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June 1, 2007: Kuwait Breaks the Peg

By David Galland, Managing Editor BIG GOLD, from Casey Research

Years ago, I recollect hearing a successful currency speculator say that if you wanted to know what a government is going to do with its currency, listen to what they say they aren't going to do… then expect the opposite.

On March 3, 2007, for instance, we had the following report out of Bloomberg.

Saudi Arabia, the United Arab Emirates and four other Persian Gulf nations will discuss revaluing their currencies' peg to the U.S. dollar before a proposed monetary union in the region in 2010.

The states would only change the dollar peg simultaneously, U.A.E. Central Bank Governor Sultan Bin Nasser al-Suwaidi told reporters today. The six countries form the Gulf Cooperation Council and their central bank officials next meet in April. The other countries are Bahrain, Qatar, Oman and Kuwait.

“We will not act unilaterally,'' al-Suwaidi said in Dubai, U.A.E.

On March 15, Bloomberg followed up with this…

The dollar may also be buoyed after the six Gulf Cooperation Council members, which include Saudi Arabia and Kuwait, agreed not to revalue their currencies against the U.S. currency.

“We have no plans to revalue,'' Hamad Saud al-Sayari, the governor of the Saudi Arabian Monetary Agency, told reporters in Dubai today. “The U.S. dollar is still very important to us.''

Apparently, someone forgot to copy the Saudis on the memo, because on March 20, Kuwait announced that it was tossing the dollar peg over the side and replacing it with a basket of currencies.

This will almost certainly lead to a domino effect in the Middle East, a move that would likely be warmly welcomed by the local citizenry there, and not so warmly welcomed by those in the U.S. government charged with maintaining the U.S. dollar hegemony.

And Then There’s China…

On announcing last year that it was forming a new agency to help better manage its foreign reserves, China took pains to assure the markets that they were not doing so in order to begin unloading dollars. But then on May 18, it announced it was going to invest $3.3 billion in Blackstone, a private equity group.

Now, you can be assured that Blackstone is going to go all out to impress their deep-pocketed new partner. And it won't impress them very much if they only buy U.S. stocks that have to then fight against the tide of a depreciating dollar.

In our view, this is just the beginning of a much larger strategy, the core of which will be trading out of U.S. treasury bills and into all manner of other investments… an international basket of stocks, natural resource deposits around the globe… pretty much anywhere and anything offers the prospect for a higher return with lower currency risk.

Or, if the currency risk is going to be taken, then the potential returns will have to offset those risks. Earning a 4.5% yield on a Treasury bond while taking a 10%, 20% or even 30% risk on the dollar doesn’t make a lot of sense to us. And, we expect, neither does it to the Chinese.

There are some very interesting implications in all of this. For instance, if the Chinese slow down their buying of Treasuries in favor of other asset classes, who is going to step up to take their place?

Of course, at the right interest rate, far higher than those on offer today, someone will. But then there’s that whole collapsing housing bubble thing.

The U.S. continues to be trapped on the horns of a dilemma, wedged squarely between a rock and a hard place. Raise interest rates to head off a devastating mass exodus from the dollar and sink the economy… or, lower interest rates to keep the economy afloat and doom the dollar.

Or, simply continue printing money like there’s no tomorrow, steadily devaluing the $6 trillion in the hands of foreigners, and hope no one will notice.

There are times, like today, that any reasonably astute observer can look to the horizon and see what’s coming. A monetary crisis is headed in our direction, and the pace of its arrival is, in our view, quickening.

Gold, and for more pep in your portfolio, gold stocks, are no longer an option but a prerogative–even for conservative investors.

Meanwhile, pay close attention to the comments of high government officials about their intentions on the dollar…

David Galland is the managing editor of BIG GOLD, a new publication from Casey Research dedicated to helping investors profit from the developing bull market in precious metals--with an easy-to-maintain portfolio of conservative mid- to large-cap gold producers and near-producers. You can learn about BIG GOLD and its unusual 3-month money-back guarantee by clicking right here.

April 27, 2007: Private Gold Storage "Increasingly Difficult"

Private Gold Storage "Increasingly Difficult" in the U.S. Says World-Leading Gold Ownership Service

BullionVault.com to switch all international storage from U.S. to Swiss control.

London (PRWEB) April 27, 2007 -- Commercial gold storage is becoming increasingly difficult to secure in the United States, said BullionVault.com -- the world-leading gold ownership service -- today.

The company was recently told byits U.S. owned vault operators that they no longer wished to continue with a long-term gold storage agreement.

"Although we will continue to operate New York storage, as well as London and Zurich, we will switch the vaulting of all our customers' gold bullion to a Swiss company within the next month," said Paul Tustain, founder and director of BullionVault.com.

BullionVault previously vaulted with Brinks Inc., the $3-billion U.S. security firm headquartered in Richmond, Virginia.

"We would have stayed with Brinks if we could have found a way to do so," said Tustain. "We have been very happy with their service."

Forced to look elsewhere, however, "we have been delighted to negotiate and sign a stronger and longer-term contract with ViaMat International," he said.

"Our clients have already chosen to hold 26 times as much gold in Zurich as they do in New York. So the move to a Swiss-owned operator is a perfectly natural development."

Launched in April 2005, BullionVault.com saw its customers double their holdings of gold bullion stored in Zurich during the six months to April.

In the first quarter of this year, total holdings across BullionVault's Zurich, London and New York vault locations increased by 15 per cent, growing by more than 185 per cent from a year earlier.

Notes:

BullionVault (buy gold in the "Good Delivery Bar" form accepted by professional bullion markets -- whatever the preferred size of their purchase. This eliminates the loss of integrity and value associated with buying small gold bars for private custody.

BullionVault arranges all storage in formally recognised bullion vaults, in London, New York, and Zurich. It saves the customer significant dealing and holding costs through reduced trading spreads, the elimination of fabrication and delivery charges, and storage and insurance fees of just 0.12% per year.

June 1, 2007:

By Gary North on Lew Rockwell

People ask me, "What should the Federal Reserve’s monetary policy be?" The answer, theoretically and practically, is simple: paralysis.

Are prices rising? The FED should cease buying or selling assets, e.g., U.S. Treasury debt.

Are prices falling? The FED should stop buying or selling assets.

Are prices stable? The FED should cease buying or selling assets.

What about the members of the Federal Open Market Committee (FOMC), who decide as a committee how many assets to buy or sell? Offer them early retirement at 120% of their present salaries.

Do the same for their respective staffs.

What if interest rates fall in a recession? Let them fall.

What if they rise, due to a war? Let them rise.

In short, let participants on a free market decide what the rate of interest should be.

Why is the collective, competitive judgment of profit-seeking investors who put their own money on the line inferior to a group of salaried bureaucrats who create money out of nothing to be put on the line?

May 21, 2007: The End of Dollar Hegemony

by Hon. Ron Paul of Texas

A hundred years ago it was called “dollar diplomacy.” After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into “dollar hegemony.” But after all these many years of great success, our dollar dominance is coming to an end.

It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value.

First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.

Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it wasn’t long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin - always hoping their subjects wouldn’t discover the fraud. But the people always did, and they strenuously objected.

Read On!

"End of the World As We Know It (and I Feel Fine)"

By Doug Casey Casey Research LLC.

That’s not just the title of an R.E.M. song. It’s how today’s gold and silver investors feel every time they get a reminder from a newspaper or news program.

They see what you see, and anyone paying even a little attention can’t help but notice the stunning array of problems that are menacing the global economy and threatening traditional investments. In fact, I can’t say I’ve experienced the like of it before. And that’s saying something, considering I’ve made crisis (and how to profit from same) the focus of my life’s work.

This time around, the unfolding crisis carries several especially dangerous features – and a locked-in profit opportunity available to anyone even moderately fleet of foot.

"Intractability

First, the intractability of the situation. That’s the word Paul Volcker, former Chairman of the Fed, used to describe things, and it’s a perfectly good word meaning, simply, that the underlying problems can’t be fixed.

In the Middle East, for example, even if we pull all our troops out today, the situation won’t settle down for years… or maybe even decades. And each day of turmoil will cost the U.S. more tens of millions in direct and indirect costs -- and keep the global economy in a state of chronic worry over energy supplies. Then there’s the collapsing housing bubble. For years a galloping real estate market was the primary driver of our economy. Now real estate is hobbling on three legs and has become the primary driver of personal and corporate bankruptcies.

Even more serious is the 6 trillion or so U.S. dollars in increasingly twitchy foreign hands. Hardly a day goes by without some government or another announcing plans to diversify out of the dollar. And no wonder, given the record levels of personal and government debt in the U.S.

And even more debt is baked in the cake. We have a freshly-elected slate of Democrat law makers looking to “do something”… from universal health care, to global warming, to confronting the “unfair” trade practices of China and Japan (the very people who own much of the above mentioned $6 trillion). Those projects are just for starters, of course. Congress’s “must-do” list goes on and on, and for politicians, “do something” never means “do something cheaply.”

So far, so bad.

But it gets worse. Much worse. Over 20% of the U.S. population – the baby boomers – are now beginning to retire, and most of them have nowhere near enough savings to enjoy their senior years. So they’ll be absolutely dependent on the Social Security and Medicare promises they’ve been hearing all their lives. Politically, those promises are impossible to renege on. Financially, they’re impossible to pay. And along with the government’s other unfunded entitlement programs, they add up to $50 trillion of off-the-books debt.

Mr.Volker spoke well. Intractable is the word.

There’s more, but that’s enough. We’re in a box canyon with a floor of quicksand, and the only exit is blocked by a landslide. Investors who take a business-as-usual attitude are not going to have a nice day.

The Magnifying Effect of Modern Finance

In case that litany of problems isn’t enough to get the sweat beading on your forehead, ponder derivatives. While these hybrids have been around for decades, the rocket-shot rise of hedge funds and the advances in financial modeling techniques have spawned something of a competition among the so-called best and brightest to find ever-more-complex ways of skimming pennies from very large piles of money.

The collective result is that our financial system has been wired up to $370 trillion dollars of privately negotiated investment contracts. They’re usually written to shift risk from one bank, pension fund, insurance company or brokerage firm to another. And many are linked together in long chains, with each contract providing collateral for the next.

It’s all very clever, but layering the enormous size– $370 trillion dollars, far more than the net worth of all the financial institutions in the world – on top of all that complexity is downright scary. In simpler times, a home loan going bad would affect only the particular lender. Enough defaults would put the lender out of business. And that would be the end of it. But today a wave of defaults can send a shock through the portfolios of financial institutions around the globe, including hedge funds, banks and pension funds far removed from the troubled borrowers.

Imagine an electrical circuit with thousands of connections. No one designed it. No one tested it. No one has a diagram for it. It just grew. Now, because of its size and power and pervasiveness, everything depends upon it. So what happens when one of those thousands of connections burns out? No one really knows, but I say it’s a circuit you should disconnect from before the world learns the answer.

If you are relying on traditional investments to pad your nest for the future, the problems stalking the world economy should be a matter of serious concern.

Especially given that as bad as we think things are about to get, there remains the potential for things to spin entirely and un-recoverably out of control. That’s because so many wildcards are now in play. A war in Iran? New York hit by a freelance nuke? A worldwide panic exodus out of the dollar? Traditional investments would be the first casualty.

The $2 trillion or so loss in stock market valuations during the recent correction is a precursor of what’s to come… in a best case. The worse case is… much, much worse.

Gold? What Gold?

Working apart from the investment multitudes, a very small minority of investors over the past few years have been building portfolios of precious metals and Canadian precious metals stocks. It’s a minority I’m happy to be a part of, as it allows me peace of mind and the considerable advantage of viewing these crises somewhat dispassionately.

That doesn’t mean I’ll enjoy standing on the sidelines and watching the impact of a monetary crisis on the lives of the unprepared. Of course not. Yet I would be a fool, having recognized a crisis shaping up, not to take the fairly obvious steps to profit.

Which brings me to the opportunity that the crisis is carrying on its back.

For any number of reasons, but first and foremost its use as money in all the world’s cultures, throughout all recorded history, gold has begun to find renewed favor with in-the-know investors as the currency of last resort.

Make no mistake, despite gold’s rise from its $255 low in April of 2001 to over $650 as I write, so far, only the thinnest of trickles, a minor fraction of global capital, has made it into gold. When the flight to safety really heats up, the real fun will begin, and the price of gold won’t just add dollars, it will add digits.

If that sounds like hyperbole, remember that, unlike the U.S. dollar, which can be created at the speed of light, the available supply of gold is finite and is painfully slow to change.

You can’t print gold the way you print paper money. And you can’t just build a gold mine the same way you might build a Starbucks almost anywhere and on short notice. Instead, you first have to find a promising ore body – which is, without exaggeration, like finding a needle in a haystack… a haystack buried “somewhere” in the earth’s crust.

Then you need to go through the immensely complex and expensive exercise of confirming that the ore body is economically viable. Then, years after you started exploring, you can start the even more time consuming and expensive process of actually building your mine. That entails finding a labor force, bringing in power, roads, mills, etc., etc… with every step hindered by environmentalists waving court injunctions.

The long and short is that there are hardly any gold mines of size scheduled to come on stream… and we are not talking about just over the next year or two, but ever. Most people in the know see annual gold production falling from here on.

For proof, there was news recently out of South Africa, the most world’s prolific gold producer. Despite the loud incentive of higher gold prices, South African gold production in 2006 dropped to the lowest level since 1922.

And, above ground, there just isn’t much gold to go around either. The U.S. government, for example, possesses the world’s largest gold reserves… and those reserves amount to only about $170 billion at today’s prices… not even a rounding error on the trillions of dollars in debt the government has guaranteed.

Put simply, the amount of gold available to investors and central banks is like the number of beachfront home sites at Malibu -- it’s not going to change much. As a result, when the rush for the lifeboats begins in earnest, the upward pressure on gold will be unimaginable. As will be the profits for anyone who acts now, ahead of the crowd.

And I Feel Fine

If you haven’t yet started accumulating precious metals, you still have time. Start by picking up some bullion coins from a reputable dealer (silver should do as well as gold).

Then build a portfolio of the better small companies exploring for new deposits -- the ones with the best management teams, working on the best projects, in the best geology. These stocks are the true profit gems – in part because of an accident of recent history.

During the long bear market that ended in 2001, the large mining companies all but eliminated their exploration departments. Now they urgently need new deposits to restock their declining ore reserves. But rather then scouring the world themselves, the majors let the more agile and entrepreneurial junior explorers – often Canadian firms, due to the resource orientation of that country’s economy -- invest the capital and sweat needed to find a new deposit. Then, when a junior company’s project seems ripe, the majors compete to buy the deposit or to acquire the junior explorer itself – and they pay up in a most serious way.

Pick your companies right, and you can pay pennies today for shares in a junior exploration company that history has shown again and again will sell, with a little success, for $10, $20 or more when the market gets rocking and investors at large rush into all things gold.

While there’s no such thing as a sure thing, there are times – like now – when the deck is heavily, massively, stacked in your favor.

You are, therefore, left with a relatively simple choice. Do nothing and hope that all the world’s troubles just drift away—and risk personal financial disaster if they don’t. Or take action, if even with a modest share of your portfolio, and position yourself for extreme profits.

[Editor’s note: Doug Casey is the author of the New York Times Best-Seller, Crisis Investing, and Chairman of Casey Research, LLC., publisher of the highly respected International Speculator newsletter, now in its 27th year. International Speculator is the most profitable source of unbiased research on investments with the real potential to double or better in the coming year, with a focus on the best managed junior gold and silver exploration companies. Learn more about a risk-free trial subscription to International Speculator …by clicking here now.]