Major Currency Battle Now Underway Masked by Equity Bubble

Current economic events boil down to two economic forces at work that essentially divide the world into two camps: debt holding countries of the US dollar and countries who are distancing themselves from US debt by way of physical gold possession and the Euro. All current world events seem to be explainable when viewed in this manner. The two camps are the US$/IMF faction (IMF is International Monetary Fund) and the Euro/BIS faction (BIS is Bank of International Settlement). The US$/IMF camp is dollar based paper and debt; the Euro/BIS camp is gold-based currency and gold bullion and oil.

The current run up in the US dollar and equities market is a result of the skewed influence of the US dollar in world economic events. Furthermore, it demonstrates strength when viewed from its existing role as a world reserve currency. It is this role of 'reserve currency' that is the focal point of a currency war now in progress. This currency war is masked, however, by the power and control of the media of the US$/IMF faction, and by the apparent strength of the dollar and the dollar denominated stock markets. It is this apparent strength that blinds all of us to the struggle now waging in world markets. Knowledge that the battle is in progress provides us with a perspective from which current economic events become crystal clear, because the players are Gold, the Euro, and the Dollar.

The strength of the dollar is its Achilles Heel. The equities market in the US has been fueled apparently by two major sources of funds: baby- boomer 401K plans, and the Yen and Gold-carry money. It is this latter source of money that has just now come into question as legitimate and healthy -- just look at Japan's economy and what the YEN carry trade has done there. It is the gold-carry trade that may be the David of the dollar Goliath or the hair of Samson.

Carry-trading in Yen and Gold is simple to understand. It is borrowing Yen or gold at a low interest rate, selling it into the market -- which drives the price down and the dollar up -- then buying US bonds or equities at a higher rate of return. The loan is repaid, the differential interest is pocketed, and the process is repeated -- as long as the price of the YEN and gold drop. Not long ago, the YEN carry trade was essentially stopped. More recently the gold carry trade has been slowed but not quite stopped. In the case of gold-carry, many of the gold-carry players rolled-over their loans and NEVER paid them back. They didn't have to until NOW: gold is currently priced at or below production cost.

Once the Central Banks (mostly European) slowed the leasing of gold, the estimated 14,000 tons of gold that has been involved in the gold-carry trade needs to be paid back. Needless to say, this is about one-half of the entire gold stockpile or above-ground gold of all central banks, so it is impossible to pay back the debt in gold as most of the Central Bank loans apparently demand. Consequently, the financial parties in the gold-carry business need a source of gold to pay back these loans. It appears that only two escape hatches exist for the gold-carry players. Keeping the price of gold down by shorting it on COMEX (this is akin to naked shorting as insufficient gold bullion doesn't appear to exist to cover the 200,000 open interest contracts) or repaying the loans in a medium acceptable to the banks who lent the gold in the first place. Since these are European banks and no large source of gold currently exists, the Euro may become the only accepted means of repayment.

One can see how the carry trades drove the Yen and is now driving gold to all time recent lows. In the case of the YEN more could be printed or made available for repayment. In the case of gold, only 2500 tons of gold are mined each year. To cover the estimated 14,000 ton gold shortage would require more than five years at current production levels and that is if all production was slotted for just that debt.

The remarkable thing about the carry trades is the shear number of financial institutions who have participated in it. In other words, the gold-carry trade is pervasive and to unwind it will affect many world financial institutions.

So back to the war of the Euro/BIS and the US$/IMF. Two anonymous representatives of the Euro/BIS camp have for the past two years come forward with their interpretation of events. They go by the handles or pen names of ANOTHER and Friend of Another. They have used the Internet as their medium of discussion and have provided a tome of information and opinion on this hidden war now unfolding. I believe they came forward after the Euro/BIS cards had been played. Their stated purpose is to ensure that the world knows that the currency war is in progress and that the apparent outcome for title of 'world reserve currency' ends up in the Euro/BIS camp.

Let me explain. They claim that the BIS and the European Central Banks allowed the gold-carry trade to go on for years in order to proliferate gold-based debt and worldwide physical ownership of gold, using Central Bank leasing as leverage. It has become so pervasive that leased-gold debt is part of many modern financial institutional balance sheets. Simply put, gold debt is extensive and there is none to be had to pay that debt. Almost all physical gold is accounted for and these loans continue to be rolled over. To make matters worse, mining production of most major mining companies is hedged (spoken for) up to 10 years. Thus the only way to pay back these loans that would be acceptable to these Central Banks in lieu of gold appears destined to be Euros.

In other words, this is the biggest currency sting in history. Nearly risk-free (or so they thought) low-interest money was available through the carry trades that everyone that knew about it got on board and cashed in. The result? The Central Banks are owed an alleged 14,000 tons of gold (with interest) by a wide-variety of institutions.

Now you can see why A/FOA believe that the US$/IMF faction has lost. They can't pay back their debts without converting to gold or Euro's and that means converting US bonds and equities into Euros or gold. Since there is virtually no physical gold to be had, we see an all out media campaign against gold that discredits gold image as a currency or medium of exchange and that reports large sales-to-be of IMF/Swiss/CB gold. The end result of this campaign (so far) is that gold continues to plummet in price (this in face of the largest demand for physical gold in history).

Now, thanks to A/FOA, light has been shed on the hidden battle for reserve currency. Up until the Euro was introduced, the only possible competitor for world reserve currency status was gold. Gold doesn't lend itself freely for exchange (hard to email it). With the introduction of the Euro that doesn't hold the debt load of the US dollar and has 15% of its reserve in gold bullion, a proxy for gold was born that can now compete with the dollar for the reserve currency status.

Please review these recent world-wide financial events using the above information as a filter:

- -- Gold approaches $292 and the Bank of England announces a sale only available to members of the LBMA (London Bullion Market Association). Price of gold drops to a 20 year low.

- -- The IMF announces a sale of gold to help poor countries (who would have benefited more if the price of gold was higher as most them were countries with producing gold mines). This was announced while the price of gold threatened to pass above $290.

- -- The Swiss vote on a national referendum to delink gold from the Swiss Franc and it passes.

- -- Major news organizations publish countless stories about gold is dead, gold is no longer a modern requirement for currency. (People become confused by this. Gold's popularity falls to an all time low, now rated at 21% popularity per Steve Kaplan).

- -- Gold no longer acts normally during major world crisis. Normally it would rally in the event of war or inflation.

- -- Major rumors of Goldman Sachs and other investment banks heavily shorting gold on COMEX further holds gold down during these major world-crisis. (I even read a rumor that said the Fed has a trading account with a major investment bank and is itself short gold.)

- -- The formation of GATA (Gold Anti-Trust Action) committee to investigate the apparent manipulation in gold markets.

- -- The unrelated yet recent announcements of copper and drug company price fixing.

Steve Hickel

7 June 1999

from gold-eagle

-- Andy (2000EOD@prodigy.net), June 07, 1999

Answers

And factor this in too.......

Many of the world's political looters (I mean leaders) have given gold investors plenty to worry about. The Swiss passed their April 18th referendum to officially go off the gold standard, clearing a major hurdle blocking the sale of up to 1300 metric tonnes of their gold reserves (a metric ton is equal to 2205 lb. or 32,150 troy oz). They now only need public approval in a final referendum this fall. That one is expected to find much greater opposition. The markets actually took it in stride, pushing gold prices sharply higher in what had appeared to be the classic panic short squeeze we were expecting.

That changed abruptly on May 7th when the Bank of England (BOE) sent gold down more than $12/oz. and the XAU Index over 15 points lower in the following two days alone on the surprise announcement that they plan to reduce England's gold reserves by some 415 of 715 tonnes over the next 3 to 5 years. The sales are to begin with 5 auctions every other month beginning in July with the sale of 125 tonnes.

We are more than suspicious that this would come just as prices were starting to rally, especially when it began in the face of the already discounted news from Switzerland. The BOE stated that their intention was to "reconfigure" their reserves toward interest bearing currencies. The British pound dropped immediately on the news as this is yet another socialist run European nation that is, in essence, devaluing and socializing their currency for reasons that can only be guessed at for now. With paper assets backed by little more than the confidence of IOUs (more paper backing paper -defined by us and many others to be a Ponzi Scheme!!) , they are doing everything they can to remove and thoroughly discredit traditional thinking that currency needs to be backed with something tangible.

Why would any nation squander the one sure asset to back the integrity of their paper currency? Perhaps it is because no one making these decisions is old enough to remember the value of a gold linked currency, but more likely they choose to remove barriers that will allow them to print unlimited currency without any responsible fiscal restraint. Thus, convince the world that gold is obsolete as a hard currency and that paper "IOUs" are sufficient, modern, and better. That is, until something happens between nations to remind them that the value of a generic hard asset currency yields to no particular political or nationalistic persuasion. The very essence of its value is that it takes no sides.

The question remains why is this no longer important? If I were a central banker, I'd want to be on the other end of the trade, even if it meant printing more currency to pay for it. At least in the end it would have strong gold backing. Japan, China, India, Russia, and Middle-Eastern nations may have this same idea, yet for other reasons their currencies (by far) don't stand out among recent leaders.

The IMF's proposal to sell up to 10 million ounces of their gold reserves (less than $3 billion at today's depressed prices) has remained a major emotional Sword of Damocles hanging over the market since it was first proposed in 1996. Many think that the majority of CB sales were to beat them to the market, but in reality, their proposed sales aren't large enough to have caused this much front running. The proceeds would be used to provide debt relief for the "Highly Indebted Poor Countries" (HIPC) initiative, many of which are in mineral rich nations that depend heavily on gold production and stable or rising prices. There is much debate over whether these gold sales would provide real relief or are even an appropriate vehicle for this type of aid in the first place. A growing number of key US Congressmen led by Senate Minority Leader, Tom Daschle of South Dakota have started a movement voicing their non-partisan opposition to these sales. The US holds 18% of the 85% majority vote needed to pass the IMF's resolution to sell any gold, effectively enough to veto the entire proposal. If they succeed, they will have removed a huge barrier to higher prices.

The German Finance Ministry, France, England, and the Clinton Administration are in favor of the sales but the Bundesbank, Japan, Russia, and South Africa oppose it. Bundesbank President, Hans Tietmeyer has vigorously opposed any gold sales as has Alan Greenspan who stated that "gold still represents the ultimate form of payment that is always accepted." Even outgoing Treasury Secretary Rubin, who is in favor of IMF sales recently stated, "it wouldn't be wise for the US to start selling its gold." A spokesman confirmed that the US has no plans to sell any of our 262 million ounces held in reserve. That is to say, not in the open market. We reported last October that through 9/23/98 the US Mint had already sold a record 1.2 million one ounce Gold Eagle coins and put dealers on an allocation because they couldn't meet the demand. I don't know what the total 1998 figure was, but in itself this was a lot of gold sold for a country that supposedly needs Congressional approval to reduce its reserves.

It is likely that CBs are deliberately acting to keep the market depressed. Short sellers were starting to panic because they literally can't find enough gold to cover their record short positions. They can't deliver their borrowed gold back to their central bank lenders until they can find the supply, so the BOE announced they'd make it available! This is the equivalent of protecting one's investment, even after they had already rigged the game. The tight supplies we had written extensively about were having a sharply bullish impact on the shorts. According to Michael Kosares (whose Gold Report shares the web site with our own market comments), the BOE announcement may be aimed at helping speculators out of trouble ahead of new accounting standards that will go into effect this summer by the Financial Accounting Standards Board (FASB). These standards will impose exposure of derivatives holdings, making speculators more accountable. A sustained rise in gold prices would rapidly unwind the value of the many bearish gold trades further reducing their ability to cover their shorts, forcing the disclosure of many undesirable positions.

It is obvious that the fresh 20-year low in gold is directly tied to the ongoing manipulation of central banks and speculators. Their fortunes are directly tied to each other through the loans that have allowed them to in turn sell their borrowed gold. A price recovery will cause panic to find the gold needed, forcing them to cover the immense shorts. Salomon Bros /Smith Barney estimates the total number of outstanding loans may exceed 10,000 tonnes (this is equal to 322 MILLION ounces outstanding that must be paid back eventually!!!) The sudden need to cover would undoubtedly drive many short sellers bankrupt as there is MUCH less physical supply available. This would mean they wouldn't be able to pay back the loans to central bankers (Oh what a tangled web we weave when at first we do deceive!!). In fact, Michael Kosares is convinced that the BOE announcement was timed intentionally to privately bail out at least one insolvent British short seller. Isn't it curious that this announcement came just as prices were getting going? Who in their right mind would broadcast this intention before getting the best price they could get? Another plausible theory is that CBs are keeping prices low to keep bond prices artificially higher (yields lower) than they would otherwise be. Issuing loads of low interest loans save these countries many metric tonnes in paper currency (even if we do think it is fiat). Let us not forget our own country's social entitlement cost of living obligations that they've enjoyed keeping low (at the expense of the elderly, poor and disabled). I wonder if this came before or after the chickens decided to suppress hatching any golden eggs.

Perhaps in the end, a good majority of the announced sales (IMF, Switzerland, and now the BOE) will be done privately without any real market disruption. Most of the central bank sales have been conducted this way in recent years, but even if this is not the case going forward, there continues to be enough of an ongoing physical shortfall to offset the extra supply. Last year, for instance, there was a supply deficit of almost 1000 metric tonnes including the total of 437 tonnes sold by the CBs. Salomon Bros/Smith Barney (SB/SB) conservatively projects this year's (1999) supply deficit at 800 tonnes. It is possible that we are at or near the tail end of the trend of CB gold divestment, if for no other reason than because they've already so substantially reduced their holdings. SB/SB advises that "this is not a time to join the CBs in capitulation." CNBC now refers to gold as "a barbarous relic." We know they'll end up regretting these words. We don't know when but we do know that the day will come as it is always the darkest before the dawn. We await a new sunrise and think it will be worth its weight!

Mitch Harris, RIA, June 7, 1999

President, Market Trend Realities

Editor, The Reality Check Newsletter

Back

-- Andy (2000EOD@prodigy.net), June 07, 1999.

GOLD AND SILVER REVISITED

This short reply was written in response to the excellent article written on December 16, 1998 by Ted Butler regarding the leasing of both gold and silver.

Ted Butler is correct to suggest the procedure of leasing both gold and silver at this time because the joint venture of Banks, Brokerage Houses and Mining companies [BBM] that have historically leased (sold short) these hard assets is about to come to an end. Why must this practice end soon? Everyone (credit worthy enough to lease hard assets) who could have possibly leased such hard assets has already done so! No one leases gold or silver to a third party unless they can be assured that they will be able to get these assets back. The BBM's have already leased and sold these assets into the cash markets to obtain cash in order to finance speculative currency, equity and derivatives trading operations or to hedge their precious metals cash flows until such time as these markets begin to rise. The tip-off that the BBM's have exhausted their potential leases of gold and silver was when LTCM had to use the FRB to bail itself out instead of just borrowing or leasing precious metals and selling the hard assets for cash to cover their emerging market and trading losses.

So what happens now? I suggest the following scenario may unfold over the next ten years.

From 1998 through 1999 strong long-term holders (Buffett, Soros, and others) start to accumulate gold and silver at these levels or lower levels if the markets will accommodate, while the public is forced out of their long positions or even sells short based on possible planted or unfounded news stories. Short-term day-traders (on or off the floor) keep trading and make some profits or take some losses. Probable trading range for Gold = $200 to $340; Silver = $3.00 to $7.50 over the next 12 months (most likely a down move first in a deflationary environment followed by an explosion upward).

Above $345 Gold and $8.00 Silver, sometime after Y2K the short sellers (those who leased) begin to panic and start to cover any remaining sales or hedges put on. Of course they will not sell or lease anymore. Long-term holders still hold their positions. Short- term investors start to buy while the public looks on, waiting for a pullback in which to buy. Day-traders still buy and sell to scalp some profits or take some losses. BBM's stop any new leasing programs.

Above $500 Gold and $20.00 Silver (Y2K+1) the public starts to nibble in these markets as the brokerage houses start to write positive articles. They need volume since the stock market will have dropped off as the Internet stocks are getting slaughtered. The public would like to buy more gold and silver but the relative prices seem too high, so they are looking for a price pullback in which to buy. The day-traders still scalp profits and take losses. Gold and Silver mutual funds become particularly hot, based on their past 12 month performance and money inflows from the sale of other stock market investments. Long-term holders still hold their core investment positions in bullion but start to see their long-term holdings of Gold and Silver stocks reach areas of over-extension. This will result in secondary offerings and new issues of stock being offered.

At $850 Gold and $50 Silver (Y2K+2) all of the previous short sellers are out of the market or bankrupt. The public, still looking for the pull-back that never came, watches from the sidelines in the futures markets (margins have gone from $1,500 to $100,000 a contract). Instead, they buy the gold and silver stocks in earnest. Day-traders still trade but at subdued levels, staring in disbelief. The volume of contracts traded in the futures markets decline, but the gold and silver stocks are red-hot. News stories circulate about how the French, Swiss, Middle-Eastern, Japanese and Chinese banks are buying Gold to preserve the purchasing power of their currencies.

News stories continue to circulate (Y2K+3-4) about major fraud at some banks and brokerage houses which can't cover their derivative and short positions in the Gold and Silver markets and might default on leasing programs to Central Banks and the U.S. Treasury. An audit of all U.S. Treasury Gold and Silver holdings is ordered by the U.S. Senate. News comes out that shorts have no Silver to deliver on Comex. Gold soars to $1,300 an ounce and Silver to $100 an ounce. Trading in Gold and Silver grinds almost to a halt. The public and day-traders are out of the market. Buffett offers 20 million ounces of Silver to a consortium of industrial users at $144 an ounce. Soros issues a secondary offering of 1,000,000 shares of Apex Silver at $100 a share (after a 10 for 1 split). Both offerings are oversubscribed. Long-Term investors continue to keep their core holdings.

After 5 years (Y2K+5) in the planning stage (plans started in 2000), large mining companies begin to bring on stream their developed Gold and Silver mines. Prices have stabilized and are now going up or down in tandem with the money supply and consumer prices. Meanwhile, by Y2K+10, Russia and China (Mainland and Taiwan are now combined) follow the Middle-Eastern and Southeast Asia countries onto the Gold Standard and become instant economic success stories for the 21st Century. Prices are now averaging $3,450 Gold and $300 Silver per troy ounce. Puzzling, no one ever mentions the uselessness of Gold and the overabundance of Silver anymore.

This is the scenario as I see it. Regards and best wishes.

December, 1998

Edwin J. Sheldon, Chief Market Strategist & CEO (Ag Bug) Sheldon Capital Management, LLC Manager of Sheldon Diversified Fund, LLC (No-Load Hedge Fund in Formation) Fax.# 973-890-5728 E-mail - ejayshel@aol.com )

-- Andy (2000EOD@prodigy.net), June 07, 1999.

(chris) Jun 06, 19:43 at gold-eagle

I offer a simple counter theory to what you propose.

You propose that what we are now seeing unfold is a struggle (sting) by BIS/euro forces to defeat the IMF/dollar as the reserve currency. If your theory is correct, then indeed, this is what will happen. The euro will take over as the worldwide reserve currency. And that will be the end of it. I sincerely hope you are correct. However, I do not think you are.

I believe the BIS/euro versus IMF/dollar is simply a cover story to disguise what is really going on, which is a united effort toward the NWO by the elite internationalists involved. My theory is that the events we are about to see unfold are primarily designed to convince US citizens of the need for a new global US currency, and perhaps other moves to coalesce various governments. I believe that the euro will be held up as the threat for why we must acquiesce to giving up a big chunk of freedom. Yes, the euro and gold will soar. But the cause will not be some covert attack upon the dollar by the BIS/euro. It will be as a result of years of planning and financial manipulation on the part of the NWO. The proof of my theory will be if, once the euro and gold soar (soon I believe), the process will not end with the euro taking over as the world currency. If there are many more steps to deprive of us of much freedom, in the name of this planned and manipulated crisis, then that will be sufficient for the proof of my theory.

I sincerely hope your theory is correct, and mine is in error, but IMHO, I do not think that is the case.

-- Andy (2000EOD@prodigy.net), June 07, 1999.

Wow!!

Ya I think your right this is the darkest hour just before a great leap forward for the metals! justthinkin

-- justthinkin com (y2k@justthinkin.com), June 07, 1999.

One key question is when do the current round of gold leases expire?

One posting I saw on Gold-USA said they expire on 12/25/99 or 12/31/99. If so, this adds one more huge financial time bomb ready to expire at this amazing witching hour. Anyone with the inside dope on this one?

-- David Holladay (davidh@brailleplanet.org), June 07, 1999.

Andy- Do you think the US is waiting to make a move as soon as the dollar and euro are level with each other? I think the euro is currently around $1.02.6 and dropping so it would seem quite close.

-- Gia (Laureltree7@hotmail.com), June 07, 1999.

andy, interesting articles. i don't suppose you have URL's for any of these, and would post them?

-- jocelyne slough (jonslough@tln.net), June 07, 1999.

http://www.gold-eagle.com/ for articles
If you would like to be able to keep "money" in a gold (and/or silver/platinum/palladium) denominated account, check out
http://www.e-gold.com

-- A (A@AisA.com), June 07, 1999.

To inject a few bits and pieces into this thread, and this is my opinion of course, the EURO is currently in place, and since a universal currency is needed for international trade, why not have the EURO be IT. It does not make sense to me to create a new currency, when the EURO will do just fine. Also, that is where 'the show' is being run from. The seat of power is in and around Brussels. What is going to affect the U.S. the most is that we will likely be pushed into an electronic form of currency for domestic use.

Also, it has been postulated that we cannot go back on the gold standard for international trading because we went off of it under international protest and it is not likely we will be trusted to stay on it again.

This is a very complicated mess and the outcome is likely to be tremendous economic tradgedy for the average american.

-- (mass@delusions.com), June 07, 1999.

I no longer think of power comming out of any particular area. Those of you involved with computer networks know that distance is dead and that flow of information no longer needs to reside in any area. I like to draw from a favorite tv series and call in the Borg mentality. You see the power now runs in many horizontal strands around the globe. Example gold is controlled by mining companies located in several areas around the world and the discusions are made in cyber space. Not in a town or city. A few may meet from time to time in nice warm places but for agenda has long be set up and approved. Another example would be the oil industry the seat of power is not Dallas or, Saudia Arbia but cyberspace. Major corporate head quarters lay in some Vlan in the world of networks. You may argue that the Euro or the US greenback is the currency but it doesn't matter its now all digital in cyberspace and its represented in a decimal format. I hope I'm making sense here.

Justthinkin

-- justthinkin com (y2k@justtinkin.com), June 07, 1999.

(1) Not enough money here to put anything into gold. Vow of poverty (my ex- vowed I be poor for the rest of my life...and tried to get it into the divorce settlement!).

(2) My preference is to put available resources into other metals, primarily lead. Lead can be melted and molded into fishing sinkers, fishing lure heads, lead soldiers, bullets, (SCUBA) dive weights, etc.

-- Mad Monk (madmonk@hawaiian.net), June 07, 1999.