Alex’s Notes: In 2008, I expect we will see China come to dominate the Gold Investment market for a handful of reasons.

• The Chinese stock markets are at a high, and smart Chinese investors will be diversifying before continued corrections
•  Chinese culture has a history of great respect and desire for gold
• The new Chinese middle class has ever increasing disposable income, and the Chinese are by nature savers
• Recent legislation allowing Chinese civilians to once again own gold
• China’s Central Bank actually encourages its citizens to save in gold

The spot gold price at the London Gold Exchange reached $950/oz on Thursday; and it is very likely to hit the psychologically important $1000/oz barrier in the near future. The Chinese marketplace has attracted a lot of attraction as China’s increasing gold demand is said to be an important factor in the recent rise in the price of the commodity.

The World Gold Council (WGC) together with the Shanghai Gold Exchange released a joint announcement on February 21^st declaring that Chinese gold demand surged by 26% over the previous year to reach 326.1 tons in 2007. China has now overtaken the US and Turkey to become the world’s second largest gold consumer with only India consuming more gold annually.

The strong demand has come from both jewelry buyers and investors. The announcement also revealed that demand for gold jewelry climbed to 302.2 tons, the first time it has exceeded 300 tons in the past ten years. Gold transactions in 2007 at the Shanghai Gold Exchange rose by 57.53 tons to reach a record high of 1,828 tons, a 46% increase over the previous year.

2007 saw the Chinese gold market run smoothly allowing for the significant increase in the number of transactions. The average trade amount reached 316.49 Yuan, soaring by 62.51%, the average weight of daily trade was 7554.26 kilograms while the biggest day of trading peaked up to an impressive 24767 kilograms.

Chinese gold consumers may now choose from an increasingly long list of products, ranging from gold coins and gold bullions, to 24k or 18k jewelry. The prosperity of the gold industry indicates the perceived investment, artistic and emotional value with which a growing number of Chinese consumers are now associating gold. Larger incomes, brought about by China’s rapid development have also made a significant contribution to the rise in consumer demand.

Chinese buyers seem unfazed by surging world prices as they continue to invest in gold which they see as a safe haven from the depreciating RMB and the turbulent stock market. These factors have created a new boom for gold investment inside the country with the total amount of gold retail sales reaching 23.9 tons, a 60% rise over 2006.

“2007 is a good year for gold. China’s continuously growing economy provides us with a perfect opportunity to explore the market potential.” Said Zheng Lianghao, General Manager of WGC Far East

Shanghai Gold Exchange’s Chairman, Shen Xiangrong believes that that on the whole, domestic gold prices fluctuated simultaneously with international prices in 2007. The domestic gold price rose 22.16% from 158.99 at the beginning of the year to 194.22/g at the end of the year. 2007 also saw the Industrial and Commercial Bank of China, the Industrial Bank, the Shenzhen Development Bank, the Hua Xia Bank and the Kunming City Commercial Bank successively kick-off their gold agency services for individuals so that both the number of individual accounts and the amount of gold traded rose significantly. In 2007, the amount of gold traded by individuals skyrocketed to 17.33 tons, a 185.03% increase over 2006. This has happened as more and more commercial institutions are also investing in the gold market; commercial banks and investment companies in particular are becoming major forces in the domestic gold market.

As China’s gold market and gold consumption has increased, its official gold reserve has also drawn attention. Figures show that the gold reserve of the central bank remains steady at about 19.29 million oz. Soaring gold prices seem to have had no effect on the bank’s investment strategy.

With the founding of the China Investment Corporation (CIC) in October of 2007, rumors among industry insiders suggested that the CIC should invest in gold. Yet nothing of the sort has happened, and the CIC does not seem to have put gold on its investment list.

and receive our industry leading reports with our compliments at no charge

http://www.chinastakes.com/story.aspx?id=218

How do you test for gold purity? How do you know the gold you have is actually pure gold?

24 Karat gold is the purest gold you can get in gold bullion, coins, bars or gold jewelry.

Coins should originate from a Mint. Smaller items such as rings and other gold jewelry should have an assay mark, or hallmark to show the purity of the gold.

Bars and ingots should originate from a foundry. Since 1994 all SMALL bars coming out of modern foundries are100% pure and at the exact weight they are prescribed to be at, due to various recent advancements in production and accurate weighing. New bars, especially ones that are polished and are 1kg or less, and are considered jewelry quality, are weighed and formed while the gold is in a semi-liquid state. Gold at a certain temperature, will flow down a special ramp at a prescribed speed and can then be cut into exact sizes and weights.

Bars that were made before mid 1994, however, or are above 1 kilo weight (above 5 kilos after 1997) or are graded pure raw gold are almost never 100% pure gold nor are they the exact weight.

Hence the Asian foundries always tend to make their bars slightly heavier, adding up to one gram after the traditional weighing, to make up for any discrepancy in purity. This means that a kilo bar of 999.9 percent will have more than 1000grams of 100 percent pure gold in it..

But as a result of the .999 purity standard adopted in the 80s, to replace the 24 ct norm, non-Asian bars had to be made to meet the stencil marks as closely at possible. Prior to that, and even continued by smaller foundries until the early 90s, in Asia a kilo bar always weighed more and was stenciled as 24ct pure.
The carat (abbrev ct or K) is a measure of the purity of gold. In the US and Canada the spelling karat has been adopted solely for the measure of purity and carat referring to the mass weight. These are two different things. As a measure of weight, carat is one 24th purity by weight. 10 carats are ten 24ths. 24 carat gold is pure gold or 999.999% gold with some possible impurities. 18-carat gold is 75% gold, 12-carat gold is 50% gold, and so forth. There is actually no such thing as absolute pure gold. In the refining process it is possible and even likely that a tiny amount of copper will be alloyed as part of the refining process.

However, moves are being made to change the current karat system to the millesimal fineness system by which the purity of precious metals is noted more accurately by parts per thousand of pure metal in the alloy. The most common carats used for gold in bullion, jewellery making and by goldsmiths, for example, are:

24 karat (millesimal fineness 999)
22 karat (millesimal fineness 916)
20 karat (millesimal fineness 833)
18 karat (millesimal fineness 750)
15 karat (millesimal fineness 625)
14 karat (millesimal fineness 585)
10 karat (millesimal fineness 417)
9 karat (millesimal fineness 375)

But this system of calculation gives only the weight of pure gold contained in an alloy.
18-karat gold means that the alloy’s weight consists of 75% of gold and 25% of alloy(s). The quantity of gold by volume in a less than 24-karat gold alloy will be different according to the alloys used. We know that standard 10 karat yellow gold that standard 18-karat yellow gold consists of 75% gold, 12.5% silver and the remaining 12.5% of copper by weight. The volume of gold in this alloy will be 60 percent. As gold is more dense than the silver or copper.

But for most people it is a matter of, how much gold is in the ring or gold jewelry or even gold bar. And how do you know that the figure given to you is correct?

In addition the various colors of gold also have different mixes of other metals.

Yellow Gold
50% silver and 50% copper

White Gold
Nickel, zinc, copper, tin and manganese

Pink (rose) Gold
90% copper and 10% silver

Green Gold
High proportion of silver or cadmium

Blue Gold
Some iron

Grey Gold
15-20% iron

You can test the purity of gold yourself with the right test equipment. Mostly this consists of acids which you can purchase for that purpose although electronic testing is now becoming popular and electronic testers can be found with a little investigation and research and purchased. The cost of the test equipment means that you would want to test a lot of gold to warrant the cost of the equipment and along with the other factors such as safety measures, time involved etc, you would likely be better off just getting an independent jeweler or laboratory or even a Mint to test the gold for you.

Bear in mind however that any testing of gold with chemicals will mean a loss of some small amount of gold. For a kilo or more gold bar this may not amount to much but for a ring, it could be significant.

Many a person has been surprised to find that their bar, coin or ring has somewhat less gold than they were given to understand. By the same token it is quite possible to buy a ring and find it has a lot more gold than originally thought.

Beginners Guide to Gold and Silver Investing – Free

Jay Zebrowski checks his abandoned mine.

MAGUARICHIC, Mexico — In these mountains, where conquistadors once gouged gold from open veins in the mountainside, the hardened gold miner of film lore is giving way to a new breed of prospector: geologists and engineers, armed with sophisticated equipment and millions of investor dollars.

Largely American and Canadian, they toiled for global mining giants for years. But, now that the price of gold is near record highs, they are leaving their companies, raising capital to start their own prospecting start-ups and heading for Mexico. On Tuesday, an ounce of gold hit $929.30, up from $665 a year ago. Back in 1980, oil shock and economic gloom drove the price to $875 an ounce; that would be more than $2,000 today.

Much of the recent run-up has been caused by economic uncertainty and rising anxiety about the risks of global inflation.

“Gold hit bottom in 2001 at $250 an ounce and it has been going up ever since,” said Craig Stanley, a gold mining analyst at Desjardins Securities in Toronto. “That keeps dragging in more people.”

But like any gold rush, he warned, the promise of riches can outshine the real possibilities — even if more investors are willing to finance start-ups than ever before.

“It is easier to raise more money,” Mr. Stanley said, “but it takes a lot of money to go out and find gold.”

With the price of gold likely to continue its climb, mining companies are ramping up gold exploration budgets all over the world. But many countries that hold out the promise of significant new deposits are either politically capricious, like Russia, or dangerous, like Congo.

By contrast, Mexico has developed friendly investment rules and a relatively efficient bureaucracy, analysts said. Despite the escalating drug war in much of northern Mexico, miners operate quite safely. And Mexico offers an advantage for North American prospectors that no other country can match: geologists can make the drive down in a few days.

Just to start exploring, it takes tens of millions of dollars. The cost of finding and then mining gold has increased about 25 percent in the last year, a result of soaring costs for the energy, steel and cement used in mining.

Specialized equipment and qualified personnel are also in short supply. Modern-day exploration requires aerial mapping and sophisticated sensors.

Even with the most sophisticated sounding and drilling equipment, only one of every 1,000 exploration projects becomes a working mine, said Peter K. M. Megaw, president of Imdex, a consulting and contracting firm based in Tucson that helps foreign companies exploring in Mexico.

“There’s gold everywhere,” said François Auclair, vice president for exploration for Dia Bras Exploration, a small company in Montreal. “But you need special physical conditions to make your deposit worth something.”

That has not slowed the exploratory drilling taking place here. Across the Sierra Madre, bulldozers flatten farm trails to create roads to remote sites and diamond drill tips bore hundreds of meters into rock, collecting truckloads of cylindrical samples for testing.

Even with its long history of mining, this land is relatively underdeveloped. Difficult terrain, Indian raids and political instability made mining a start-and-stop affair. Mexico prohibited foreign mining investment for three decades, relenting only in 1992 as the North American Free Trade Agreement was being negotiated.

Now, analysts say, Mexico is one of the most attractive countries in the world for mining — the 14th-largest producer of gold, up from 18th place in 2006.

The new prospectors’ chief market for raising seed money for their start-ups is a half-continent away from these mountains where volcanic activity laid rich deposits of gold, silver, zinc and lead as long as 130 million years ago. Most companies raise their first few million to begin mapping and testing claims at the TSX Venture Exchange in Toronto.

Known in the industry as juniors, they have become the exploration arm of the industry, said Larry Segerstrom, the chief operating officer of Paramount Gold and Silver, a junior based in Ottawa that is exploring in Chihuahua State.

Mr. Stanley, the analyst, said: “There are over a thousand junior miners listed. Most of them are a couple of guys with an idea, and they have staked some land somewhere.”

Sometimes they stake their own claims, sometimes they ally themselves with other small companies or individual miners who have old claims but lack their modern equipment and their millions.

After spending tens of millions to map and then drill, the juniors may be able to form a joint venture with a bigger company if the results are promising enough. A really big discovery will get the attention of a global mining company.

As part of its pitch to investors, Paramount Gold and Silver says that the structure of its recent finds are similar to those of another project in Chihuahua State called Palmarejo. The Canadian and Australian owners of Palmarejo sold it last year for $1.1 billion to the American company Coeur d’Alene Mines.

Now, Paramount is spending about $1 million a month to explore an area of old mine workings in western Chihuahua for gold and silver. The company raised $24 million from the markets last year to finance the exploration. “Many mines have several lives,” said Bill Reed, vice president for exploration. “As prices and technology change, then they become economical again.”

But it can take years. Minefinders, a small company based in Vancouver, began exploration in 1994 near a mine that had prospered early in the 20th century. Silver and gold production will start at the mine later this year.

“Minefinders rode the gold price all the way to the bottom of the trough and hopefully they will ride it back up,” said Gregg Bush, vice president for operations at the mine.

The company had to build the access roads itself and it took years to negotiate with communal farmers who owned the property. Between cash payments and investments, Minefinders will pay the farmers $17 million.

The old-style miners who are still around hope that the new gold rush will wash over them, too.

After two decades of prospecting here, Jay Zebrowski, 64, still drives his 1983 Chevrolet Suburban every few months from his home near Denver to check on the abandoned mine he and his geologist brother own here.

In a contemporary version of “The Treasure of the Sierra Madre,” the 1948 classic by the director John Huston, gold has put the Zebrowskis on the edge of ruin.

Almost all of the one million or so dollars they have sunk into mining has come from investors who have yet to see a return. Indebted, Mr. Zebrowski has stayed afloat by selling options on a couple of his claims to the small Montreal company, Dia Bras Exploration, and the Mexican mining giant Industrias Peñoles.

The Zebrowskis’ mine, under a hillside just outside the town of Maguarichic, was worked until the 1940s. Called La Poderosa, it looked anything but powerful when they restarted it in the early 1990s.

“We were not coming up with the grades and not hitting the vein,” Mr. Zebrowski said, meaning they were not striking high-quality gold. Today, much of the mine’s underground works are rotting under groundwater. “We simply ran out of money.”

Looters have carried off part of the processing equipment that turns ore into gold concentrate and a snowstorm last year collapsed the tin roof over the tool shed.

The Zebrowski brothers eventually abandoned their mine and began staking claims instead, hoping to cut deals with bigger companies. When the market collapsed in 1997, they had to let many of the claims go, but held on to the best ones, Mr. Zebrowski said.

They have mining claims on some 14,000 hectares in northern Mexico, in addition to the mine, which is guarded by a goatherd.

Mr. Zebrowski hopes to sell more options on those claims to the companies exploring here. Buying an option would give them the right to prospect for gold, and would pay the Zebrowskis more money if a deposit is developed into a mine.

“We seem to have some good luck now,” Mr. Zebrowski said.

He paused and added, “Well, at least good luck is all around us.”

Beginners Guide to Gold and Silver Investing – Free

http://www.nytimes.com/2008/02/20/business/worldbusiness/20gold.html?pagewanted=1&_r=2&ref=americas

February 18 – Gold $903.25 up 45 cents (PM Fix) – Silver $17 down 10 cents

“The suppression of truth has long been among the highest priorities for the upper echelons of power and authority. For a minority elite that clings to power by the manipulation of the masses using an omnipresent cocktail of lies, deception, mass-produced ignorance and ingrained propaganda, the destruction of truth is an essential method of control. It is a formula that has worked to unmitigated success for the elite throughout history, whether the shadows of power stretch from ancient pyramids, marble temples, castles, mansions or halls of governance. Those holding the levers of power and control understand, better than most, that the dissemination of truths to a blind majority could spell the end of their reign, for truth brings sight to the blind.” … Manuel Valenzuela

GO GATA!
The commodity markets remained on fire in overseas trading with copper rallying 9 cents in London to the $3.59+ per pound mark. Crude oil was up 56 cents to $96.06 per barrel. Platinum continued to fly, gaining another $55 to $2106. Palladium was up $14 to $459.

Gold began to take off until the Gold Cartel showed up at work in London. At exactly 3 AM Eastern time (the usual), they prevented gold from taking out $908, and down she went. That was all she wrote.

Silver was weak all morning, in direct contrast to almost all other metals.

In the near future we will be finalizing the speakers and format for our upcoming “GATA Goes To Washington” conference. I think you will find the conference to be both stimulating and much fun. Here is a real surprise … in addition to many attendees from the US, we have registrations from the following countries thus far:

The Netherlands
China (Shanghai)
Portugal
Saudi Arabia
Malaysia
UK
Canada
Viet Nam (2) (Ho Chi Minh)
India
Spain
Switzerland
Portugal

Talk about how the world has gone upside down from days gone by. So far there are three attendees to the GATA conference from Communist countries, and STILL, the FREE financial market press refuses to even mention GATA, much less deal with all we have discovered and done over the years. And THIS after one of the top economic advisors for Russia’s President Putin, Andrey Bykov, attended Gold Rush 21 … who told me at its conclusion that it was the finest conference he ever attended (Gold is not far from doubling since Andrey said that).

Think about coming to our Washington conference if you can make it. There were a couple of people who might have attended Gold Rush 21, but they didn’t register because their gold/silver stocks were down at the time, producing a lessened wealth effect. As many of you know, the price of gold began to explode a couple days after GR 21, as did the gold/silver shares. Both of those invited potential attendees greatly regretted not attending, especially when they learned how special that conference was.
For those new Cafe members who want to grasp the significance of why Andrey Bykov said what he said about Gold Rush 21, you only need watch what was said by the speakers at the time … to watch our 24 minute highlight film of this historic gold conference go to:

www.GoldRush21.com
For those who want to know more about the evolving details of the conference, go to:

www.GATA.org
MIDAS:

The price of gold bottomed around $256 and took off after our GATA African Gold Summit in Durban, South Africa on May 10, 2001. That is a fact.

The price of gold blew out The Gold Cartel’s long standing $6 Rule two days after Gold Rush 21 when it was $436 at the time (August 8 and 9 in 2005) and went bonkers in the ensuing 9 months. That is even a MUCH more important fact, as the dollar only fell from 89 to 87 during this incredible price surge.

Those are both documented FACTS.

GATA expects the impact of our March on Washington to be more effective than both of our other well received conferences combined! Do you want to be a part of history in the making?

As always, we at GATA encourage delegates bring their spouse and family, when possible, to attend our functions. In the event, your family does not wish to attend the conference we are in the midst of developing family programs offered from the Hyatt Crystal City during the day.

From our location at the Hyatt Crystal City, near the Ronald Reagan International Airport, you are ideally located for easy access to the entire DC area. Visit monuments and museums, take in a show or game, check out Old Town Alexandria or Pentagon City Shopping or tour historical sites, all just minutes away.

Please watch the www.GATA.org site for program offerings for you to choose from during the conference and booking information through the Hyatt Crystal City.

In addition we are offering, to encourage participation during the evening activities, we are offering a special rate of $150 for your spouse or partner to attend the Opening Reception and Friday Evening GATA Gala.

APRIL 17 (evening reception), 18 and 19 are the dates of the conference. APRIL is when the G-7 is expected to give their go ahead for the IMF to sell gold (only if approved by the US Congress. Now THIS for APRIL…

Hi Bill (a long time GATA member) –

And you thought the precious metals market was being managed !!!

Within the last week, I have been notified by a representative of my bank in Europe, one of the largest private European investment banks, that his bank as well as other European banks, are “under pressure” from their government to liquidate all stocks, bonds, and mutual funds held on account for their US clients (both US citizens and legal residents of the US) and to hold only cash assets on account for these customers. He said that he expects these actions to become effective as soon as April and was “forewarning” me and my wife of these actions for the purpose of our own investment planning.

What this tells me (and perhaps your sources or other GATA members across the Atlantic can confirm any knowledge of this impending action) is that the US has entered into an agreement with its EU allies to create massive liquidity from the non-cash assets of legally held European accounts of US Citizens, for the purchase of currency exchange to prop up the dollar.

As you know, there was a lot of consternation on the part of European exporters when the Euro rose to USD$1.50 and genuine concern about the economic outlook for the EU’s economy in the face of a US recession. This action could be meant as a “stop gap” measure to try to hold the dollar from sinking further into the abyss or to create the “appearance” of a strengthening dollar against the Euro. Short term, it may be gold unfriendly in that the PM market does, on occasion, move inversely with the dollar. This may be a cartel attempt at a new angle of attack on gold. The ECB is definitely concerned about gold rising too fast against their currency just as the Fed is here.

I am not at all surprised, were this action to proceed, that my government would stoop to such measures in such an unabashedly covert and underhanded manner. My immediate concern is what action to take, if any, to protect our financial assets in the wake of such news.

Yes, you are definitely right Bill…….there are no free markets anymore !!!

Respectfully,
S
PS:
Bill — One other member of my family has also been contacted about this. Our bank is in Luxembourg no less !! So the “veil” has been broken as a result of reporting changes in the EU’s new banking laws. And as a consequence, the US has a heavier hand to play with US Citizens holding financial assets abroad.

***

None of us know if there will be IMF gold sales or not. We do know The Gold Cartel and friends threw this black cloud out to spook the market by holding the THREAT of massive sales over the market. This maneuver gave them cover to bomb gold, like they did last week, when the price should have skyrocketed, based on the financial market/commodity news, and ought to be staring at $1000 by now. The children threw another tantrum and did their desperate thing again.

What will come of all this potential IMF gold supply is up in air for the moment. Have to wait and see what comes down the pike. What is NOT up in the air is the growing worldwide demand for gold … demand which is going to blow The Gold Cartel out of the water no matter what they do in the short term.

Much was made by the pundits re slowing Indian demand for gold. This was documented for months on a daily basis in the MIDAS More gold goodies commentary. That news was no surprise to Café members. What was not highlighted by these same pundits was how other investment demand was so powerful that it could take gold to new highs, despite India’s disappearance.

As brought to your attention recently, investment demand by the VERY WEALTHY in the US took off late last year and in January especially. While the general investing public remains gold clueless, some of the BIG MONEY in the US has seen the light and are making their move into our arena.

Then there is the growing demand in China, which is going to grow by leaps and bounds in the years to come … as they have only been able to buy physical gold for a couple of years now. Voila:

www.chinaview.cn

BEIJING, Feb. 15 — China surpassed the United States as the world’s second-biggest retail gold market after India in 2007 by volume despite rocketing prices of the metal.

Total consumer demand in China’s mainland, Hong Kong and Taiwan reached 363.3 tons, up 23.5 percent from a year earlier, the World Gold Council said in a research report.

India had a gold demand of 773.6 tons last year, while the figure in the US sat at 278.1 tons.

Mainland gold demand, including jewelry and retail investment, topped 326 tons, up 26 percent from 2006, and the first time it surpassed the 300-ton level. Mainland gold-jewelry demand reached 302 tons in 2007, a year-on-year growth of 23.5 percent.

What makes the Chinese market stand out is the growing demand in the fourth quarter, when most other markets saw demand drop as costs soared.

Gold prices hit a three-decade high and topped more than US$900 an ounce on concerns over inflation, global economic uncertainty, the likelihood of an American recession and a weak US dollar.

In the fourth quarter, mainland gold demand rose 18 percent to 94.3 tons. In India gold demand tumbled 64 percent to 83.9 tons and in the US it fell 15 percent to 110.7 tons.

“It’s a milestone for China’s gold industry with demand surpassing the 300-ton level,” an industry veteran said yesterday.

Concerns over domestic inflation and the volatile stock market also added to the investment drawing power of gold as a haven.

China’s gold demand this year is again unlikely to be affected by rising prices as Chinese tend to buy at high prices in the hope of even further increases, World Gold Council veterans said in January.

Chinese gold demand was stagnant during the late 1990s and early 2000s but started going upward from 2003. China’s gold sales volume stood at 207.6 tons in 2003, a 2.0 percent rise to end a five-year wane.

The gold-sale rise is also in line with the country’s economic take-off.

China is expected to have a gold consumption of 600 tons in 2010, according to industry insiders.

The nation last year surpassed South Africa as the world’s biggest gold-mining country.

(Source: Shanghai Daily)

***
Demand for gold in the Middle East is on the upswing too:

Total Middle East gold consumption increases from 315.6 tonnes to 348.4 contributing to 10% increase
The World Gold Council’s regional office in Dubai announced that the UAE gold jewellery consumption increased by 8% in 2007 compared to 2006 despite the 15% increase in gold price.

-END-

GOLD SALES SOAR
DUBAI: Gold sales in the Middle East jumped last year as strong regional economies stoked demand for the precious metal, the World Gold Council (WGC) said yesterday.

The precious metal rose more than 30 per cent last year amid safe-haven buying due to credit market turmoil and worries about the health of the US economy, which sent the dollar to record lows, as well as record high oil prices.

Spot gold hit a record high of $936.50 an ounce at the beginning of this month.

“Comparing the Middle East performance to the rest of the region… the high and volatile gold prices did not affect the gold market to the extreme as per the other regions,” WGC managing director for Middle East, Turkey and Pakistan Moaz Barakat said.

Earlier this year the Middle East’s largest gold consumer virtually stopped exporting scrap gold as jewellers take advantage of record-high prices.

Demand in the UAE also rose.

-END-

And now it appears that India is coming back in the market too, as reported in this column late last week. The mainstream gold pundits have been reporting old news re India. What they failed to explain to their readers is that the bullion dealers over there have run down their inventories and must enter the market again to satisfy demand.

This is no surprise. When the gold price rallies like it did, the sophisticated Indian buyers get “sticker shock” and back away. They then wait for dips and come back in. Sometimes the dips are not to their liking, but they have to come back in anyway … after they become accustomed to a certain price level, like around $900 and below, as is the case at the moment.

To sum up this drift (headline anyway):

No let-up in the demand for gold

Robin Bromby | February 18, 2008 SOMETIMES it pays to take a step back and look at the big picture – especially now that so many sectors are being knocked about. With property companies and banks being in the news for all the wrong reasons, investors can apparently still look to the resources sector for assurance.

http://www.theaustralian.news.com.au/story/0,25197,23229198-18261,00.html-END-

A picture is worth a thousand words, as they say. To give you some idea of the depth of The Gold Cartel’s blatant childish fit they threw last week, we only need regard the following charts:

Weekly dollar chart
http://futures.tradingcharts.com/chart/US/WWeekly CRB chart
http://futures.tradingcharts.com/chart/RC/WWeekly platinum chart
http://futures.tradingcharts.com/chart/PL/WWeekly gold chart
http://futures.tradingcharts.com/chart/GD/WSHEESH! … as SARGE, my editor, would say.
More gold goodies:

Indian ex-duty premiums: AM $3.44, PM (61c), with world gold at $905.70 and $905.60. Above, and somewhat below, legal import point. The rupee started steady, but subsequently softened to close at $1=R39.775. The stock market slipped by 0.37%. A few minutes before the Indian bullion market formally closed, world gold spiked up abruptly by some $3: it may be that as a consequence the PM premiums were understated.

Attached is a note by the sagacious Chris Wood, of CSLA, pointing out that something very odd is happening in the US banking system:

“For the first time since the data began the series on banks’ non-borrowed reserves has gone negative, falling to minus US$19bn in the fortnight to 13 February…The banks are…,GREED & fear guesses, increasingly giving the Fed the garbage collateral nobody else wants to take…The reality is that “structured finance”, by offering a combination of illusory guarantees and liquidity, has produced a monster. This is going to be the instrument of the most colossal wealth destruction and certainly higher than the current US$400bn guesstimates…GREED & fear would assume that the financial situation is probably just as critically extended in Europe.”

Beginners Guide to Gold and Silver Investing – Free

http://news.goldseek.com/LemetropoleCafe/1203355813.php

China Gold Demand Now Second Largest in the World
Monday, February 18, 2008

In 2007 China surpassed the USA to become the second biggest retail gold market in the world after India. Total consumer demand in China’s mainland, Hong Kong and Taiwan reached 363.3 tons, an increase of 23.5 percent from 2006, the World Gold Council indicated in a research report.

To put that figure into perspective 363.3 tons, is equal to 10,596,250 troy ounces of gold, at today’s gold price of approximately $900 US that is $9,536,625,000 US Dollars worth of gold.

Mainland China gold demand, including gold jewelry and retail gold investment, reached 326 tons, an increase of 26 percent from 2006. This is the first time it has surpassed the 300 ton level. The gold jewelry demand in mainland China reached 302 tons in 2007, a year on year growth of 23.5 percent. Gold Jewelry and other ornaments have always been a form of savings in China since time immemorial.

India which has the world’s largest gold demand had a gold demand of 773.6 tons in 2007, while the US now in third place had a gold demand of 278.1 tons.

“Encouraging civilian reserves of gold has strategic significance and economic value,” said a director of the Peoples Bank of China’s (China’s Central Bank) official news vehicle back in 1998 when gold was around $300US. Can you imagine the US Federal Reserve Bank giving such a recommendation and what it would do to the gold price?

The article went on to say “If there are problems with the U.S. dollar, there will be an international catastrophe.” “Reducing reliance on the dollar, and maintaining greater diversification in foreign exchange reserves is the only way to reduce the risk,” it said. “As a result, an increase in our country’s gold reserves is necessary.”

It looks like the Chinese people have been taking notice of the advice from their central bank to buy gold. China’s mainland gold demand rose 18% percent from 2006 level to 94.3 tons during the 4th quarter. This was when the gold price rocketed from the breakout area of of around $730US to around $900US.

Consider this, the U.S. possesses 262 million ounces of gold for its nearly equal population. Were China to achieve the same financial gold backing, it would require 1.2 billion ounces of gold. The same amount of ounces of gold owned by all the world’s central banks and more than ten years of global gold mining production. However, China is now the worlds largest gold producer, surpassing South Africa in 2007.

China’s Gold demand is likely to continue to increase and put significant upward pressure on gold prices for many years to come, particularly if the US Dollar continues to decline in purchasing power as many analysts are predicting it will do.

Beginners Guide to Gold and Silver Investing – Free

http://goldprice.org/gold-news/2008/02/china-gold-demand-now-second-largest-in.html

By Zhang Fengming 2008-2-15

CHINA surpassed the United States as the world’s second-biggest retail gold market after India in 2007 by volume despite rocketing prices of the metal.

Total consumer demand in China’s mainland, Hong Kong and Taiwan reached 363.3 tons, up 23.5 percent from a year earlier, the World Gold Council said in a research report.

India had a gold demand of 773.6 tons last year, while the figure in the US sat at 278.1 tons.

Mainland gold demand, including jewelry and retail investment, topped 326 tons, up 26 percent from 2006, and the first time it surpassed the 300-ton level. Mainland gold-jewelry demand reached 302 tons in 2007, a year-on-year growth of 23.5 percent.

What makes the Chinese market stand out is the growing demand in the fourth quarter, when most other markets saw demand drop as costs soared.

Gold prices hit a three-decade high and topped more than US$900 an ounce on concerns over inflation, global economic uncertainty, the likelihood of an American recession and a weak US dollar.

In the fourth quarter, mainland gold demand rose 18 percent to 94.3 tons. In India gold demand tumbled 64 percent to 83.9 tons and in the US it fell 15 percent to 110.7 tons.

“It’s a milestone for China’s gold industry with demand surpassing the 300-ton level,” an industry veteran said yesterday.

Concerns over domestic inflation and the volatile stock market also added to the investment drawing power of gold as a haven.

China’s gold demand this year is again unlikely to be affected by rising prices as Chinese tend to buy at high prices in the hope of even further increases, World Gold Council veterans said in January.

Chinese gold demand was stagnant during the late 1990s and early 2000s but started going upward from 2003. China’s gold sales volume stood at 207.6 tons in 2003, a 2.0 percent rise to end a five-year wane.

The gold-sale rise is also in line with the country’s economic take-off.

China is expected to have a gold consumption of 600 tons in 2010, according to industry insiders.

The nation last year surpassed South Africa as the world’s biggest gold-mining country.

Beginners Guide to Gold and Silver Investing – Free

http://www.shanghaidaily.com/article/?id=348714&type=Business

Presidential hopeful Ron Paul talks monetary policy and accuses central banks of manipulating the price of bullion for the past 10 to 20 years.

Ron Paul Video

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It is not a matter of “if” the demise of the U.S. dollar is going to happen, but a matter of “when”. We have seen signs of its weakening in the last couple of years and it does not look like it will recover any time soon. The actions of a number of other countries are adding fuel to the fire and can only confirm that the best U.S. dollar hedge investment is gold.

The central banks of the world may have followed the U.S. in getting off the gold standard, and pegged their currencies with the USD, but not for much longer. They all know that a weak USD will affect their own financial systems if they are holding large reserves of the greenbacks. The only hedge is to dispose the USD and add real value into their monetary system by holding large reserves of the gold metal.

It comes as no surprise that countries like China, Malaysia, Indonesia, and Thailand are shifting from the USD. China and Japan alone own about $906 billion of the $1.1 trillion of U.S. Treasuries held overseas, so when they start to unload, it will only compound the situation.

“The U.S. dollar is no longer, in our opinion, is no longer a stable currency. It is devaluating all the time, and that’s putting troubles all the time. So the real issue is how to change the regime from a U.S. dollar pegging to a more manageable reference, say, euros, yen…” -Fan Gang, director of China’s National Economic Research Institute

The real story is not if these countries are switching from being pegged to the USD to another currency like the Euro that may be stronger. The truth can be found in reading between the lines in what these countries are actually doing. China for example, had hinted in late 2005 that they will quadruple their gold reserves and started to buy gold by cashing in 2.4% of its U.S. dollar reserves.

Not to be outdone, the central banks of Japan, South Africa, Argentina and Russia have jumped on the bandwagon in building up its own gold reserves. Russia said it would increase its gold reserves from 5% to 10% of its total financial reserves. When many of the world’s top economies are dumping the USD and increasing their gold reserves, it should be a big clue as to their lack of confidence in the USD.

Their hoarding of gold is an indication of what they believe will be one of the best protections against a declining USD. If an individual investor wants to hedge against the USD and diversify their own portfolio, who better to take the lead from then the central banks of the world?

So how exactly does an investor add gold to one’s portfolio?

* Physical Ownership. This can take two forms, physical delivery or holding gold coins/medallions or bullion personally, or custodial storage.

* Physical Delivery, holding of gold coins/medallions or bullion – This is the ultimate in personal insurance. All throughout the history of man, men have understood instinctively that gold is money. During times of great crisis, one can always depend on golds value to get out of a tight situation. We reccomend acquiring medallions that are non-government issued, as you become the owner, not just the bearer.

* Custodial Storage, is the form of gold ownership that the ’smart money’ is currently using to store wealth. It can be done overseas, in private numbered accounts and high security vaults, away from the prying eyes of government, and is the ultimate form of private wealth protection.

To learn more about buying non-government issued gold medallions or custodial bullion numbered accounts, please join our newsletter.

* Gold certificates – Some mints like Australia’s Perth Mint, has a certificate and depository investment program. We do not reccomend certificates, as they are the property of the issuing government.

* Individual stocks – An alternative to owning physical gold. You can buy stocks of established companies in the gold mining industry or take some risks with junior mining stocks.

* Gold mutual funds – These funds usually holds a portfolio of large gold production or mining stocks. We reccomend you do not do this unless you have a foundation of physical first.

* Gold ETFs – Exchange Traded Funds trades like stocks on the stock market, however, these funds holds gold bullions as an asset. It is another alternative way for an investor to own gold. Two examples would be GLD and IAU. Again, this is not reccomended unless a person already has a foundation of physical ownership, as when trading in paper and electronic markets deffeats the point of investing in gold unless you are already well positioned.

No one can predict when the USD will completely tank, but we do know that as the dollar declines, the price of gold will continue to rise. Consider this, it may seem a bit speculative, but inflation adjusted; the price of gold will have to reach $2300 per oz to match the high price it set back in the 1980s. At current prices, we still have some room to climb.

Buy Gold and Silver Bullion

In this video, Greenspan says that we are currently on a fiat money system, and that history shows if it is not checked always ends up in runaway inflation.

What could check it? Well, a gold standard of course.

Some quotes:Host: So then why do we need a central bank?

Alan Greenspan: Well, the question is a very interesting one. We have at this particular stage a fiat money which is essentially money printed by a government and it’s usually the central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or currency board or something of that nature, because unless you do that all of history suggests that inflation will take hold with very delterious effects on economic activity.

Alan Greenspan: . . . there are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard.

Buy Gold and Silver Bullion

By James Regan

SYDNEY (Reuters) – Rio Tinto Ltd/Plc’s (RIO.AX) rejection of a $140 billion all-share offer from BHP Billiton Ltd/Plc (BHP.AX) is likely to trigger rival bids from resource companies awash with cash from record commodity and stock prices.

A marriage of BHP (BLT.L) and Rio (RIO.L) would create the world’s biggest mining force, capable of controlling the global flow of fleet loads of iron ore, copper, coal and other commodities for industrial use.

Analysts said BHP Billiton’s approach may be just the first shot in a battle that could draw in other parties and push up the bidding for Rio above $170 billion.

A host of interested parties, from Chinese oil companies to Siberian nickel miners, have the potential to launch rival offers after massive stock market floats have brought companies excess funds, supplying the capital needed to finance a bid.

“If you put together a consortium of Chinese, they could be out there, as well as the Russians, given there’s a lot of oil money being generated,” said Shaw Stockbroking analyst John Colnan.

Global mining leader BHP said on Thursday it had approached third-ranked Rio with a 3-for-1 share offer, but Rio was quick to rebuff the offer as too low.

The BHP offer was initially pitched at a 14.4 percent premium. Rio shares gained nearly 16 percent to A$130.90 in Australian trade, while BHP fell 1.8 percent, putting Rio about 3 percent above the indicative offer price.

Rio would not say whether it had received other approaches, although analysts said the company’s broad range of operations and healthy profit outlook made it an attractive target.

The Rio board was open to other offers and a higher BHP bid, said a source familiar with the deal, who asked not to be named.

Only hours earlier, Rio had mopped up the last of the shares in Canadian aluminum maker Alcan, which it acquired for $38.1 billion after trumping an offer by Alcoa Inc. (AA.N).

Credit ratings agency Moody’s said it may put BHP’s rating under review for a possible downgrade if a formal offer is made for Rio, reflecting uncertainties about integration risk, regulatory restrictions and financial policies.

The global mining boom means both companies are generating piles of cash, with BHP Billiton expected to post 2007/08 net profit of $15.7 billion, while Rio is expected to post profit of about $7.6 billion.

At current prices, Rio trades at a forward earnings multiple of 17.6 times, and BHP at about 14.3 times.

REGULATORY CONCERNS

BHP has not said how it would address potential anti-trust issues, particularly in iron ore where the two companies command 30-35 percent of the seaborne market, say analysts. BHP and Rio mine a combined 277 million tonnes a year and are expanding rapidly. Only Brazil’s CVRD (VALE5.SA) mines more.

However, Rio’s acquisition of Australian and Canadian iron ore miner North in 2000 raised few alarms with regulators.

Given neither BHP nor Rio sells much into the highly regulated U.S. and European markets, Tim Barker of BT Financial Group said he doesn’t see any anti-trust issues.

“The scarcity and the difficulty of bringing on new projects, sourcing people, makes these sorts of consolidations attractive,” said Denis Donohue, senior portfolio manager of Suncorp Metway Investment Management, which owns shares in BHP and Rio Tinto.

Rio’s rich iron ore, coal and copper mines, as well as its ranking as the world’s top aluminum maker, would offer diversification from oil for China’s PetroChina (601857.SS), which has a market value exceeding that of Exxon Mobil Corp (XOM.N) and Royal Dutch Shell Plc (RDSa.L) combined.

“One possibility would be Chinese sovereign funds taking a blocking stake in Rio Tinto,” said FW Holst analyst Rob Craigie.

In Russia, the world’s biggest nickel miner Norilsk Nickel (GMKN.MM) has said it will look overseas for more assets after completing the largest foreign acquisition by a Russian company.

Norilsk already explores with Rio Tinto in the Russian Far East and with BHP in northwest Russia and western Siberia.

BHP, which merged with Billiton in 2001, almost went bankrupt in the late 1990s after a disastrous foray into copper mining in the United States, which raised the company’s penchant for spreading its commodity base far and wide.

Rio is also a combination of a merger, in 1997.

British-based Rio Tinto Co was formed in 1873 to mine ancient copper workings at Rio Tinto near Huelva in Spain. In Australia, Consolidated Zinc was incorporated in 1905 to treat zinc bearing mine waste from the outback.

Diversify Your Income

– FREE Report “10 Reasons Gold Has Farther to Run”

by Clif Droke

I received an e-mail from a financial professional this week that speaks to our question in this week’s commentary:

“Am concerned there is a real crisis brewing. Oil at $95; gold at $800 (and keep in mind that’s a suppressed price!) And Sec Lend [Fed securities lending] 4 days — is it in the last 10 days – we’re OVER TEN BILLION DOLLARS?! Is that a weekly all time all time record??!

“WHY??? Most peaks in gold are covered by a war or capped by a crash, eh?!”

Let’s examine the recent spike in the gold price before we attempt to find the answer to this question.

Gold closed at a 27-year high on Friday at $806/oz. That’s one of the highest levels seen since the all-time high was made in 1980. What on earth is the runaway gold price rise telling us?

As far as stock market crash, the odds are extremely low against this happening. With the IBES Valuation Model showing a 36% undervaluation of the stock market and with insider buying and securities lending volumes this high, a stock market crash would be unprecedented at this point. There is simply too much in the way of support for this to occur.

Now what about the second alternative, namely, war? This is a more likely scenario. It could be that gold “smells” war in the very near future and is doing what gold normally does when war is in the future. The same thing happened heading in the second war with Iraq in 2003.

This time it seems Iran has come into the crosshairs of the Bush Administration as being the next target of Mid East occupation. In June, the U.S. government issued an official warning to all Americans not to travel to Iran, according to an A.P. report. A more recent headline from the Financial Times reports, “US hits Iran with financial sanctions (Rest of world urged to follow lead).” It seems there are many in Washington who desperately want war with Iran and are going out of their way to get it!

Could the gold and oil price action be foretelling us of military action soon to come?

As an aside, if war is waged in Iran in the upcoming months, this will provide the pretext for the next increase in monetary liquidity. Remember what happened in 2003 when the war in Iraq began? The U.S. was absolutely flooded with money and a series of bull markets all across the stock and commodity arenas provided distractions to keep Americans from being overly concerned with the war.

Any war that is declared in the current economic milieu is sure to be greeted with less than an enthused response. Ergo, “a priming we shall go” will be the tune the Fed sings as the next phase of Middle East war gets underway.

The headlines of the financial newspapers have also given us reason to remain bullish on stocks from an intermediate-term standpoint. Now, after all those weeks of hand-wringing over the “credit crisis,” the press has given investors yet another reason to “be afraid…be very afraid.

The new crisis of the hour? More inflation!

Tuesday Financial Times contained an article by Michael Mackenzie, “Dollar and oil swings prompt fears of inflation.” We’ve seen this recurrent inflation theme several times in the past few days in the press and it seems to be a widespread fear. This fear is just what the market needs to keep the “Wall of Worry” intact and the bull market going forward.

Mark Dodson has an interesting take on inflation from the standpoint of the global economy. He writes, “For all the talk of so many economists who now recognize and talk about the twin forces of globalization and the technology revolution and the increase in competition that results, they continue to rely on Phillips curve style models that look at things like unemployment and capacity utilization in the US to determine if inflation is coming on the scene. They are using 20th century economic models in the 21st century.

“Even if you believe in a Phillips curve model, global capacity and global unemployment should be what you are looking for, and no one has the slightest clue what those numbers are.”

Indeed, it seems everyone is afraid of a resurgence of inflation following the Fed’s interest rate cut and they’ll be even more afraid if the Fed cuts the rate again.

But inflation (properly speaking) is the last thing the stock market and economy have to worry about. The true inflation story is contained in this long-term chart showing the continuous yield on the 10-Year Treasury. The recent spike in bond prices and corresponding drop in yields has the all the marks of money going into the proverbial “bomb shelter” seeking protection from the latest crisis of the hour. It is most certainly not a sign the market is worried about inflation.

Dodson adds, “Commodities (input prices) might be through the roof, but the final goods prices that are included in popular inflation measures show inflation that is well under control. Same old story. We like the way that ISI puts it: what emerging economies (Think China) buy, they inflate; what they sell, they deflate.”

Now what about gold stocks? Here we are in the month of November, a time known for showing seasonal improvement of the mining stock sector. December-January are normally the best months of this seasonal time frame but sometimes November can be positive as well.

The XAU’s track record in the month of November going back the past 15 years is a mixed one. There have been six negative Novembers, seven positive ones and two neutral ones. The past 15-year record shows no strong seasonal tendency one way or another.

When we look at the past four Novembers, however, we see that every November since 2003 has been a winning one for the XAU as measured from the start of the month until the finish. Here’s hoping that November 2007 will make it five in a row.

Among the other major mining companies reporting quarterly earnings, Silver Wheaton (SLW, $17.11) announced Wednesday lower net earnings of $19.2 million ($0.09 per share) from the sale of 3.1 million ounces of silver, compared with $22.5 million ($0.10 per share) from the sale of 3.5 million ounces of silver in 2006. Operating cash flows for the latest reporting period were also lower at $27.1 million versus $28.3 million a year ago. SLW’s revenues fell short of consensus. However, Silver Wheaton’s earnings-per-share (EPS) beat analysts’ consensus.

I’ll leave you with this. The following headline article was discovered on the CNNMoney.com newswire yesterday. The article’s headline says:

“Gold stocks: Few gems left to unearth (The price of gold may continue heading skyward but analysts say investors need to tread cautiously if thinking of adding mining stocks to their portfolio)”

This headline holds forth bullish implications from a contrarian standpoint and is yet another anecdotal piece of evidence that the uptrend for gold and silver stocks should continue, notwithstanding a few potholes along the way.

The Daily Reckoning
Ouzilly, France

Ai yi yi…

Yesterday, it looked like what was going to happen to Nigeria was already happening to the U.S. stock market.

Nigeria is our neighbor’s prize bull. He’s going to be slaughtered, because he’s getting old and is no longer earning his keep.

This bull market on Wall Street, such as it is, is getting old too. And yesterday, the butchers were sharpening their knives.

The Dow fell hard – down 362 points.

Why?

Commentators said investors were disappointed with the measly quarter point rate cut delivered by the Bernanke Fed on Wednesday. What? How could that be? Nine out of 10 economists saw it coming. Why would investors have such surprised looks on their faces?

Maybe it is because the Fed signaled that it there were not a lot more rate cuts where this one came from. But who would believe that?

Nah, dear reader, the explanations don’t make much sense. But why bother looking for a reason? All bulls get slaughtered – sooner or later. That’s just the way it works.

As stocks went down, both gold and oil lost a little ground…but not much. Oil is still over $93. The price of gold is over $793.

Which brings us back to numbers – we have become suspicious of them. There are only ten basic digits…but just look at them. Since we gave up Roman numerals, our numbers aren’t straight. Who can trust the number 5, for example? The squiggly little humbug! It is crooked. It has a straight bar across the top, which makes it appear on the up and up…but then it stabs down and then hooks around to the bottom. Very devious.

Still, when they are on their own, numbers – like men – seem to be fairly reliable and decent. You have one dollar. We have three chickens. The team scored nine runs. But mix ‘em and match ‘em…put ‘em in a crowd …and you can get any combination and any scammy result you want.

We mentioned yesterday that after the feds got finished scrambling the GDP numbers, they revealed growth of precisely 3.9% per year. We pointed out that “growth” itself doesn’t mean much. Life imitates academia; we begin to act like dead economists say we should act. The professors tell us that digits are important. The next thing you know people are worrying about their cholesterol count and their return on investment. Not only that, but they’re putting their wives to work in order to increase the digits in their household incomes…and watching the Fed to see what it will do with the digits in short-term interest rates.

And lo! Their interest in digits…in making money and spending it…causes the digits in the GDP to go up. Instead of cutting their own lawns or baking their own cookies, our new digitally-enhanced citizens pay someone else to do these things so they can spend their own time making more digital money.

Ah yes…dear reader…we’ve come to that. Even those ‘paper’ dollars are often not even paper. They are computer fantasies. Your bank tells you that you have a certain number of dollars in your account. You take it for granted that the dollars are there. But there are no dollars…just a spectral trace of dollars in digital form.

So, you tell someone that you have 10 dollars and 22 cents. What do you have? Ten what? It sounds precise…but the precision is as much a fantasy as the money itself. You don’t know what you have. Maybe you have nothing at all…or something that could become nothing pretty darned fast. Ten dollars was what we earned for two days’ hard labor in the tobacco fields when we were 15 years old. Now, it is what we earn every five minutes. Yes, we are older and wiser…and people pay us more money today than they did 40 years ago. We’re not the same person we were then…and the money isn’t the same either. While we gained value in the workplace, our money lost value.

The feds say the inflation rate is less than 3%. How could inflation be running at less than 3% per year while prices on the most important things in commerce – food and energy – are increasing 10 times as fast? We don’t know; it’s one of the reasons we’ve lost faith in digits. They lie.

The only way the feds could get the inflation rate down was by smashing it on the head. And guess what happened? The GDP rate popped up. Yes, dear reader, real output is calculated by subtracting the inflation rate from nominal output. The lower the inflation rate, the higher the GDP number. So, if you can beat down the inflation number, that GDP number will get bigger. Neat, huh?

John Crudele, writing in the New York Post :

“The trouble is, the GDP only grew that much because the government somehow manufactured a big drop in inflation.

“According to the Commerce Department report, inflation was only 0.8 percent in the third quarter.

“When you look at real economic growth – meaning, after inflation – every tick down in inflation causes a tick up in economic growth.

“The rate of inflation was 2.6 percent in the second quarter of 2007 and 4.2 percent in this year’s first quarter. Wall Street was expecting 2 percent inflation this time.

“Inflation at a slow 0.8 percent rate would certainly be welcome – if only it were credible.

“But even less believable is the fact that the inflation rate nose-dived at the same time oil prices were heading toward $90 a barrel – which it now exceeds.

“So, in reality, economic growth is probably much slower than is being reported. And inflation is a lot higher.”

We’re convinced; reality and digits don’t hang together anymore. Maybe they never did.

Here’s something interesting…this week, Wal-Mart says it has crossed the ‘digital divide,’ by offering a computer for less than $200. Yes, dear reader, this is a big day for us here at The Daily Reckoning . Now every yahoo with $200 in his jeans can read what we write. This is a big step forward for society, too, say the commentators, because now we will have ‘digital equity,’ meaning everyone can have access to all the digital information, news and opinions they want.

Of all the crackpot notions to come along in recent years, the idea of the ‘digital divide’ was among the looniest. If you didn’t have access to the Internet, they said, you would be left behind…doomed to live in poverty and obscurity all your life.

But what do people actually do when they get a computer? Do they go onto chat lines to exchange interpretations of Kant’s “Critique of Pure Reason?” Do they begin to read Posidonius’s account of the battle of Pydna…or search for solutions to Poincare’s last theorem? No, they play poker…watch stupid videos…or visit porno sites. In other words, digits don’t actually improve people; they just make it possible for them to indulge more abundantly in whatever shiftless pursuit they take up.

The list of famous and successful people who never even laid eyes on a computer is as long as the Encyclopedia Britannica. And even today, many of the smartest and most successful people in the world view them as time-wasting distractions.

But we are beginning to rant, aren’t we? (Colleague Jonathan Kolber will offer his rebuttal to this rant, below.)

Let’s return to the subject – what was the subject, anyway?

Oh yes…price inflation and the perfidy of digits. Well…what do you think the folks at the Department of Commerce make of Wal-Mart’s $199 computer?

We don’t know either…but we can take a guess.

Years ago, the digit persuaders who torture numbers for the government decided that they should make adjustments for quality enhancements. The theory of it was simple enough: if the price of a thing stays the same, but the thing itself is more valuable…it is if it had gone down in price. So, cometh the computer and prices collapsed. People still spent as much as before, but each year the computers became more powerful. Each year, computer consumers got more for their money…so, in theory, the cost of living was going down (even though, in reality, it was going up).

And now, here’s a computer whose price really is lower. At $199 – here’s a number that doesn’t even have to be hammered down. Happy days! With quality enhancements, this computer – according to the Commerce Department – probably costs less than nothing! When they’re finished with it, it will probably enter the inflation calculation as a free computer with a year’s supply of gasoline as a bonus.

Want to get a good return on your money? Iceland just raised its short-term central bank rate to 13.75%. Inflation in Iceland is expected to be only 4.1% this year…giving you a net yield of more than 9%.

But wait, what’s this? An economist at one of Iceland’s leading banks says he thinks the Icelandic currency – the kroner – will fall by “almost 14%” next year. Well, easy come…easy go.

“I’m thinking about buying a house in America,” said a Frenchman at a dinner party last night. “Prices are so low. This looks like it could be a good opportunity. You probably won’t believe this, but you go into almost any real estate office in Paris and you’ll find houses listed for sale in Florida. And it’s amazing what you can get for your money…a place on the water, with a swimming pool…in the Tampa area. It’s listed for just $300,000. We couldn’t get anything similar in France for that kind of money.

“One thing that is most astonishing to us in Europe is that Americans don’t really have much money. They earn a lot…or they have earned a lot…but they just don’t have much to show for it. I know people in California who earn very high salaries. Here in Europe, even with our high prices, you would live very well if you earned that kind of money. But they have children in private school…they pay a fortune for health insurance…and they have these gigantic mortgages. After they’ve paid those expenses, they just don’t have much left.”

Until next week,

Bill Bonner
The Daily Reckoning

Diversify Your Income

– FREE Report “10 Reasons Gold Has Farther to Run”

Author: Jim Sinclair

Dear Friends,

If you have not started to protect yourself do so on Monday please.

I am quite concerned for all of you as inertia usually prevents people from protecting themselves. I always wondered how a certain ethnic and religious persuasion could remain in Germany as Hitler was clearly coming into power. I would have been out.

Even then, many of those who remained in Germany saved a great deal of their fortunes by certifying their investment shares in international companies, then burning the paper certificates.

What I am getting at is that the signs of an international financial accident are in those incidents that have recently happened.

There is no hiding place as this is a product of the greed and avarice of the new geek kids on the block who have killed themselves, their industry and hurt everyone everywhere. I am sure that in years to come derivative traders will be seen as pariahs and criminals deserving of prison – not as the multi-millionaires they are today.

On Monday start to protect yourself to the degree it can be accomplished by removing people and institutions between you and your assets. This is the real thing. This is what was discussed in the 1970s but did not happen. It was discussed by many in 2000 but it is happening here and now. There is no functional tool to stop a derivative meltdown. It will like the grim reaper clean out many financial institutions and start a domino effect that I do not want you to be caught up in.

You understand by now that I have the wherewithal (experience/industry contacts/etc.) to know these things before others. Call it cell memory, genetics or my historic access to some of the best teachers on earth in finance, risk management and markets. It’s simply ingrained in me. Truth be told, Bert Seligman, my father, knew before the market knew; Jesse Livermore, one of the greatest traders of all time, knew before the market knew. Who knows how? I generally know before the markets figure things out. I tend to know the end at the beginning. It has been so all my life. This is why I am able to do the things I do, take the risks I take, and build the companies I have built.

I want you to be safe. What can it cost you to take precautions? I believe that the cost to you is nothing. I am telling you to take less risk, not more. I know the central bankers will burn the dollar before all this comes down. What concerns me is that all this could easily get out of hand.

Operation “White Noise,” is getting hair thin as more and more financial institutions fess up to their ignorant greed-driven self destruction.

Tell me if you have started. I want to get a feel for how many of our CIGAs are taking action. Drop me an email at trechairman108@mac.com. I am not asking for a tome but simply “yes, I have started to protect myself.” Help me help you by giving me a feeling for how many of you have taken action.

But first some advice:

What you cannot withdraw and is in cash put into short term treasury instruments. For those able, I prefer Swiss and Canadian dollar Federal T bills.
Convert your investment shares into paper certificates. Do not lose them!
Reduce personal debt for peace of mind.
If you have coins stored at a coin dealer take delivery of them and request prompt service.
If you have accounts at Internet financial entities close them and transfer the accounts to a smaller firm that can confirm in writing that they have no over the counter derivative exposure. Be sure to ask for certificates for your share investments and take delivery of them.
Reduce – if not eliminate – your margined position even if that means selling down to rid yourself of debt on your securities or gold assets. The swings in gold now are going to become so violent that most people will not be able to tolerate it when debt is attached to their positions.
This is a time to be conservative, not adventurous. Gold is going to range trade wildly, but it is as I see it targeted here and now for $1,050.

My greatest concern is that my longstanding price objective of $1,650 might be much too low an estimate.

Sincerely,
Jim

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– FREE Report “10 Reasons Gold Has Farther to Run”

By Mary Anne & Pamela Aden

Gold is glittering, soaring more than $100 since mid-August, to a new bull market high and to its highest level since January 1980. The six year bull market is strong and solid.

Crude oil, platinum, lead and wheat have been even more impressive, reaching record highs. Lower interest rates have given the commodity markets a boost. A mega rise is underway and it’ll likely last for years.

REASONS WHY GOLD AT NEW HIGH

Weak Dollar

The most obvious reasons why gold surged higher is due to the falling dollar. The dollar index fell to a record low when the Fed cut interest rates, which helped push gold up sharply. If the Fed continues lowering interest rates to ward off a slowing economy, this could cause gold to soar as the dollar falls further.

Lower rates this year could spur other world central banks to do the same and if so, it could also boost demand for gold as an alternative to all currencies.

Uncertainty & Crisis

Once again, an economic crisis caused gold to rise. An unsound financial system with monster deficits is good for gold. Easy money is good for gold. The world is slowly moving out of the dollar, which is another plus for gold. Tensions in the Middle East are good for gold. Basically, gold rises during times of uncertainty and crisis and that’s currently what’s happening.

Inflation fears have also pushed gold up. The record high in oil and other commodities is helping to fuel these fears, which are unlikely to end any time soon.

Growing Demand

Demand for gold is growing rapidly, which is also bullish. Gold buying in Asia and India is up sharply. Our good friend Brien Lundin says that India expects demand this year to be 50% above last year’s levels. That goes along with the idea that
India’s growth is following China’s.

Physical demand from the West is robust as well, based on the massive buying in the gold exchange traded fund (GLD). Plus, some central banks have been buying, and the Fall is a strong holiday demand season when the gold price tends to rise.

GOLD’S BULL MARKET

There are several ways we’ve been measuring gold’s bull market.

When gold first turned bullish in August 2001, we identified steps for the new bull market. The steps began to develop as the 1999 and 1990-96 prior peaks were surpassed.

The big moment for the bull market was when gold broke above the $500 level in December, 2005. This took gold into the fourth and final step, which is where it’s been trading since then. This reinforced that the bull market was solid.

With gold now at levels last seen in 1980, gold is on its way to completing this step. Once it rises above $850, the fourth step will be complete and that’ll be the next big milestone. Gold will be at a record high and it will then enter a new super strong bull market phase.

Gold has been a great investment. It’s up nearly 200% since 2001 and it’s up 20% so far this year. Even so, gold could still go much higher. Within gold’s big picture, the mega bull market is still young.

GOLD TIMING: On track

Over the past year, many investors worried that the bull market was about over. Six years, as the thinking went, was a long time for a bull market to last without a decent correction.

This could be a legitimate concern but all bull markets crawl a wall of worry. Most important, gold has stayed solidly above its 65-week moving average since August, 2001. This means gold’s trend is up and it will stay up above this average now at $653. This is a simple yet very effective way to stay invested with the major trend.

Within this uptrend gold has intermediate highs and lows, which is where our timing indicator comes in (see Chart 3B). This chart helps identify when gold in at an intermediate high or low level and what’s likely to occur next.

For now, gold’s been rising in what we call a C rise since June 27. Gold held firm in mid-August when most markets fell and it’s now at a new bull market high, reinforcing that this is a strong C rise, which is very important.

Remember, C rises in a bull market tend to be gold’s best intermediate rise when it moves up to a new bull market high, and that’s been the case since 2001. So the current C rise has essentially completed its purpose.

If gold now continues on to test or surpass its record high, then this C rise will become spectacular. But if it ends and stays below $850, that’s okay too. Keep an eye on $700 this month as gold will remain strong in a C rise above that level.

http://www.kitco.com/ind/Aden/oct182007.html

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– FREE Report “10 Reasons Gold Has Farther to Run”

by Gary Dorsch

For the past five years, the official mantra of the US Treasury has been a “strong dollar is in our nation’s interest,” while at the same time reminding traders that “currency values should be set in a competitive marketplace based on underlying economic fundamentals.” Most traders interpret that riddle to mean the US Treasury favors an “orderly devaluation” of the dollar, and won’t intervene to support the greenback as long as its descent doesn’t turn into a nasty rout.

The US dollar has lost more than a third of its value against the the Euro since 2002, and half its value against the Brazilian real. The latest blow to the “strong dollar mantra” occurred on Sept 18th, when the Bernanke Fed slashed the fed funds rate by a larger than expected 0.50% to 4.75%, knocking the US$ Index below the psychological level, and to its lowest level in 15-years.

US Treasury chief Henry Paulson is focusing on booming US exports, which rose to a record $138 billion in August, up 38% from five years ago. A weaker US dollar also inflates the earnings of S&P 500 companies, which earn roughly 44% of their revenue from overseas, mostly in Euros. And Mr. Paulson, the commander and chief of the “Plunge Protection Team,” aims to offset weaker US homes prices with an inflated stock market to keep the US economy from slipping into recession.

But the Bernanke Fed’s rate cut to 4.75% also ignited double-digit price increases for agricultural and energy commodities around the globe, and lifted gold 18% higher to $765 /oz, it’s highest in 28-years. The price of West Texas Sweet crude oil has increased by $19 per barrel since Mr. Bernanke began to flood the world with cheap US dollars. Soybeans have climbed 25% to $10 per bushel. Thus, Fed rate cuts, designed to bail out Wall Street brokers and bankers translates into sharply higher food and energy costs for the US and global consumers.

Foreign investors are rapidly losing faith in the Bernanke Fed and its cheap dollar policy, and dumped a net $163 billion of US securities in August, a record outflow. Net sales of long-term securities such as bonds, notes and equities hit an all-time high of $69.3 billion. Foreign central banks unloaded a net $29.7 billion of Treasury bonds in August compared with net sales of $6.9 billion in July.

Japan was a net seller of $24.8 of Treasuries, and China trimmed its holdings to $400.2 billion in August from $409 billion in July. Foreigners also sold $40.6 billion in US equities, a sharp reversal from net purchases of $21.2 billion the prior month. Foreigners are convinced that Mr. Bernanke has just begun a rate cutting campaign that can drive the dollar sharply lower, and are shifting their capital elsewhere.

While foreigners have nightmares about Mr. Bernanke’s control over the US money supply, which is expanding at an explosive 14.7% annual rate for M3, its fastest in history, the Bundesbank is warning that it’s too early to write off the chance of further tightening in Euro-zone interest rates. The European Central Bank has left its repo rate on hold for the past three months, but is now telegraphing a rate hike to 4.25% sometime in the fourth quarter.

“Risks to price stability are on the upside and, I would add, that they been have augmented in early September. We will do what is necessary to counter these risks. It is too early to dismiss the need for a future monetary policy response,” warned Bundesbank chief Axel Weber on Oct 18th. “Monetary policy has to do what is necessary to guarantee price stability. In a phase of robust growth around potential with little spare capacity, monetary policy no longer needs to support the economy, but instead should focus on risks to price stability,” Weber declared.

The US$’s interest rate advantage over the Euro has shrunk from +240 basis points a year ago to +37 basis points today, based on their respective six-month Libor rates. The shift in interest rates differentials in the Euro’s favor has lifted Europe’s currency from $1.260 in June 2006 to $1.430 today, a record high. The Bundesbank understands that higher food and energy prices are inflationary, and is ready to combat strong money supply growth in Europe with a tighter monetary policy, even at the expense of slowing down the local economy.

The US dollar fell to a seven year low of 1.785 Brazilian reals, after Brazil’s central bank kept its overnight Selic lending rate unchanged at 11.25% on Wednesday, pausing for the first time after 18 consecutive rate cuts. The Bank of Brazil has cut its Selic rate by 8.5% since August 2005, but has been unable to arrest the slide of the US dollar. The central bank intervenes regularly in the foreign exchange market to buy US dollars, boosting its FX reserves by $112 billion since January 2006.

The Bernanke Fed’s rate cut to 4.75% ignited a big increase in global commodity prices, which can boost Brazil’s exports and its currency. The local economy grew 5.4% in the second quarter from a year earlier, and exports in the first half of this year were $73.2 billion, up 20% from the year earlier period. The Bank of Brazil left its Selic rate unchanged at 11.25% due to higher inflation, which hit 4.15% in September, just below the bank’s 4.5% upper target.

The US dollar appears to be sliding in a bottomless pit in Brazil, and another round of Fed rate cuts would make Brazil’s high interest rates more attractive. Carry traders who borrow funds in Japanese yen to buy assets denominated in higher yielding currencies such as the real, have plowed money into the Bovespa Index, which is up 41% so far this year.

http://www.financialsense.com/Market/wrapup.htm

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– FREE Report “10 Reasons Gold Has Farther to Run”

Alex’s Notes: Been talking about this for a while now, looks like its starting to happen.

As more and more governments wake up to whats going on and come to the realization that we will never stop inflating until this thing is a smoking train wreck, they will bail out of dollar backed securities and head for safer ground, such as energy, basic materials, and yes, I am saying it again, Gold and Silver.

——————————–

US August net foreign long-term securities purchases -69.3 bln usd
Tue, Oct 16 2007, 13:44 GMT
http://www.afxnews.com

WASHINGTON (Thomson Financial) – Foreign money invested in US securities fled the US in August when market volatility was high, led by foreign government sales of Treasury bonds and private investor equity sales, the Treasury Department reported.

Net foreign long-term securities purchases amounted to minus 69.3 bln usd in August, an outflow of foreign capital that followed three months of declining capital inflows.

Small foreign purchases of short-term securities were not enough to make up the difference, as total net foreign capital purchases were minus 163.0 bln usd in August. The large net outflow followed a net inflow of 94.3 bln usd in July.

Some economists were expecting around 60-70 bln usd in new capital inflows in August.

Net official long-term purchases were minus 24.2 bln usd in August, which mostly reflects net foreign government purchases of minus 29.7 bln.

Private foreign investor purchases of US equities were minus 39.0 bln usd for the month. However, private investors loaded up on Treasury bonds, creating a net inflow of 27.1 bln usd. Still, net private investment in long-term securities were minus 10.6 bln usd for the month.

Foreign holdings of short-term dollar securities rose 33.9 bln usd after a net gain of 56.2 in July. Net Treasury bill buying was 21.0 bln usd compared with net buying of 18.6 bln in July.

Most of the T-bill buying in August came from private investors, with foreign governments buying 3.8 bln usd worth of Treasuries in the month.

Chinese holdings of Treasuries fell sharply by 8.8 bln usd in August, and Japanese Treasury holdings fell by 24.8 bln usd.

The Treasury holdings of oil exporting countries remained unchanged, while Caribbean banking centers dramatically increased their holdings by 33.1 bln usd.

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=22ec649c-cba0-42f2-878c-397b557c8582

Diversify Your Income

– FREE Report “10 Reasons Gold Has Farther to Run”

by Greg Silberman
October 12, 2007

The US Dollar has lost 65% of its value against the Euro over the last 7 years. It’s no coincidence that a massive Hedge Fund industry has risen in its wake.

There are around 8,000 hedge funds globally managing over 2.5 trillion Dollars. All of them placing bets on global markets. Betting the market will rise, will fall, will do nothing. The vast majority are long-only which means they benefit from a rising market.

The underlying trend behind this level of speculation – the likes of which the world has never seen – is the fear of the worlds reserve currency, the US Dollar, becoming worthless. The fear of an outbreak in hyperinflation and a repeat of The Nightmare German Inflation of the 1920s (exceptionally well documented in the linked article by Scientific Market Analysis, 1970).

During the German Hyperinflation, the entire economy switched from production to speculation. In an effort to protect against a collapsing paper currency, people put their energy into speculating in things as opposed to building or producing.

As we mentioned in Using Commodity Prices as an Inflation Calculator the fact that Corn prices are at 35-year highs is a sign that inflation is boiling up from beneath the surface and the proliferation of hedge funds indicates they are the speculative vehicle of choice.

The sole question on this analysts mind as to high the speculative frenzy will go is how low the US Dollar will fall?

Chart 1 – US Dollar vs Euro

This dramatic chart shows the US Dollar versus the Euro. The Dollar has only recently broken major support below 0.60 (60 Euro cents to a Dollar). This has caused a break below a humongous multi year head and shoulders pattern. The technical target is 40 cents or 33% lower. A HUGE destabilizing move for the US Dollar lies ahead.

As in the Weimar Republic, the speculative fever today will continue to build as the US Dollar falls. That is, money will flee from devaluing cash into anything that will hold or increase its value namely Stocks with Gold and Oil Stocks outperforming. Based on the above analysis this is still quite a way away. The level and magnitude of speculation will be simply breathtaking. In the interim, the already large amount of Hedge Funds and Asset Management companies will continue to grow as will their assets!

http://www.financialsense.com/fsu/editorials/silberman/2007/1012.html

Alex’s Notes: I find it interesting to note, that the history of the word inflation, and where it seems to be headed, dont add up.

No, inflation is not prices going up, although that is a symptom.

No, inflation is not interest rates changing, that again, is a symptom.

Inflation, has always been, and always will be, adding more money supply to the economy (not by earning it, but in our current economy by printing it and ‘creating it out of thin air’).

The current ‘definition creep’ that you can see by looking up the word,is, in my opinion, nothing more than another attempt to continue dumbing down America. A stupid and uneducated people, are an easily controlled people.

Wikipedia: Inflation is measured as the growth of the money supply in an economy, without a commensurate increase in the supply of goods and services. This results in a rise in the general price level, as measured against a standard level of purchasing power.

Dictionary.com: Inflation: Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.

Why is this important? Because it serves to distract people from the problem: the fact that the Government is completely out of control printing money till the presses smoke and destroying the buying power of our dollars.

Then people scratch their heads and wonder why the value of the dollar is plummeting?

Supposedly well versed analysts who are reporting on our financial markets do not know what it means either:

Real inflation, a sustained rise in the general price level, is due to an excess supply of money — too much money chasing too few goods. Responsibility for inflation, therefore, must rest with the People’s Bank of China, not with the price of pork.

While this writer is partially correct, he is still missing the point that inflation IS an excess supply of money, not the prices going up.

To the point of the entry, China and other seemingly well to do economies are also suffering massive inflation.

There are many who feel that a good strategy to hedge against this rapid devaluation of the US Dollar is to move it into other currencies. This brings an image to my mind that Simon Heapes of Anglo Far-East shared with me:

“There is a big ship in the middle of a bunch of other ships, they all have holes in them and they are all sinking, and the rats are jumping from ship to ship trying to figure out which one isnt going to sink.”

While this may make some profits if done as trades in the short term, in the long term, every major currency in the world continues to inflate and will ultimately fail as history has shown, over and over. Another argument for why Gold and Silver are the true hedge and investment right now.

——————

When the 17th National Congress of the Communist Party of China convenes Monday, President Hu Jintao will be confronted with some serious challenges. Foremost will be to ensure steady economic growth and price stability.

Inflation is now at a 10-year high, reaching 6.5% (year over year) in August as measured by the consumer price index. Actual inflation is probably much higher given the defects of the CPI, which does not accurately reflect the consumption pattern of the present market-oriented system.

Housing prices and other asset prices are increasing at double-digit rates, but housing is underweighted in constructing the CPI (it only accounts for 13% of the index, compared with more than 40% in the U.S.). Moreover, some consumer goods are still subject to price controls.

Full article on Investors dot com here.

by Bob Chapman
The International Forecaster
Thursday, 11 October 2007

US MARKETS

As you all know, the government statistics for employment are totally bogus. That said; let’s take an introspective look at the latest machinations.

They tell us that yoy average hourly earnings are up 4.1% and that they are growing at a 5% compound rate for the past few months. We call this simple wage inflation, which was a long-time coming.

Officially 110,000 jobs were created in September compared to a revised gain of 89,000 in July and August. Don’t these massive revisions just warm your heart, 110,000 increases, which is bogus and in and of itself is totally inadequate? The economy needs 150,000 to 200,000 new jobs monthly just to stay in place. Increases over the last three months have only averaged 97,000. In the last four months the ranks of the unemployed have officially risen 400,000. Can you imagine what the real figure is, perhaps 1 million? The BLS has only removed 200,000 from the rolls. That is why we contend the uncounted unemployed are well over 13%. 4.7% is a fairy tale. Of the 73,000 new jobs in the private sector, 58,000 were in healthcare and in the food service industry. Retail and finance supposedly lost 19,000 jobs. 20,000 part-time jobs were lost as well. Why part-time jobs are included we will never know. They should be reported separately. As you can see the private jobs created were all at the lower end of the pay scale. Those jobs are for our fellow citizens who lost their $32.00 per hour jobs to free trade, globalization, and offshoring and outsourcing, so they could take these $10.00 per hour dead end positions.

They expect us to believe that unemployment for 8-19 year old females fell from 14% to 12.4% in one month, which is ridiculous. If they are going to lie at least try to make it believable. Yes, equally as preposterous is the fall in unemployment for women over 55, which fell from 3.4% to 3%. The bottom line is 97,500 of these new phantom jobs were all $10.00 per hour jobs or less in services, bars, restaurants, kitchens, nursing homes, etc., or 89%. Although bogus it is still dreadful. Worse yet the rate of unemployment for all men under 45 is up and that for 18-19 year olds is 16%.

You ask what does all this mean? It means we are already in a recession and have been for some time. Our government lies to us about everything so why should economic matters, such as unemployment be any different?

The FED is creating money and credit at a 14.1% rate or 48% annualized and they cannot readily make the economy grow.

Inflation is over 11% because of the Fed’s policies so we are not gaining- we are losing even if wages are up 5%. Worse yet, next year inflation, real inflation, will be over 15%. Over the last 50 years growth has been 3%. Even with the Fed’s outsized growth of monetary aggregates real growth is running at 1.5%, and it is headed much lower. Payroll jobs growth is only 1.6% and those figures are false. We have had negative job growth for some time. Payroll, real payroll numbers, run parallel to GDP growth. The 4th quarter will be terrible. Lower or no Christmas bonuses and plunging house prices will certainly dampen results. How can real estate prices remain constant when builders sell inventory for 35% to 50% off aggregate prices. Homebuilders are not just losing money many will go under. That is why we are still short suppliers and builders.

Real statistics are mind boggling as the stock market reaches new highs. There are almost three million mortgage holders with ARMs of one kind or another. These subprimes made up $1.3 trillion, or 73% of ARMs in the first quarter and 57% of mortgages in ARMs were unable to refinance loans in August. We still project overall losses at 50% of ARMs for $750 billion to $1.3 trillion, never mind the losses for those holding CDO bonds. Do not forget we projected these figures a year ago while the experts slept. Even they now only project 20% in foreclosures. The do not get it. These people shouldn’t have had loans in the first place. They are unqualified for new loans. They have negative equity and no cash and many, many cannot make the payments. Those payments are going up on reset and interest rates are climbing. Now that Congress is about to reverse the tax liability of debt forgiveness on foreclosed homes, even more homeowners will walk away. Many have seen their neighborhoods deteriorate due to many foreclosures and some see massive numbers of legal and illegal aliens moving into their neighborhoods suppressing prices and destroying the local culture. Most foreigners are here today for the money. They are still Chinese, Koreans, Indians, Pakistanis, Mexicans and Argentineans only in America to make money and leave. One subscriber told us in his development there are many foreign festivals for holidays, but none of the American holidays are celebrated. In real estate you can bypass the early and late 1980s, we are going to the 1930s. The 30 hot area homes are going to correct 30 to 60 percent. Many areas are already off 30%. They will fall for 2-1/2 to 4 more years. We have been right, the experts have been wrong, not only about real estate but everything else. Our next stunner is that 60% of republicans now agree with us that free trade is a loser and that we need tariffs back on goods and services ASAP. Why does it take so long for people to wake up? And, why don’t they listen?

It is important that we note that the dollar has already broken a 26-year support level and that it is headed lower probably to the 72 to 75 area on the USDX. That has been caused in part by lower interest rates. The Fed has effectively abandoned the dollar to rescue Wall Street and the banking and hedge fund industries. Yes, we are in a recession. Now traders and experts believe the interest rates are headed lower. If that is so then the dollar will fall further. The added liquidity will help the aforementioned professionals, but it will do little to help the economy. The Fed has been pouring money and credit into the economy for four years and growth has been slightly above average as inflation has eaten up any gains made in any investments or in wages. The Fed is risking the dollar’s status as the world’s reserve currency, as one country after another begins to sell dollars and unpeg their currencies from the dollar.

The psychology in real estate has been broken. The only event to figure out now is where the bottom in this market is. Real estate is worth $19 to $21 trillion, and in the majority of the market, the former 30 hot areas, prices will fall 40% on average. That reduces the net value to $11.4 trillion or $12.6 trillion. In construction alone this time around we could see 50% unemployment and a 60% drop in home construction. That is 3.3 million people without jobs plus the illegal aliens laid off and all the people in support industries and real estate. The real estate collapse is going to be devastating. We estimate 460,000 have already been laid off if you count the illegals. Thus, the credit crunch and a failing economy, in spite of it being overwhelmed by money and credit, has the Fed, Wall Street and the banks in a state of panic. They know there is no way out. It is no wonder they abandoned the dollar. They are on a sinking ship and they know it. Real estate will fall until the inventory is absorbed and people can again afford to buy homes as places to live and not as investments. Sir Alan Greenspan sees an extraordinary period of disinflation ahead, but he knows the Fed will inflate first until they cannot anymore.

Inflation is coming at us from all angles, but strangely no one at the Fed or Wall Street, in government and in corporate America seems to be able to see it. They should take a look at the Baltic Day Index that over the past year rose from 4,000 to 9,474.

The US dollar is weakening and all major currencies are rising against it. Europe and the UK are slowing down. Their cheap currency days are over. Wait until the world finally realizes that the top 18 of 20 central banks are doing what the Fed is doing in creating massive money and credit. Two and a half years ago gold broke out against every major currency and that is because it is not only the dollar it is all the major currencies that have problems. In time there will be a massive flight to quality from all currencies to gold. It will become the only safe haven.

For now we will have to fight the fed, the Plunge Protection Team and the yen carry trade, but in the end we will win. The Fed can monetize all they want via special deals with other nations, but that will just push gold prices higher and buy some time.

Instead of banks writing loans now a days they originate loans, or warehouse them on their balance sheet for a short time and then circulate, distribute or bundle them to investors using collateralized dent obligations. That means banks require less capital, because they do not hold the loan for the full term. The game is profitable as long as liquidity doesn’t dry up and that is what has happened recently and US banks are stuck with $400 billion in loans. As we said earlier they are lending buyers money and then selling them the CDOs with leverage just to get them off their balance sheets before they are out of capital computation.

What this new money game has brought is elevated risk. As loans are sold off, more loans have to be written and larger volumes are necessary to maintain profitability forcing banks to rely on brokers. As the game goes on volumes increase, which is reduced capital available to absorb risk and the result is lower credit quality. These loans are bought by insurance companies, pension funds, asset managers, banks and private clients. Hedge funds also play in search of higher returns based on leveraged structured credit instruments. These loans have little liquidity and are very risky. Hedge funds borrow from the banks to affect these trades, or they engage in the yen carry trade to raise funds. That is why that trade is so crucial to the US markets. The Japanese fund $1.5 trillion of this action. Our financial markets are debt addicted. This is purely a pyramid scheme. It is no wonder gold keeps hitting new highs. It is only a matter of when before the collapse comes. This is what bank deregulation has brought us. It’s back to the 1930s. The bankers haven’t learned anything more than how to become greedier. They were let loose by the Fed to target the poor and write loans for them that they were entirely unqualified for. As a result of the liquidity perpetuations we saw AAA rated CDOs and ABSs that were really BBB- and the house came trembling down. If you can, get a bid real AAA’s are bid at 80% of face value and AA’s and A’s lower. Most CDOs are bid 15% to 30% on the dollar. The subprime CDO and ABS problems after two months are still frozen and half of the commercial paper has no market.

GOLD, SILVER, PLATINUM, PALLADIUM AND URANIUM

We continue to receive reports of other investment mediums salespeople trying to get people to sell their gold and silver coins and shares. In the final analysis you are going to end up in gold. You are far more vulnerable in other investments. Do not let people talk you out of your gold and silver coins and shares and do not believe the talk of confiscation. It could happen, but probably won’t. Americans do not own enough gold and silver coins or bullion to make it worthwhile. This is not the 1930s and if they want gold and silver they would take the ETF’s assets first. Gold and silver shares have never been confiscated, although for a time markets could be shut down, all markets. Remember, government can take anything it wants from you, including your wife, children and your dog. You are a fool if you are talked out of your gold and silver assets.

Gold ETF’s have set a new high of 759 tons, up 21% since the end of June and valued at $18 billion. Since June the top gold and silver shares are up 28.4% with your AEM, Agnico Eagle, leading the way. The stocks are finally showing leverage to the gold price. Remember, the MS64 Saint Gaudens went from $500.00 to $5,000. This is the time for leverage as we approach $850 and the beginning of phase 2 of 3 or 4 upside bull market phases in gold and silver. Anyone who owns Barrick Gold should sell it. In their hedge book they are still short 9.5 million ounces.

Just as we predicted, the cartel’s rally to wash out protective derivatives is now under way. On Tuesday, after weakening the yen into the 117 handle on Monday and Tuesday morning, they pushed the Dow up 120+ points to a fresh all-time high of 14,164.53, although they also managed to push the XAU to a fresh all-time high of 173.44, which must have ticked them off to no end. The HUI was also pushed to within a few points of its all-time high, closing at 398.39, so it looks like gold and silver will get a lot of PM stock support while the cartel orchestrates its yen-call-destroying, stock-index-short-killing rally of general stock markets by its weakening of the yen to bring in carry trader support. You could see the rally coming after the cartel used the soft holiday, Columbus Day, to hit gold in order to keep it from jumping to new highs on Tuesday when the stock rally was commenced. On Monday they took gold all the way from its Friday close of 741.30 all the way down to 731 before it rallied briefly to 734 and then settled in at 732, still above its 2006 high, while the Dow lost about 22 points. The weakened yen supported the stock markets until the cartel’s jaw-boning, which took the form of minutes of the September 18 Fed meeting at which they agreed to kill the dollar to save Wall Street, a day that will live in infamy, was released to the stock markets on Tuesday. The rate-cut friendly, dollar-killing Fed-talk, together with some typical end-of-day brute force pushing by the PPT, propelled the Dow to new heights, and rallied the general stock markets, including the resource sector as mentioned above. Gold also benefited by the weakened yen and rallying PM stocks as carry traders opted for some safe-haven protection and Indian jewelers took advantage of Monday’s dip which continued in the early going on Tuesday. As the Dow reached new heights on Tuesday, gold almost completely took back Monday’s losses, driving up $14 dollars per ounce all the way to about 740, after receiving a further beating from the cartel which brought it as low as 726+ earlier, before settling in at about 737. Silver has likewise benefited.

After being hammered by the cartel from a high Monday of 13.40 all the way to a low Tuesday of about 13.10, silver had an extraordinary recovery all the way to 13.55 before settling in at 13.43.

We spoke of this coming stock rally in our two previous issues, and warned large specs to get out of any leveraged and/or short-term yen calls and stock index puts and to replace them with un-leveraged, longer-term derivatives. Those who heeded our advice stand to make a fortune when the upcoming follow-up crash occurs, which will happen after the October options expire. To those who did not heed our advice, if the cartel succeeds with their plan, well, all we can say is, we hope your Chapter 11 works out for you, and that its been nice knowing you. The cartel is going to try to wash out the shorter-term protective derivatives which large specs have purchased to protect their PM positions by pushing the Dow to 14,300+ or so by the end of this week and to 14,600+ by the time October options expire late next week in a rally similar to the one they used in July. At least that is their plan. Whether they can pull this plan off is very questionable, given the ongoing credit-crunch and abysmal third crunch-quarter earnings reports which will continue to hit on a daily basis now during earnings season. Also, PM’s and their related stocks could explode from liquidity released to large specs to support the rally which could very well destroy the commercial shorts before the stock rally reaches the cartel’s planned objective. Unlike in July, they will have to weaken the yen to accomplish this since July was pre-crunch and the yen at that time was already at very weak levels, and this will help power PM’s. In addition, in order to help the stock markets to recover after the planned crash, the cartel will have to weaken the yen even further just as they did in July to help the crashed markets recover at that time, providing yet more support for PM’s. Since Monday the yen has hit the 117 yen per dollar handle, a level of weakness not seen since August 15. And now, early on Wednesday morning, the yen has now also weakened against the euro, breaking into the 166 yen per euro handle, a level of weakness not seen since July 24. Both moves in the yen are just as we predicted. Unfortunately for the cartel, the Dow has been down today, Wednesday, by as much as 80 points already as of the time of this writing based on profit warnings and a Chrysler strike while spot gold has rocketed up to the 746 to 747 range, within inches of its all-time high of 747.75, and while the XAU and HUI have already broken their previous all-time intra-day highs like they did not even exist and will probably set new all-time closing highs today as well. OOPS!!!

The reason they are going to try to elevate and then crash the stock markets is because the cartel hopes that this will generate massive margin calls for the large specs after they leverage themselves to the hilt in order to take advantage of the rally. We could see a crash from 14,500+ to just below 14,000 on the Dow before a very quick recovery to 14,200+. Large specs who have had their protective derivatives washed out would then be forced to liquidate their PM positions. We cannot tell how many large specs have heeded our advice. Only time will tell. Large specs might also consider some short-term stock index calls to take advantage of the coming rally. If the large specs are ready for the cartel, gold will blow into the stratosphere as the mountain of shorts created by the commercials does the Mount St. Helens-Mount Vesuvius thing, utterly annihilating the hapless commercial shorts in a short-covering rally without historical precedent. We would like to point out to the non-US members of the cartel and the myriad of other parties who have been screwed and decimated by the fraudulent and diabolical CDO contagion initiated by the US cartel members, that if you were looking for some payback, a chance like this will not happen again in your lifetime. Your participation in the implosion of the US cartel’s gold derivative positions on the COMEX and the TOCOM will provide you with a cherished and most satisfying memory which you can carry with you to your grave. We just thought we would mention this in passing, just in case you were interested.

The cartel’s current objective is to drive PM’s down into the subbasement so they can get out from under their ominous mountain of shorts, which on the COMEX alone has reached new heights as evidenced by the astonishing all-time high in gold futures open interest set on Monday, a mind-blowing 451,753 contracts. If the cartel breaks gold, the Fed will cut rates in October and propel the stock markets higher while they reestablish their mountain of shorts to continue the suppression of gold. If gold breaks the cartel, gold will slash past 850 like a knife through butter and you can forget about rate cuts for the rest of 2007 unless the stock markets threaten to go into a complete meltdown, which very well could happen. So you can see that what happens in the tiny, little gold market is now determinative of what will happen in the much larger stock, bond, currency and derivatives markets. Not bad for a barbaric relic, eh? What few in the world realize is that we are seeing “Clash of the Titans” on steroids in the gold pits right now, and the outcome will influence the future of financial markets like no other event or battle in the world.

The cartel’s desperation is also showing in gold lease rates, which have elevated recently since the credit-crunch to levels not seen in well over a year. This has been caused by both a decrease in supply and an increase in demand. From the supply side, central banks are afraid to loan out more gold as they may never get it back if the bullion banks get blasted in a short-covering rally as their mountain of shorts grows a cauldron and spews out commercial short-annihilating molten gold and silver lava. At the same time, from the demand side, commercial shorts, many of which are also bullion banks, need to get their hands on gold bullion to cover their ever-growing and ever-burdening mountain of shorts without driving up gold prices by purchasing gold in the open market. We believe the commercial shorts are going to be catastrophically decimated, that the gold owed on many gold leases will never be returned to the central banks, that the central banks will then have to write off their phantom paper gold reserves and that this will put the ongoing credit-crunch on steroids and threaten a worldwide meltdown of financial markets. Gold and silver will then become the go-to assets as they blast through the Einstein-DeSitter radius at the outer visible bounds of the universe.

http://news.goldseek.com/InternationalForecaster/1192114980.php

By Robert Morley
October 9, 2007

European, Asian and Middle Eastern corporations are taking advantage of a weak dollar to grab technology and wipe out American competition.

The dollar is taking a pounding. It is sharply down against the euro, pound, Swiss franc, and the yuan—almost every major currency. The dollar is also down against gold and silver, as well as against wheat, corn, cotton and many other commodities.

Nobody seems to want dollars anymore. Consequently, more dollars are needed to convince people to part with their goods. About the only thing in America that is not costing more in dollar terms these days are homes, which are now rapidly falling in price across the nation (though home prices are still much higher than they were five years ago).

Why such an abundance of anti-dollar sentiment? According to Peter Schiff, president of Euro Pacific Capital Inc., it is because the dollar is “a basket case.” He warns that America is “going to pay the piper for years of having the underlying fundamentals of our economy disintegrate beneath our feet.”

Part of that price is the flurry of foreign takeovers that America is experiencing. But who can blame the foreigners? America is home to some of the most technologically advanced and profitable companies in the world. And with the dollar so cheap, many of them are practically a steal.

In July, theTrumpet.com noted that during 2006, foreigners spent $147.8 billion snapping up U.S. businesses—up 77 percent from 2005. At that time, the U.S. Department of Commerce reported that Europeans led the way, spending an astounding $109.9 billion—almost double what they did in 2005.

Nationally, Germany, which spent $22.7 billion, was the largest single buyer of U.S. corporations. Middle Eastern investors, due largely to higher oil profits, spent $12.4 billion purchasing U.S. businesses, more than twice 2005 levels. In Asia, Japanese corporations spent $8.7 billion taking over U.S. rivals.

Now, recent data indicates that foreign entities have spent even more money purchasing U.S. corporations in 2007. In fact, as of October, a whopping $257.4 billion has been spent snapping up U.S. assets. That is more than during any full year since the dot.com boom in 2000, and despite the fact that global credit markets drastically tightened in July.

“We could be looking at the world’s largest tag sale if we continue to see declines in the dollar,” said Donald Klepper-Smith, chief economist at DataCore Partners.

As the U.S. dollar falls, U.S.-based corporations become inexpensive compared to their foreign counterparts. Those holding non-dollar currencies have seen their U.S. purchasing power increase drastically as the dollar has fallen.

“Put simply, the U.S. is on sale,” notes MarketWatch.

The latest large deal aided by a weak U.S. dollar was Canada’s Toronto-Dominion Bank’s $8.5 billion purchase of New Jersey-headquartered Commerce Bancorp, announced on October 2.

In June, Spanish power company Iberdrola bought Energy East, a Maine-based utility supplier, for $4.5 billion in cash. One of Energy East’s subsidiaries provides 80 percent of the power for the state of Maine.

In April, Italian energy company Eni bought a chunk of Dominion Resources natural gas fields for $4.8 billion. During that same month, another high-profile takeover occurred when the German-based Deutsche Boerse announced it would assume control over the New York-based International Securities Exchange Holdings Inc. for $2.8 billion. The New York-based company is one of the largest domestic options exchanges in the United States.

Though Europeans were the dominant foreign investors in the U.S. last year, America will probably experience increased takeovers from China and the Middle East. Chinese and Middle Eastern interests are less affected by the banking credit crunch currently plaguing America and Europe. These countries also hold trillions’ worth of dollar assets, such as U.S. government treasuries and bonds. As the dollar has sunk in value, the pressure on these nations to diversify their holdings has increased in proportion. Today we see these nations dumping their dollars in favor of U.S. corporate assets.

In May, China made what was probably the first of many future U.S. investments when it purchased a $3 billion stake in the private-equity firm Blackstone Group. China holds approximately $1.2 trillion in foreign currency reserves, most of which are U.S. dollars. Word from top Chinese officials indicates further dollar spending is on the way as the nation seeks to diversify its holdings.

More recently, the United Arab Emirates concluded a transaction that landed them a 20 percent stake in the Nasdaq as well as a 28 percent stake in the London Stock Exchange. In a separate transaction, the Abu Dhabi government just purchased a $1.35 billion stake in U.S.-based Carlyle Group.

Some economists are quick to suggest that foreign buyouts of American corporations are a good sign, and just mean the U.S. is an attractive place to invest. But just because foreigners benefit from investing in America doesn’t mean that all foreign investment is favorable for the average American citizen.

It is quite natural that foreign entities want to purchase American companies, says Alan Tonelson, a research fellow at the trade group U.S. Business and Industry Council. “They want leading-edge technology, and the United States is still the technology leader. But when they buy these companies, they’re acquiring control over the most dynamic pieces of the American economy, and they’re acquiring control over America’s future.”

Once U.S. technology is acquired, the incentive to maintain American operations often diminishes, especially in cases where inexpensive off-shore labor can be used. For example, the French telecommunications equipment maker Alcatel bought its U.S. rival Lucent Technologies in 2006. Last month it announced it would cut thousands of jobs. Similarly, the outsourcing provider Caritor, which has its head offices in California but most of its employees in India, said that it would be cutting more than a quarter of the U.S.-based staff from the Boston head office of the technology services company Keane it purchased in June.

Another often unreported downside to foreign ownership is that once the domestic company is sold, its future dividends and profit streams are more likely to then flow outward from America to the home nation. After all, the whole job of these foreign corporations is to invest overseas and repatriate the profits for the benefit of their own shareholders.

With the dollar at lows not seen for more than a generation, the U.S.-asset fire sale will likely continue.

To give an idea of how big the wave of foreign takeovers could become, according to the Daily Reckoning China’s “$1 trillion on hand … is enough to buy a controlling interest in all 30 of the Dow Jones Industrials” (May 29). That includes Boeing, ExxonMobil, Citigroup, General Electric, Microsoft, JP Morgan Chase, Wal-Mart, General Motors, plus 22 more of America’s biggest and best companies.

America may not be fretting the wave of foreign takeovers now, while economic conditions are still comparatively good. In times of peace and prosperity, foreign control of domestic industries and infrastructure may not be an immediate threat. But during major economic recessions—or, worse, times of geopolitical upheaval and war—the loss of ownership and full control of national industries will really be felt. America will yet rue the day that it embraced an economic policy that included giving up its corporate birthright.