollar mainly reflects the unhappiness with US monetary policy among the emerging economies that have nearly $10 trillion in foreign exchange reserves, mostly in dollar assets. Any other country with America's problems would need the Paris Club of creditor nations to negotiate with its lenders on its monetary and fiscal policies to protect their interests. But the US situation is unique: it borrows in its own currency, and the dollar is the world's dominant reserve currency. The US can disregard its creditor concerns for now without worrying about a dollar collapse. The faith of the Chinese in America's power and responsibility, and the petrodollar holdings of the Gulf countries that depend on US military protection, are the twin props for the dollar's global status.

Ethnic Chinese, including those in the mainland, Hong Kong, Taiwan, and overseas, may account for half of the foreign holdings of dollar assets& Central banks are punishing savers to redeem the sins of debtors and speculators. Unfortunately, ethnic Chinese are the biggest savers. Diluting Chinese savings to bail out failing US banks and bankrupt households will eventually destroy the dollar's status. Ethnic Chinese demand for it is waning already. China's bulging foreign exchange reserves reflect the lack of private demand for the US currency. US policy is pushing China towards developing an alternative financial system& China is aware it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial center by 2020 reflects its anxiety over relying on the dollar system. The US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse."

◄$$$ CHINA WORRIES ABOUT HARMFUL USTBOND IMPACT $$$. The Peoples Bank of China fears a 'big consolidation' in the bond markets, in their words. They are clearly anxious that interest yields will rise dramatically whenever western central bankers attempt to exit their quantitative experiment. They refer to the formal reversal of the policy whereby a flood of monetary liquidity relieves the stress within the global banking systems, from built-up stimulus. Premier Wen Jiabao was explicitly clear at the Communist Party summit in March that China is deeply angry about the USGovt remedial actions in response to the credit crunch. They suspect that the United States is actively engaged in a stealth default on its debt that will be achieved by means of an intentional deep USDollar devaluation. He said, "We have lent a massive amount of capital to the United States, and of course we are concerned about the security of our assets. To speak truthfully, I do indeed have some worries." If they only knew about how incredibly deep the fraud and counterfeit was, and how frail the dysfunctional Shadow Banking System was. Maybe they do, but that is doubtful. Their reaction has been to divert as much savings away from the US$-based sphere, from new trade surplus income.

Simon Derrick is currency chief at the Bank of New York Mellon. He believes the Peoples Bank of China report is the latest sign that China is losing patience with the United States and intends to diversify part its $1.95 trillion in foreign reserves away from USTreasurys and other US$-based securities, like mortgage bonds and corporate bonds. That PBOC report recently stated, "A policy mistake made by some major central bank may bring inflation risks to the whole world. As more and more economies are adopting unconventional monetary policies, such as quantitative easing (QE), major currency devaluation risks may rise." In an attempt to interpret the statement, Derrick said "There is a significant shift taking place in China. They are concerned about the stability of the global financial system. So they are not going to sell US bonds they already have. But they are still accumulating $40 billion of fresh reserves each month. They are going to be much more careful where they invest it." Hans Redeker is head of currencies at BNP Paribas. He confirms that China has begun to switch into hard assets. He said, "They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they cannot keep buying bonds." The will continue to buy bonds, but much less!

Some economists accuse China of suffering from a case of 'cognitive dissonance' by anguishing about its reserves accumulated during a period of fixed yuan conversion, followed by controlled yuan currency appreciation. Quantitative Easing by the US Federal Reserve and fellow central banks may provide a significant lift to China as well, insofar as its export market has bought time. Much of their growth strategy is built on selling goods to the West. In other words, their own worry and consternation over the ridiculously high ratio of USTreasury Bonds in their foreign reserves is a result of their own policies, and their own dismissal of risk all along the path to a $2 trillion savings account. They are angry at their own success, after having essentially signing on as the 51st state of the US, when they locked a fixed currency until July 2005. When a nation locks a currency to another, it merges a majority of financial interests.

◄$$$ ASIANS CONSIDER USTREASURY DEFAULT AS LIKELY $$$. Talk is growing into a deafening whisper of eventual disaster and default of the USTreasury Bonds. It seems the US natives and bank leaders are the last to realize this, but US citizens do not even comprehend the potential for the event. Asians cite monumental USGovt rescues on Wall Street banks, big domestic stimulus plans, big toxic asset redemption schemes, and now a possible national health care system. The result will cause the federal budget deficit to skyrocket, actually an understatement. Almost $13 trillion has already been committed and/or spent in this crisis, with the current year's budget deficit projected to reach $1.8 trillion. The prospect is hopeless that the US Treasury new debt issuance will be brought under control anytime soon. The two paths presented are huge tax increases or else massive price inflation, depending upon whether the USGovt decides to pay for the emergency actions or violate foreign creditors. The concept of growing itself out of the mess sounds ludicrous enough that few responsible parties mention it. Higher taxes or greater price inflation have one thing in common, a de-railed wrecked recovery certainty. Most foreigners expect the USDollar will inevitably bear the full brunt of the decidedly hyper-inflationary policies embarked upon, possibly a ferocious strain. Foreigners also regard USFed promises to reverse highly inflationary policies swiftly as meaningless, since protection of the currency will be futile when inflation inevitably rears up inevitably.

The USGovt is therefore due to face the most colossal Catch-22 situation imaginable, as either the USDollar or the US economy will be put at risk. My forecast is that BOTH will suffer mightily. China, Japan, the Pacific Rim nations, along with the Persian Gulf nations have turned acutely pessimistic on the USDollar's future beyond the next few months. They no longer believe the United States has either the capacity or courage to make reliable and sound its monetary, financial, and economic houses. They see enormous repercussions of desperate policy, whose specter curiously escapes most residents in the United States. They are preparing new solutions to erect as defenses. Within two years or more, the USDollar could become relegated to the margins of international finance and monetary policy. They are pushed into action, and reminded of necessary action, when they observe the rising USTreasury Bond costs for default insurance, called the Credit Default Swap contract. It reached 1.0% earlier this year in calendar 2009. It has risen recently in reaction to the risk assumed in bank rescues and endless funding of them. The undeniable fact is that the USGovt has put all financial institutions and instruments in a virtually impossible position, while with the USEconomy has been held hostage.

The Wall Street Journal examined the issue of skyrocketing costs to insure USGovt sovereign debt in an article entitled, "Volatility in the Markets is Down but Not Out" dated April 30th. The author made the insightful observation that volatility and risk have been transferred from the stock market to the sovereign debt as a result of the USGovt purchases of diverse dubious assets from Wall Street firms, AIG, and Fannie Mae. The stock market gains have come at the expense of USTreasury creditworthiness. Deceitful corporate balance sheets have been endorsed, thus shifting risk to the USGovt debt integrity. Not only the United States stands at risk. The popular VIX gauge produced by Credit Derivatives Research shows the Credit Default Swap premiums index for seven large sovereign debtor nations (including US, UK, Japan) was at 75 at the end of April, compared with the 3 level before any hint of global credit crisis.

Asians increasingly believe that the USFed and USDept Treasury must withdraw their entrenched hyper-inflationary policies, when the Catch-22 on the USEconomy versus the USDollar becomes established and irreversible, after the USGovt commits to issuance of added USTBond securities. BUT THEY WILL NOT BE ABLE TO DO SO. Asians believe that after the trap is clear, with no escape, within two years time, then Washington may have no choice but to let the Treasury default on some elements of sovereign debt. The flavors include short-term USTreasury Bills, long-term USTreasury Notes and Bonds, as well as Fannie Mae Agency Mortgage Bonds. Asians anticipate possible defaults on portions of US sovereign debt and grand inflation of others. The common denominator risk seems painfully clear to be the USDollar. Foreign investors are in line to suffer major losses by any such developments with their US$-based holdings. The only recourse to avoid such deep losses and unfortunate choices would be for a vibrant USEconomic spurt to be realized, the US banks to return to sudden vitality and solvency, and US housing to stabilize and rebound. Save such unlikely outcomes, the dire forecasts of US sovereign debt defaults and a USDollar crisis seem assured. The United Kingdom faces a very similar fate. The Asians believe Japan faces a shade of the same fate, but in my view that is unlikely. See the Asia Time article (CLICK HERE).

◄$$$ CHINA BEGINS SELLING YUAN-BASED BONDS $$$. Last month China announced plans to expand domestic usage of the yuan currency in their banking industry. They also announced participation in an Asian regional emergency fund. They also set up reserve swap facilities in several nations, greatly enabling trade with China. A key building block in both processes is a Chinese Govt bond in yuan denomination. Now China has permitted two Hong Kong banks to sell yuan-based bonds. Two major banks outside Mainland China announced that they have become the first foreign companies granted approval to sell bonds in Chinese yuan, regarded widely as a step toward making it an international currency. The banks are HSBC Holdings (based in London) and Bank of East Asia (based in Hong Kong). Volume amounts and calendar timing of issuance are forthcoming. Beijing is pursuing a goal to promote the yuan as an alternative to the USDollar for international trade and reserves. In time, Beijing will gradually relinquish its tight control over the currency's exchange rate. In April, the Chinese Govt announced plans to allow Shanghai and four other major cities to settle foreign trade in yuan rather than in USDollars.

Richard Yorke is chief executive of HSBC in China. He said, "We believe that a yuan issue by HSBC China will help establish a representative pricing benchmark for foreign banks requiring funding, and will help the development of Hong Kong's offshore RMB market." The RMB is the renminbi and means 'peoples money' but more formally the yuan currency. These are all important steps to establish the yuan as a more global currency, and furthermore, to facilitate the expansion of Chinese bank lending on a global basis. Trade with China is sure to grow, even as the USDollar is avoided. In February, Premier Wen Jiabao urged the USGovt to avoid steps that weaken the USDollar, sure to erode the value of Chinese holdings of USTreasurys and other US$-denominated assets. Clearly, China has many actions of its own to reduce its risk. WE ARE WITNESSING A PARADIGM SHIFT IN PROGRESS, NOT RECOGNIZED YET. See the Forbes article (CLICK HERE).


Brazilian President Luiz Inacio Lula da Silva (aka Lula) is meeting with his Chinese counterpart Hu Jintao and other leaders in Beijing this week. They plan talks focused on boosting business between Brazil and China, thus promoting closer cooperation. Attention has focused like a laser on whether China and Brazil would come to an agreement to abandon the USDollar in their bilateral trade. They might replace it with their own currencies, the yuan and the real. Conducting commerce but using the currency of a third party makes no sense, especially when the USDollar as third party is weak, structurally defective, and the target of global revolt. Lula stressed this point publicly and loudly. The topic was initiated at the April G20 summit in London. This forging tie produces yet another challenge to the USDollar special status as the leading global currency, used in international trade settlement. Combine their progress with other barter accords. The China-Russia barter accord and the Russia-Germany barter accord continue in the same vein, but more drastically. The US$ is slowly being pushed out of trade settlement, a serious blow to status as global reserve currency.

Zuo Xiaolei is an economist in Beijing with Galaxy Securities. He uttered a mouthful, now a common theme, when she said, "Everybody has realized ... that the currency and debt crises in many countries and the global economic crisis are linked to the dollar standard& It is unlikely for them to change the global currency system overnight. So what they are trying to do now is something regional and defensive." Andy Xie, the independent economist, said an initial agreement to conduct some trade in yuan and real currencies could materialize after their talks conclude. Zuo was more cautious on the timing of an agreement, but confirmed the feasibility of that course. China has direct interest in the vast and growing natural resources in Brazil, which in the next decade will realize a new world class Tumi oilfield. This March 2009, China became Brazil's biggest trading partner, ahead of the United States. Focused mainly on iron ore and soya products, its exports to China so far this year have risen 65% over the same period in 2008, from $3.4 billion to $5.6 billion. Lula stressed the growing responsibilities of emerging economies, the need for concerted efforts and dialogue, and the goal for greater voice on the global stage. The two leaders agreed the most financial turmoil is the result of mismanagement by the more industrialized nations.

◄$$$ CHINA EARNS LESS IN INTEREST PAYMENTS, BUT GROWS IN VOLUME AND INFLUENCE $$$. A sequence of events where Chinese reactions in self-protection has resulted in reduced interest payments on their vast US$-based bond holdings. Their foreign exchange reserves include a giant portion of USTreasury Bonds, and large helpings of USAgency Mortgage Bonds, as well as a sizeable raft of US corporate bonds. View the investments from their perspective. Each category provides lower income for the Chinese than several months ago per dollar invested. USTreasury yields offer lower bond yields, for both long-term and short-term maturities. That gives lower income yields both for American savers (retirees and pension funds) and the Chinese bondholders. The mortgage bonds have relaxed on bond yields, a benefit to Americans hoping to buy or refinance a home, but the opposite for the Chinese. Corporate bonds for US icon firms have risen, but so have the failures. Hence their owners earn more on the bond yields, unless those bonds vanish altogether in value.

Analysts conclude that the average cash return on China's bond portfolio is on the decline. Changes due to their portfolio decisions in reaction, in order to reduce their exposure and time commitments, result in lower income. They have shortened the maturity of their Treasury portfolio by buying Treasury Bills. Consequently, cash compensation to China for accepting the US$ risk is falling per dollar invested. They must have been keenly aware of such risk when for years, up to July 2005, when the Chinese Govt chose to maintain an undervalued exchange rate, expand their industrial capacity and jobs, while accumulating a mountain of US$-based assets. They also must know the American history, which dictates like clockwork a lower interest rate when the USEconomy falters and enters a recession.

The US Bureau of Economic Analysis provides a detailed breakdown of the United States income balance with China. The USGovt is shelling our far more in interest payments in the current year than it did in 2003 or 2004. The US data consistently underestimates payments made to China, since the Asian powerhouse continues to accumulate, and the data is delayed. Their trade surpluses continue to surprise on the upside, and US revisions continue on the upside. While Asian export giants cut back their USTreasury Bond purchases, China has remained the exception. China is earning less per dollar invested, but has grown the volume in meteoric fashion. One must suspect that very significant concessions are being made by the USGovt to the Chinese, like Eminent Domain, like a seat at the G8 Finance Meeting table, like on Taiwan matters, like influence on Fanny Mae policy, like quiet assistance in military equipment purchase, like first position in industrial plant liquidated purchase, like tolerance of their encroachment into South America, even like a voice in US foreign policy from the back rooms. These items are key to lost sovereignty, when rolled together. China has embarked on a strategy in the American Hemisphere to capture commodity supply, from Venezuela (crude oil), from Canada (energy and minerals), and from the entire Andean nations (metals, but copper in particular).

◄$$$ ASEAN FUND GAINS TRACTION $$$. The Pacific Rim of powerful little export nations will start a $120 billion foreign currency reserve pool by the end of 2009. China will pitch in over half of the assets. Progress continues. A surveillance group will be assembled that will identify risks to the region and provide oversight for the fund. Japan will contribute $38.4 billion to the pool and offered $60 billion of yen-denominated swap facilities. Cooperation is the key, starting the movement, with an organization. The 13 nations have accumulated more than $3.6 trillion of currency reserves. Their unstated motive is to eliminate involvement with the historically pernicious and destructive Intl Monetary Fund. China and Hong Kong together have just pledged another $38.4 billion to the pool, arranged under a nine-year framework known as the Chiang Mai Initiative. South Korea will pledge a contribution of $19.2 billion. The Assn of Southeast Asian Nations (ASEAN) will contribute 20% of the total amount. Thailand, Indonesia, Malaysia, and Singapore, the four largest ASEAN economies, will contribute $4.77 billion each, and the Philippines will contribute $3.68 billion.

My belief is that the original purpose of emergency currency relief will morph into a regional development fund, outside the US$ sphere. This evolution has been recognized. Gerard Lyons is chief economist at Standard Chartered Bank in London. He said, "One of the beneficiaries of this crisis, if you want to call it that, has been the way it speeded up the regional market development. The Chiang Mai Initiative has now started to get real traction." Countries such as Japan and China are taking a leadership role in Asia. See the Bloomberg article (CLICK HERE).

◄$$$ CHINESE PRESS ENGAGES GATA $$$. Some Chinese CBN network reporters have been in contact with GATA lately. The Gold Anti-Trust Action group has an ongoing lawsuit against the US Federal Reserve for Constitutional violations of the USDollar as money, for illegal suppression of the gold price, and for criminal management of the national gold treasure. The China Business News reporters have been collecting information on the GATA lawsuit for unconstitutional money. This could become interesting, thorny, and powerful. Perhaps Chinese authorities are attempting to gather information to be used as weapons against the USGovt, or to defend itself against currency manipulation, or to justify a quantum leap in their gold accumulation. The Chinese might deliver severe future blows against the USDollar and its US$-based castle fortress, from a legitimacy angle using the borrowed GATA catapult weapon. Regardless, Chinese authorities will have access to powerful information to use as they see fit in a global chess game that has the US side operating with very few pieces. The Beijing players have shown a keen ability for effective gamesmanship.

◄$$$ CHINESE STRATEGY REMAINS HIDDEN, TO EXECUTE A GRAND PARADIGM SHIFT THAT WILL TAKE CONTROL OF THE UNITED STATES WITHOUT A SHOT FIRED, ACCORDING TO SUN TZU $$$. China is executing and implementing a peaceful but highly disruptive Paradigm Shift toward economic, banking, and political change in control. They have a high priority to take some control of global banking, since they command so much capital savings. They have a high priority to feed their populous nation, and American farmland is deeply coveted. This is a complicated chess game, for which the United States has either given away, traded away, or openly lost its important pieces. The United States does react constructively, since it fails to recognize how its tactical moves have failed. The US cannot admit the war economy crippled the nation. The US cannot admit how Wall Street control of USGovt finance resulted in widespread cancer. The US cannot admit how the low-cost strategy to dispatch industry from American locations to China has backfired.

The Russians have exerted influence by means of a single specialized weapon, the Sunburn Missile, which trumps the USMilitary Cruise Missile in the cold war theater that hovers over the Persian Gulf region. The Chinese have a different more efficient two-sided weapon, stored US$-based debt and an industrial base financed by the enemy. The debt securities they have clearly begun to use in the economic war theater. The industry they relied upon to accumulate wealth ,while employing their skilled labor, built vast savings. The ultimate Chinese strategy is not publicized or well understood. It did not take a quarter or a year, but a decade to come to fruition. The US thought they were building a partnership. They instead developed a master creditor, which has waited until now to flex its muscles.

The US people, elite, and leaders are aware that Beijing has ordered numerous yuan currency swap stations to be installed globally. We are aware of Beijing changing over to yuan currency as the banking system medium in domestic banking reserves. We are aware of Beijing leading the creation of a regional ASEAN fund, which later could easily morph into a regional development fund, again based in yuan. We are aware that Beijing has steadily been accumulating gold bullion all these boom years. We are aware of accumulating stockpiles of numerous commodities, led by copper and crude oil. They are expanding stored copper supplies at a rate 70% above their consumption level, and expanding by 50% their crude oil silos within the next several years. We are aware of their cut deals for raw materials and acquisitions of companies across Africa and South America, each of which is smaller than any firm that might cause political ramifications like Unocal did. We are aware of their continued accumulation of USTreasury Bonds, despite growing rancor heard across the Pacific Ocean about currency manipulation and blame for bond bubbles. What we do not hear about is the cooperation with GATA as a weapon for later usage. The GATA 'secret card' could be powerful enough to undermine confidence in the flailing but not failing USDollar global reserve currency, with messages delivered on the global stage for all to hear, and for markets to react. What we do not hear about is how Beijing is posting USTBonds as collateral against fixed interest rate loans toward the purchase of real assets. What we do not hear about is how Beijing has gradually encircled the United States, from Panama Canal control, to secured energy and mineral output from Canada, to locked supply of metals from the Andes region of South America, to locked spare supply of crude oil from Venezuela as soon as Chavez decides to turn off the spigot. Bear in mind that Mexico will soon supply less crude oil to the USEconomy and Southwest refiners, from the 10% last year to zero within perhaps one more year time.

WHAT WE DO NOT HEAR ABOUT IS HOW BEIJING IS GRADUALLY SUBJUGATING THE USGOVT AS A VASSAL IN DEBT, POSSIBLY SOON A SERF NATION, IN STEPS TOWARD INDENTURED SERVITUDE FOR THEIR NEW CREDIT MASTER. The Beijing leaders have managed to confuse the US population, investment community, and leadership. They complain and bicker and trade barbs, but they continue to accumulate US$-based debt and emerge from numerous secret meetings with USGovt leaders with minimal hostility exhibited. For years, my analysis has warned that as foreign ownership of USGovt sovereign debt rises past a threshold level, like 50%, then foreigners will gain more control of USGovt policy with hidden strings controlling our leaders like so many puppets. The people of the United States do not realize what is happening. What is happening is that a secret receivership process has begun, hidden totally from view, wherein the USGovt has relinquished much control to the Beijing credit masters. The process will continue until better recognized in public pronouncements about what Beijing leaders desire in policy terms, and that as debtors with a failing system, we as a nation have no choice but to acquiesce to their wishes.

WE ARE IN THE MIDST OF AN HISTORICAL GLOBAL PARADIGM SHIFT, TO DATE A QUIET PROCESS. POWER IS SHIFTING FROM WASHINGTONDC & NEW YORK CITY & LONDON DIRECTLY TO BEIJING. Other allied cities to Beijing are involved, but only in support or counsel. It is my opinion that Beijing leaders ordered that Fannie Mae be nationalized in order to properly guarantee $300 billion in USAgency Mortgage Bonds held by Beijing. It is my opinion that other secret agreement pacts were forged by Beijing leaders with the increasingly bankrupt and desperate USGovt officials, like Eminent Domain. That would enable the city confiscation and farmland confiscation and office building confiscation. Such steps will lead to domestic upheaval and riots when made public. What Americans fail to realize, along with most leaders, maybe fewer corporate leaders, is that China is executing a Paradigm Shift without recognition by the United States.

My connected source on global commerce contract and systems development has told me recently, in response to queries about Chinese USTreasury Bond continued growth, and admitted Gold reserve accretion, the following stern words. The message said, "China will close the circle and turn the tables on the US and the UK for all the horrific abuses and destruction those countries have caused China over the past centuries. The US will be forced to enter into bilateral agreements with China so as not to totally drown. However, China will dictate the terms and conditions. This means that the US will have to betray all its Western allies, including NATO. The Chinese will make the US fall onto its own sword. This has all been well designed and will now be implemented on China's terms. This is all a lot more complex and deep." Implied is a military cooperation between the US & China, at the expense of Europe.

The United States has little choice but to acquiesce and comply with Beijing wishes. The insolvent indebted nation with little industry left and a destroyed banking system can endure the shameful process of bankruptcy receivership, forced by the creditors, or the nation can permit a 'New Alliance' with China that involves obedient hidden directives. The US possesses a powerful defense contractor industry, half the world's agricultural output, and many spectacular locations for residence. These will all prove desirable and useful to China in future years. The practical consequence of the US subjugation as debtor nation by China will be for the European Union to be pushed into a 'New Alliance' with Russia. Such a deal is practical, due to distances and supply lines. By the way, the United Kingdom is to be left out in the cold.

My comments about the United States becoming a Third World nation might apply far more directly to the UK faded empire, as its Soaring Eagle Pet in America has been grounded. Jesse at the Café Americain points out that a huge brain drain is soon to hit England. He wrote, "New research has found that a whopping 11 million Brits are thinking of taking a job overseas within the next two years, a significant dent in the population. A fifth of those would choose a new life down under [Australia]." However, he points out that this sample is likely overstated from sampling bias. The trend is certainly worth watching. One would not be surprised to see a similar trend growing in the United States. See the Jesse article (CLICK HERE). These are harsh times geopolitically, a topic almost uniformly ignored in US debate and discussion. We ignore our bankruptcy and its consequences.

◄$$$ BRITAIN MUST CONTEND AS DEBTORS WITH CHINESE CREDITORS $$$. The creditor tight leash to control the US-UK creature involves British debt. Despite a wanted uptick in their M4 money supply from 3.5% to 3.9% in 1Q2009, Bank of England chief Mervyn King is expected warn of the need for more stimulus, underlining its decision two weeks ago to commit a further £50 billion to buying UKGovt and corporate bonds. King's continued dedication to Quantitative Easing paves the way toward selling £220 billion of UKGilts this financial year alone. Here is the perverse irony! If the Bank of England halts the monetized purchase of large chunks of the UKGilts, it will leave the UK more vulnerable to the dictates of international investors. So like other sovereign governments, the urge to keep the monetary inflation 'home grown' and not subject to the vagaries of foreigners ensures more price inflation down the road. Monetization limits foreign creditor reaction during the auction process. The Chancellor of the Exchequer (like US Treasury Secretary) was forced to reassure senior figures from the Chinese Govt about the condition of British debt situation. The Chinese delegation of ministers, part of a larger economic group to visit the UK, have expressed deep concern that Quantitative Easing, atop the enormous levels of western public debt, will destabilize the credit markets further and keep the world economy in a steady state of disruption.

China is one of the biggest investors of government debt securities from both the US and the UK. Although fears are ripe that China will stand aside at US & UK debt auctions, the greater risk is for China to take greater hidden control of their respective governments, in my view. Those who think China is shooting itself in the foot with outsized US & UK debt security ownership have zero view on geopolitics, and the massive paradigm shift underway. That shift is purchased by Chinese reserve ownership. See the UK Telegraph article (CLICK HERE).


◄$$$ U.A.E. CONSTRUCTION BUST AS ARAB THERMOMETER $$$. Start with a splash of cold water on the OPEC faces, specifically on their jewel showcase city. The Great Dubai Bust continues, and has taken a turn. The wealthy of Dubai, whose projects have turned sour, have appealed to the British for help in order to help to recoup $600 million Dubai debt. Peter Macdiarmid and Getty Images Builders, along with major engineering firms have appealed to the British Govt for assistance in recovering hundreds of million$ in unpaid debts. Their soured projects in luxury developments have turned Dubai into a desert boomtown. The Assn for Consulting & Engineering (ACE) in the UAE city state said some members have been offered just 65 cents on the dollar on unpaid fees by the leading developer Nakheel. The ACE chief executive is Nelson Ogunshakin. After a visit to Dubai, he described the situation as in chaos. He has written to Lord Mandelson, the British Secretary of State for Business, Enterprise & Regulatory Reform, to ask for political intervention, a last ditch of desperation. It is unclear what they hope to accomplish. Dubai is remains a British protectorate (a little known fact), thus the potential for intervention to begin, if possible since the United Kingdom has its own turmoil. The most important developers in the United Arab Emirates, including Nakheel, are part of holding companies owned either by the governments or rulers of the federation's seven emirates, led by Dubai and Abu Dhabi.

In contrast to Saudi Arabia, which resisted a grand transformation of its cities, Dubai's leaders sprinted into the future with numerous futuristic architectural achievements. They strived to build Paris on the Persian Gulf, complete with a shiny vision. It is replete with real estate conglomerates, construction firms, trade centers, financial services, and import-export centers. The Jebel Ali port in Dubai has the largest man-made harbor in the world and was ranked eighth globally for the volume of container traffic it supports. Dubai is also developing as a hub for service industries such as info technology and finance, after establishment of industry specific free zones throughout the city. Dubai Internet City, combined with Dubai Media City as part of TECOM (Dubai Technology, Electronic Commerce, Media Free Zone Authority) is one such enclave with global icon names in computerdom and the media world in participation. The Dubai Financial Market (DFM) was established in March 2000 as a secondary market for trading securities and bonds, both local and foreign. As of fourth quarter 2006, its trading volume totaled $95 billion worth, with a market capitalization of $87 billion. The boom has turned to bust, the glitter to faded confetti, as the global crisis has reached the Persian Gulf with blinding speed.

The glory is elusive. Dubai might have been on track to be an elegantly perched Paris, but the economic crisis has drained the region's prospects. One should be shocked at how fast Dubai shriveled over the past year. Abu Dhabi bankers just rescued it from total liquidation failure and utter embarrassment.

Peter Benjamin Mandelson is regarded as one of the main players, along with Tony Blair and Gordon Brown, of the modern Labour Party. He has served as the European Commissioner for Trade for almost four years, before being brought back into mainstream British politics by Gordon Brown. The Daily Bell concluded that "It will be interesting to see what kind of resources Mandelson and his cohorts will offer Dubai's increasingly desperate financiers. Dubai, in our opinion, is still a main player in the Middle East. It is, in fact, the carrot. See, if you want to build a global government, you have to use both the carrot and the stick. We all know about the stick part (see Iraq). But the carrot in our opinion is Dubai. It is to Dubai that the next generation of Arabs were going to look, to a city of magnificence and opulence far in excess of anything even the West had to offer. The importance of Dubai, then, is that it was to serve as a great instructional tool for the teeming Muslim world. In fact in our humble opinion, it is yet a lynchpin in a strategy aimed at impressing and then co-opting billions of the Muslim intelligentsia outside the Western ambit." The publication regards this wondrous city as the 'Dubai Denominator' in a financial thermometer role. This epicenter of avant garde planning is now in financial ruin, exposing an unraveling global economy and a monetary elite unprepared to deal with it. The main player is actually Abu Dhabi. See the Daily Bell article (CLICK HERE).

◄$$$ BALTIC DRY INDEX LOGS CONSECUTIVE GAINS $$$. In the May Macro Economic Report, a chart showed that global shipping activity had stalled, with no progress. Here we see that the shipping rates have come off the bottom, and are steadily improving. One can conclude that shippers have succeeded in winning contracts that are at or above their costs. Perhaps they have responded by reducing the shipping vessel supply, or by cutting back on new ship construction. Surely, some shippers have gone out of business, with ships moored inactive. These are not easy steps to take, as each take time, and are difficult to reverse. Let it be known that the BDI near zero has reversed. It actually touched the insane zero level within one quiet week in December. The reinvigorated commodity stockpile movement by China must be a factor in the equation, although shipment volume has not yet returned to any healthy state. Some other nations are adding to their crude oil and other stockpiles like metals and grains, taking advantage of what they regard as temporary low prices. This is a confusing situation to read clearly.

◄$$$ CANADIAN DOLLAR SIGNALS A COMMODITY REBOUND $$$. The Canadian Economy has a dominant commodity component with both energy products and diverse minerals, just like Australia. During the commodity selloff last autumn, the Canadian Dollar (loonie) took a sudden fall from 93 cents to under 80 cents. It has since rebounded, having formed a very solid base foundation for the reversal. It passed the 50-week moving average (in red) with remarkable ease, assuring a sudden recovery to the 93 level. Watch for a bullish crossover of the 20wMA above the 50wMA, which could come in June. A continued rebound in commodity prices broadly is needed for the loonie to sustain its own recovery. The slowing Canadian Economy serves as the headwind to the process here. The Continuous Commodity Index looks almost exactly like the Can$ chart, not surprisingly.

The rebound in the crude oil price is the primary component lifting the CCI commodity aggregate index. Some false explanation has come. The crude oil price is responding much more in my view much more from the weak USDollar than from a rising US stock market. A false party line in the financial media networks links the fate of stocks to the oil price. From copper to aluminum to grains, commodity prices are off their lows. Also, and this is no small factor, the attacks of the hedge fund community might have ceased after a bloody few months. Wall Street firms have been the principal villains doling out the coordinated attack. They often serve as lender to client hedge funds. Since the autumn months, Wall Street firms have pulled credit lines, forced fund shutdowns, called in shorted stocks, and otherwise inhibited any investments intended by hedge funds to profit from commodity positions. The hedge funds were motivated to take anti-US$ positions, simply put. The Wall Street firms surely had short positions on commodities, and realized yet another method to illicitly make profits. The hedge fund attack and the USDollar weakness, along with reversing commodity prices, are all linked.

◄$$$ DOW TRANSPORTATION REVEALS U.S. WEAKNESS $$$. Despite the relative firmness in the S&P500 stock index, the Dow Jones Transportation index did not reach its January high, missing by almost 10%. So the Tranny gives a weakened confirmation for the S&P stock index. A downtrend line is showing itself in early fashion. The stochastix cyclical has registered a bearish crossover, which foretells a coming weakness. So the 20-week moving average in all likelihood will not hold. A retest of March lows in next. The nonsensical Green Shoots are being trampled by the incredibly weak USEconomy. More USGovt stimulus will be coming, in fact every quarter endlessly. The gold price will react accordingly.


◄$$$ THE GLOBAL ECONOMY FELL IN 4Q2008, A SHOCK $$$. The Group of Seven (G-7) economies suffered an unprecedented annualized 7.5% contraction in real GDP during the fourth quarter of 2008. As a group, they account for two thirds of the world's economic activity. TO BE SURE, GLOBAL CENTRAL BANKERS WILL CONTINUE THEIR RESPONSE, WHICH IS TO PUSH TOWARD EASY MONEY, LOW RATES, AND RABID MONETARY GROWTH, THE PRIME INGREDIENTS FOR GOLD & SILVER PRICE ADVANCES. Many common denominators serve as good indicators, like crude oil, credit flow, but steel is another. The global steel demand has fallen 36% in the United States and 28% in Europe in the last year. The global economy is therefore slowing noticeably from reduced physical structural foundation. A brief survey of the continents is useful, not a complete review, but a meaningful one.

Chinese industrial output rose 7.3% from a year earlier after gaining 8.3% in March. Chinese retail sales rose 14.8% in April from a year earlier, after climbing 14.7% in March. In my view, their stock market revival from 1700 to 2650 in the Shanghai Composite Index is not a huge rebound, but it is significant in its symbolic meaning, enough to fuel the animal spirits inside the Middle Kingdom. One should not confuse their latest economic reactive spurt with sustainable growth. The global demand for finished products is on the serious wane, as Chinese exports dropped 22.6% in April alone. The Chinese Economy must develop from within, from internal demand and internal business investment. China is a story of two competing economies: the production economy directed at meeting external consumption demand, and the domestic economy led by government stimulation and spending. Their production has suddenly declined at a tremendous rate, but their domestic marketplace is currently expanding on steroids. Expect the domestic side to soon dominate in Chinese continued expansion. The Chinese Govt owns a large part of the banking system, both for creating money and lending money. They can force state owned corporate entities to borrow and spend. They have almost no red tape, and liberally use the eminent domain to plow over small towns in the path of progress. Thus, China can kickstart their economy much more effectively than the United States, which suffers from as much banker constipation as it does federal political logjams.

Orders for Japanese machinery resumed falling in March, a negative signal from factories as equipment is not being deployed at the margin. That is the necessary ingredient before an economic recovery takes hold. Booked orders, an indicator of capital investment in the next three to six months, fell 1.3% from February, which is far better than the bleak economist forecast of a 4.6% drop. Capital equipment purchase is the best forward indicator on the planet. The near collapse in global demand has forced manufacturers to cut production by more than a third from the peak last year. New equipment spending accounts for about 16% of the Japanese economy, the world's second largest. The Japanese Gross Domestic Product contracted an annualized 15.2% in 1Q2009, following a revised Q4 drop of 14.4%, the Cabinet Office reported this week. These are shocking numbers for the world's second largest economy.

Four views reflect the opposing sides. Economist Junko Nishioka at RBS Securities said, "The economy is still in bad shape. Companies are still reluctant to make new investments." Credit Suisse analyst Shirakawa said, "We are less pessimistic about the near-term recovery, but we remain very cautious about the long term. Global demand is not likely to revert to its peaks in 2007 and 2008. So Japan is going to face a serious problem of over-capacity and over-employment." Bond trader Kengo Suzuki at Mizuho Securities said, "Euphoria driven price action is at work as economic data at home and abroad support the view that the worst of the global recession may be over. Safe haven currencies will stay out of favor, reflecting an improvement in risk appetite." David Cohen is head of Asian economic forecasting at Action Economics in Singapore. He said, "We have turned the corner. The economy is no longer in free fall. By the end of the first quarter, things had started to firm."

European industrial production fell by 20.2% in March, the most on record. The March decline followed a 19.1% drop in February. Europe is mired in the worst recession in more than half a century. The recession worsened in 1Q2009. The decline has been described as a savage contraction of output. The recession in the entire EuroZone worsened markedly in 1Q2009. The Gross Domestic Product in the 16-country region fell by 2.5% in the period, dragged down by a 3.8% contraction in the German Economy. That was the largest decline for Germany since the country began to compile quarterly data in 1970. The outwardly expressed confidence by Euro Central Bank head Trichet had to be reined in severely. The EuroCB reacted clearly on May 7th by reducing the official interest rate 25 basis points to 1.0% reluctantly. Spanish industrial production fell by 25% and bankruptcies almost quadrupled. Their economy has been brutalized, on the verge of collapse actually, careening downhill in its worst slump in 60 years. The 24.7% annual decline in the factory output at refineries and mines in March followed a drop of 22.5% in February. That is a cut in Spanish industrial output by one half in two months time! Unemployment is soaring in Spain, having surpassed the 20% level. The pace of Q1 economic decline was 2.8% in the Netherlands, and 2.4% in Italy. The most dramatic fall was in Slovakia, the newest EuroZone member, where GDP fell 11.2% compared with the previous quarter. In contrast, France fared relatively better, falling only 1.2% in GDP. They do not zoom fast nor falter much. Please pass the wine and cheese, mon cher.

In Australia the manufacturing sector for April declined at its fastest rate in 17 years. The Industry Manufacturing Index fell 3.1 points to 30.1 on the index, now at the lowest level since calculated in 1992. April was the 11th consecutive month that the index has been below 50 points, another brutal contraction. The Australian Treasury reports that tax revenues over the next four years will be A$210 billion less than expected, a precise figure that the Treasury has given the government. Treasurer Swan delivered a cash deficit for 2009-2010 of almost A$58 billion, equal to 4.9% of GDP, almost triple the forecast. Swan is realizing actual revenues of A$204 billion, compared against a forecast of A$319 billion in tax revenues, a 36% shortfall. The Australian current account deficit will expand by a whopping A$100 Billion, equal to 8.4% of GDP for the next financial year. These are staggering numbers.

The message bears repeating. TO BE SURE, GLOBAL CENTRAL BANKERS WILL CONTINUE THEIR RESPONSE, WHICH IS TO PUSH TOWARD EASY MONEY, LOW RATES, AND RABID MONETARY GROWTH, THE PRIME INGREDIENTS FOR GOLD & SILVER PRICE ADVANCES. Price inflation lies over the horizon, which central banks fail to notice. It will hit them with as much force and surprise as the falling asset prices and bank failures did in 2008. They are clueless, inept, and absolutely horrible at anticipating any change whatsoever, especially changes born of their own ridiculously bad stewardship and policymaking. They will find themselves soon powerless to stop price inflation, born of their own policy. Any attempt to interrupt price inflation would bring about economic collapse.

Thanks to the following for charts: StockCharts,  Financial Times,  Wall Street Journal,  Northern Trust,  Business Week,  CIBC Bank,  Merrill Lynch,  Shadow Govt Statistics.