Gold is Money. Its been said before, notably by the late JP Morgan. Yet today we find ourselves forgetting that gold is money.

Jim Sinclair has made some very accurate calls in his time, and is one of the most recognized experts in gold today. A recent message from Mr. Sinclair, I have bolded where he says gold is money:

As far as I am concerned:

1. I do not anticipate a one month or more drop in gold. Neither does Monty Guild, so be careful not to read his general commodity comment ass-backwards.
2. The worst case scenario is a chop after the low of April 28th set in, and the rally high in the low $950s. Following this the chop gives way to a break above $1034 on its way to $1200 in 2008. Write that down for the dark night of your gold soul.
3. Gold is a currency, not a commodity.
4. Gold while remaining as a currency is now more tied to the euro than the USDX.
5. Weakness in crude, if you can call any price above $100 a barrel weak, helped gold be prone to lower prices.
6. Gold?s real help moving lower was a push by COT that triggered the mindless black boxes which are as nuts on the upside as they are on the downside.
7. If tonight you curse gold, keep this in mind when it crosses$1034, and please leave never to return.
8. Hold my hand when you feel low as gold takes a beating, and when you feel high as a kite when higher highs happen. I will moderate both for you.
9. The greatest technical analysis trick is simple to learn. Whatever your emotions say to you is totally wrong. Whenever you want to margin to the rafters it is time to eliminate debt.

Regards,
Jim

Modern economic alchemy has labeled gold nothing more than a commodity, a bygone relic, with no industrial or commercial use in todays world of paper and electronic markets.

But what happens when those who are in charge of those paper and electronic systems abuse it? What happens when people lose confidence in it? What happens when the paper becomes ever more worthless in the eyes of the world?

Quite simply, a return to gold is money. It has been money for over 5000 years. Human beings have this interesting tendancy to forget history, and what we have learned from societies past.

Economies, and nations, both regional and global have gone back and forth from ‘easy money’ to ‘disciplined money’ in a recurring pattern that so far has shown no reason of stopping.

Governments of course favor easy money, because they can print as much as they like, and spend as much as they like, with no sensible restraints on wars, emergency relief, subsidies on foolish programs, and social welfare that dwarfs the entire global gdp combined.

The bad part of course, is this propensity to print and create tens of trillions of dollars out of thin air is called inflation, and it is spreading around the globe like a cancer. Food riots, oil heading to $200 a barrel, $5.00 a gallon gas, and the sad part is, this is just the beginning.

There are, however, solutions. Investigate gold and silver. Learn why gold is money. Most importantly, learn why the cycle is again shifting back to gold is money, and what it means in terms of how high gold will truly go.

Do your research, because for the ones who bury their heads in the sand and fail to see it coming, there will be terrible losses as stock markets come down from baby boomers sucking their money out as they retire in hordes.

Some however, will be gathering wealth because they were smart enough to learn from history.

To Learn more about gold and silver and how it can impact your wealth, or for information on how to open an Anglo Far East Gold or Silver Bullion Account, Click here.

Alex’s Notes: Unexpected inflation?? You have got to be kidding me.

It does not cease to amaze me how often main stream media financial analysts are either completely ignorant of how the economy works, or are deliberately creating spin to keep consumers fat dumb and happy.

The bottom line is we have added over 14 TRILLION dollars to the money supply and currently the rate of adding money is only increasing. We are about to hit 19% in terms added change to money supply.

How anyone can expect that we will not see price increases under such conditions and call themself a financial analyst is beyond my comprehension.

————————————

India’s Inflation Unexpectedly Accelerates on Food
By Cherian Thomas

May 16 (Bloomberg) — India’s inflation rate unexpectedly rose to the highest in 3 1/2 years, adding pressure on the central bank to raise borrowing costs further to tame prices.

Wholesale prices rose 7.83 percent in the week ended May 3 from a year earlier, after gaining 7.61 percent in the previous week, the government said in a statement in New Delhi. Economists surveyed had expected a 7.55 percent increase.

Increasing borrowing costs will check the flow of money to speculators in the commodities market and rein in food prices, former central bank Governor Bimal Jalan said in parliament last month. The government, to augment monetary policy action, has persuaded steel and cement makers in the past week to cut prices and help slow inflation.

“More monetary tightening cannot be ruled out,” said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. “More measures are likely as inflation is expected to remain above the central bank’s target of 5.5 percent.”

The index for fruits, vegetables and other food items rose 0.5 percent, while that for manufactured products gained 0.3 percent, today’s statement showed.

The rupee declined to 42.73 against the dollar from 42.65 before the data was announced. The yield on the benchmark 10- year bond was little changed at 7.88 percent, holding near this week’s high.

China Inflation

India and China, the world’s fastest growing major economies, are battling rising prices stoked by consumer demand and high food costs. Wholesale prices in China rose 10.3 percent in April from a year earlier, the fastest since at least 1999.

India’s central bank twice asked lenders to set aside more funds last month, raising the so-called cash reserve ratio to 8.25 percent, the highest since March 2001, from 7.5 percent. The Reserve Bank of India may raise the ratio for a third time this year to control inflation, according to six of nine economists surveyed by Bloomberg News on April 30.

India’s cement makers joined steel producers on May 14 in pledging to cut prices after Finance Minister Palaniappan Chidambaram said the government will take “administrative action” against them for behaving like cartels.

Chidambaram yesterday said there is significant scope for further reduction in cement prices. Steel Authority of India Ltd. and other Indian steelmakers on May 7 agreed to lower prices for a second time since April.

Indian Elections

The Associated Chambers of Commerce and Industry, an Indian trade organization, says it expects the combination of steps taken by the government, central bank and companies to slow inflation to 6 percent in the next four to six weeks.

Prime Minister Manmohan Singh’s government has been stepping up measures to cool prices in Asia’s third-largest economy to improve his re-election chances in a vote that must be held before May 2009.

The government wants to bring inflation down to 4 percent, to protect consumers in a nation where the World Bank estimates half the 1.1 billion population live on less than $2 a day.

Over the past two months, the government scrapped import duties on edible oils, steel products and banned the export of cement, pulses, rice, wheat and edible oil to contain prices.

Last week, under pressure from its communist allies, the government also banned futures trading in soybean oil, rubber, chick peas and potatoes to reduce speculation. It halted wheat and rice contracts last year and lentils in 2006.

Today’s inflation rate may be revised in two months when India’s government reviews the figures after receiving additional price data. The Commerce Ministry today increased the inflation rate for the week ended March 8 to 7.78 percent from 5.92 percent.

                       Week Ended    Week Ended     Percentage
                         May 3         April 26        Change

Primary articles         239.3         238.6           0.3
Fuel, power              345.4         342.5           0.8
Manufactured products    198.9         198.3           0.3
Food products            204.3         202.8           0.7
Edible oils              186.6         187.9          -0.7
Cement                   220.8         221.6          -0.4
Iron & steel             354.6         360.6          -1.7
Pulses                   241.8         243.9          -0.9
Fruits & vegetables      253.2         247.1           2.5
Total                    228.6         227.7           0.4

http://www.bloomberg.com/apps/news?pid=20601068&sid=aN4UwM8U3oQA&refer=economy

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Alex’s Notes: This quick note was fired to me from Simon Heapes, Director and Treasury Officer of The Anglo Far East Bullion Company. This was his comment and response to my post on the possibility of China holding the next world reserve currency:

2,000 yrs ago As Rome debased its currency and expanded via inflationary methods, the question must be asked who was buying the tangible productive assets?

It was the Byzantine Empire! When the Byzantines finally did over run Rome, they did not collapse it, they merely replaced Rome’s leadership with their own leadership, and effectively ran Rome as a defacto Empire keeping all the same systems in place for another 200yrs.

Finally, the Byzantium leadership broke apart from a Moral decay into the nations we call Europe today!

So the Question now, is China & the East going to do the same thing and keep the current system running further expanding globally and running inflation even further sending the cost of tangibles higher for many yrs to come? It certainly looks that way!

- Simon Heapes, The Anglo Far East Bullion Company

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People are running around trying to figure out why in the heck the price of everything from gas to food to electricity is going nuts.

Many, including some not so well educated financial analysts call this inflation.

The truth is, inflation is not the price of things increasing. When prices rise, this is merely the symptom of what true inflation is: adding more currency to the money supply.

This is not rocket science. When you have more of something, it is worth less. Therefore, if you add more dollars to the available supply of dollars, obviously each dollar is worth less. Preposterous you say? Well let me put it another way, if dollars were as common as rocks lying on the ground, how valuable would they be? Obviously they would not be worth much. Therefore one of the key requirements of any form of currency is that it remains somewhat scarce. So, when the Fed pumps billions of dollars into the economy to rescue our financial system, people cheer because the system goes on for another day.

What many do not realize, is that every time they do, it raises the costs of everything from bread to gasoline.

This of course causes devaluation of the dollar, and inflation, which are essentially the same thing. Devaluation means the dollar is worth less, and inflation means (to most people) that things cost more. It is not that the things we buy are actually worth more, its just that our dollars are worth less, so it takes more dollars to buy the same thing that less dollar bought in the past.

My dear reader I know you are a smart cookie, and you arent so dumb that you will actually fall for the governments reported statistics on inflation. Especially since they have chosen to change the way inflation is measured, by leaving out little things like the cost of food and energy.

The chart below shows the rate at which the Fed is continuing to add dollars to the available pool of currency. As you can see, it is approaching 20%, yet the government reports “core inflation” (a term that is applicable only to the aliens living on planet Washington, because they obviously dont shop for groceries where you and I do) at less than 4%.

Now we come back to my ‘forever rant’. Gold and silver are some of the only ways you can protect the value of your wealth given todays financial landscape. If you are storing it in dollars, I feel sorry for you because it is being devalued at a horrendous rate. If you are storing it in the stock market, again, I feel sorry for you, because it is only a matter of time before the baby boomers who put all their retirement money into the stock market, causing it to rise, start taking their money out to finance retirement, which will obviously cause it to fall. The question is, will you be the first, or the last to get your money out?

Gold on the other hand has retained its purchasing power for thousands of years. Did you know, that an ounce of gold would clothe a man in the finest clothing available thousands of years ago? Guess what, today, an ounce of gold will still, clothe a man in the finest clothing available. 75 years ago $20 would likewise buy you an entire wardrobe, yet what can you buy today with that same $20?

Got gold yet?

Join our newsletter if you want the inside scoop on what is really happening in the gold and silver markets. Or you could of course just stick your head in the sand like everyone else, and pretend it will all just go away. Youre smarter than that!

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By ANDREW BATSON
April 10, 2008; Page A1

Inflation is back.

After several years of relative stability, a wave of rising prices is washing over the world economy.

It comes at a most inconvenient time. The Federal Reserve is sharply cutting U.S interest rates — the opposite of the usual response to rising inflation — to prevent the housing bust and credit crisis from causing a deep, prolonged recession. That’s making the global response to inflation more complicated.

Consumer prices in the U.S., Europe and other rich countries are projected to rise 2.6% this year, the highest inflation rate since 1995, the International Monetary Fund said Wednesday. In the U.S., consumer prices in February were 4% above year-ago levels. The 15 countries that share the euro currently see inflation of 3.5%, a decade high and well above the European Central Bank’s preferred range. Even Japan, long plagued by flat or falling prices, is seeing modest inflation.

Rising prices for food, energy and other raw materials account for much of the pickup in inflation rates. High food and energy costs hit developing countries — where consumers spend a larger share of income on those necessities — particularly hard. In recent weeks, protests over rising costs have shaken countries from Vietnam, where prices are up 19.4% from last year, to Egypt.

On Wednesday, the World Bank estimated global food prices have risen 83% over the past three years, threatening recent strides in poverty reduction. The IMF forecast consumer prices in emerging and developing countries will rise 7.4% this year, the most inflation since 2001 though still well below the double-digit levels of the recent past.

Some of the factors driving inflation vary from country to country: union-negotiated wage hikes in Germany, pork shortages in China, an electricity squeeze in South Africa, pay rises for civil servants in India.

But the fact that inflation is rising almost everywhere suggests some of its causes are global. As crops are sold for alternative-energy production, food prices have soared: The price of rice, the staple for billions of Asians, is up 147% over the past year. Increasing demand for natural resources among developing economies such as India and China has pushed up prices for raw materials world-wide. Oil-supply constraints have sent crude-oil futures surging above $112 a barrel Wednesday, a new record, resulting in rising fuel and transportation prices.

The weakening U.S. dollar is another source. Not only is it pushing up prices of American imports, it is transmitting inflation to the dozens of economies that link their currencies to the U.S. dollar, from Saudi Arabia to Hong Kong to Mongolia. Because of their currency pegs, these economies are forced to track Fed rate cuts even if they aren’t facing recession. That is putting upward pressure on their prices. Additionally, years of easy credit earlier this decade — the result of a global quest to avoid falling prices, or deflation — are a contributing factor.

An increasingly global economy may also be a culprit. Globalization got some credit for low inflation in recent years: The economic rise of China, India and the former Soviet Union helped expand the global work force and increase manufacturing capacity, holding down the prices of many goods. But the economic boom in emerging markets also means their currencies and prices are steadily rising, boosting the prices rich countries pay for imports from those poorer countries.

“Overall, the effects of globalization have ceased — probably in the long term — to be spontaneously disinflationary,” Christian Noyer, governor of the Bank of France, said last month.

Rising prices cut consumer spending power, especially among the poor. They can also stir bad memories of dislocation caused by previous bouts of inflation. Fears of inflation, in turn, can spur more of it: If households and companies come to think of rising prices as normal, that can create self-fulfilling expectations that keep inflation high. Inflation clouds the price signals that let market economies function and makes it harder for businesses to plan.

“It’s hard to reverse inflation expectations once they’ve risen,” says Kenneth Rogoff, a Harvard University professor and former chief IMF economist.

Food and Energy

For now, rising food and energy prices are inflation’s prime drivers. Core inflation, a measure that excludes volatile food and energy prices, is not rising as quickly as overall inflation. But commodity-price gains are beginning to work their way through the global economy. Even if commodity prices stay where they are, global inflation could continue rising for months to come as companies react to previous price rises.

The world’s largest iron producer, Brazil’s Companhia Vale do Rio Doce, known as Vale, got its customers to agree to a 65% price increase on ore from its main mine this year, far larger than last year’s 9.5% increase. That led steelmakers like Baosteel Group Corp., China’s biggest, to raise product prices by 17% to 20% in recent months.

“It will have a pretty big effect on our material costs,” Jim Owens, chief executive of Caterpillar Inc., the big U.S. maker of construction equipment and engines, said on a recent visit to Beijing. Caterpillar is preparing price increases of up to 5% on its products to take effect by July.

In St. Louis, Solutia Inc. is raising prices for resins used to make laminated glass by up to 40%, blaming climbing costs for materials, energy and transportation. “We are now at a point where sourcing raw materials at continuously higher prices makes no sense for our business, unless the effects are passed on,” said Solutia Vice President Luc De Temmerman.

Kimberly-Clark Corp., maker of household goods, began raising prices in February between 4% and 7% for some paper products, including Huggies diapers, Cottonelle bath tissue and Viva paper towels. Hershey Foods Corp. raised the selling price of its chocolate bars 13% in February after boosting prices between 4% and 5% in April 2007. Hanesbrands Inc., which owns the Champion and Hanes apparel lines, has warned that sustained high cotton prices could filter through to retail prices.

Pricey Cab Rides

In Temecula, Calif., Gary Byler, owner of Southwest City Coach, has raised the fares for his four-taxi fleet for the first time in the 10 years he has been in business. His base fare has gone from $1 to $2.50 and the per-mile charge from $2.50 to $2.75. “Insurance costs have gone up 40%. Fuel prices have doubled,” he said.

Just as there is variation in the level of inflation — from 1% in Japan to 17% in Latvia — countries’ responses to it vary. Central bankers in the U.S and the United Kingdom are focusing on the risks of recession, so they are cutting rates even at the risk of fueling inflation. Others are attempting to drive inflation down: Central bankers in Australia, Chile, China, Colombia, Hungary, Poland, Russia, South Africa, Sweden and Taiwan all have raised interest rates recently.

The trade-off between maintaining growth and fighting inflation is particularly difficult in Europe, where banks are also under strain and inflation is picking up. The European Central Bank considers inflation a bigger worry than the fallout from the U.S. credit crisis. It fears soaring energy and food prices will spill over into wages and other prices. So despite persistent money-market tensions, the ECB has refused to cut rates. It is expected to hold that line in its meeting Thursday.

Flash Point

Germany’s recent wage gains are a flash point. Last week, some two million German public-sector workers won a nearly 8% pay raise over two years, their biggest settlement in 16 years. In March, some 93,000 German steelworkers won a 5.2% wage hike, while train drivers picked up an 8% pay increase spread over two years.

In Slovenia on Saturday, some 10,000 protesters from across the Continent gathered at a conference of central bankers to agitate for higher wages. They got a cold response. “It would be an enormous mistake to imitate Germany,” ECB president Jean-Claude Trichet told a news conference afterward, noting recent German wage restraint allowed workers there some space to catch up.

In the U.S., Fed officials are concerned that food and energy prices have increased inflation even though the economy is sliding into recession. But they are generally confident that inflation will recede as rising unemployment prevents workers from winning wage increases.

Handling social pressures from inflation is tricky. China has raised minimum wages to moderate inflation’s impact on living standards, but Premier Wen Jiabao has also promised the government will ensure that average inflation this year won’t accelerate past last year’s 4.8%.

That’s intended to reassure people like Monica Li, a 40-year-old travel agent in Beijing. She says her daughter’s kindergarten just raised its fees to cover higher costs for lunches. Now Ms. Li is worried that costs for health care and housing are also headed upward. “It could really be a problem for us if inflation today, which is mainly in food and other necessities, leads to a series of chain reactions,” Ms. Li says.

Countries have long tried to buy stability by fixing their currencies, more or less tightly, to the U.S. dollar. Now those decisions are contributing to inflation in Asia and the Middle East. Central banks in countries with strict dollar pegs must follow the Fed’s rate cuts: If they don’t, investors seeking higher returns would move money to these countries, placing upward pressure on their currencies and imperiling their dollar pegs. Hong Kong has mirrored the Fed’s recent rate cuts, igniting the local property market. Housing prices there were up 31% from a year earlier in January, and rising rents are now feeding inflation.

Countries that both peg their currencies and export commodities are experiencing an inflationary double whammy. As nations from the Middle East to Mongolia earn income from selling resources, rising commodities prices are stimulating the local economy and feeding inflation. Meanwhile, these economies are feeling the effects of rising global prices for food and raw materials. Inflationary pressure is further heightened as their central banks match Fed rate cuts.

Problems in Mongolia

This complicates life even on Mongolia’s steppes, where many people are nomadic herders and food prices tend to fluctuate by season and weather. The country’s currency, the togrog, is unofficially pegged to the U.S. dollar, boosting prices. As the country’s income from copper exports surged, inflation reached 15.1% at the end of 2007.

Similarly, inflation is stoking instability amid the Middle East’s energy-fed boom. In Qatar, a rich emirate jutting into the Persian Gulf, surging revenue from natural-gas sales have led to more government spending. This year’s budget is 46% higher than last year’s, and more than four times the spending of just six years ago. Much of that is going to build highways, airports, infrastructure and schools. Says Yousef Hussain Kamal, Qatar’s finance minister: “The surplus is huge.”

So is inflation, at 13.7% on the year in the last quarter of 2007. In part that’s because Qatar followed its currency peg and moved in step with the Fed’s rate cuts. The region’s low-paid expatriate work force was hit hard. While local inflation means higher food and housing costs, the value of workers’ savings — which they often send home to families — is sinking with the dollar. That has triggered strikes and riots in the United Arab Emirates by construction workers.

Commodity exporters with more flexible currencies have been better at containing rising prices. Inflation in Canada, a big oil producer, has been lower than expected, at just 1.8% in February year-on-year. The central bank attributes that in part to the surge in the Canadian dollar, up 17% against the U.S. dollar in 2007. Australia, a major exporter of coal and iron ore, has also seen its currency rise, and its central bank has been steadily raising rates to cool the economy. Inflation was 3% in December.

“Australia has done all right because the currency has been quite strong, and interest rates are high,” says Ben Simpfendorfer, an economist for Royal Bank of Scotland. “The Gulf might have looked more like Australia if it weren’t for the pegs.”

Absorbing the Pain

Central banks, especially the Fed, are hoping that slowing growth in the U.S. and Europe will ease inflationary pressures globally, especially when fast-growing emerging economies begin to feel the slowdown’s pain. Some economists argue that current commodity prices are higher than underlying demand can justify, and predict they could fall sharply if speculators retreat and global growth eases. And, at some point, the Fed will stop cutting U.S. rates, helping arrest the decline in the dollar and the inflationary side-effects.

“Inflation almost always falls during economic downturns. The Fed has history on its side,” says Julian Jessop, an economist with Capital Economics in London. He expects inflation to be much lower globally a year from now, and the new IMF forecast does, too. Nonetheless, he says, “The outlook for inflation is much more uncertain than it has been for a while.”

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