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The
global economic recovery is not looking good. The G-8 meeting this weekend
saw divisions that could lead [as the I.M.F. put it] to losses of trillions
of dollars and millions of jobs. Now it is reported that Mr. Bernanke and his
close allies at the board in Washington are worried by signs that the U.S.
recovery is running out of steam. The E.C.R.I. leading indicator published by
the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7
in the most precipitous slide for half a century. Such a reading typically
portends contraction within three months or so. Add to this the evidence that
money velocity is slowing [M3 has contracted at an annual rate of 7.6% over
the last three months] and we may well face a huge bout of money printing again?
If that is the case, confidence in currencies [not just the $] will lurch
lower again.Mr Levine of HSBC, in a recent gold conference pointed out that
some top U.S. Asset Managers were fearful of the possibility of government
confiscation of gold. Has the G-8 taken steps towards the day when
governments would their citizen's gold in their vaults again?
Where and why do top U.S. Asset Managers want gold for?
 First,
why gold, you may ask? Bottom line, Gold still represents the ultimate form
of payment, it is always accepted. In a world drowning in debt, gold's
debt-free nature appeals even more strongly and will particularly to
governments whose currencies are failing to retain confidence.
Second, Mr.
Levine explained, that on being told that the bank's U.S. vaults had
sufficient space available for their gold he was informed that they did not
want their gold stored in the U.S.A. but preferably in Europe because they
feared that at some stage the U.S. Administration might follow the path set
by Franklin D. Roosevelt in 1933 and confiscate all U.S. gold holdings as
part of the country's strategy in dealing with the nation's economic
problems. Are their fears well grounded?
Surely this view
is a bit extreme? The job of Asset Managers is to manage asset for the
greatest return and with prudence. They have to see what may lie ahead and
guard against dangers that may threaten the assets under their wings.
Who are these Asset Managers?
 You may
feel that they may be going too far? Who are these men? For a start, they are
highly qualified capable men who understand the ins and outs of investment
management. They were carefully chosen for their capabilities and good
investment management sense. They have built up a body of knowledge that
places them on top of the investment world. Such knowledge usually
encompasses monetary matters of the sort that would include gold. As such we
would suggest their opinions do have value. We should treat these opinions
with respect?
Surely the U.S. is in less danger financially than Europe?
It was recently
reported that forty-eight U.S. states will be in deficit this year and the
combined shortfall will probably exceed $300 billion. That puts Greece's
expected 2010 budget shortfall of around $28 billion into perspective.
Greece's shortfall is put at around 13.6% of G.D.P., whereas there are a good
number of U.S. states anticipating deficits of more than 20% this year,
including some, like California, New York, Florida and Illinois, with far
bigger economies than Greece. There are around a dozen U.S. states with
bigger economies than Greece and most of these anticipate 2010 deficits at
this kind of level! And look what news of the Greek deficit, once it was
generally publicized, did to the markets! Fears of currency inflation and falling
confidence in the U.S. $ are very real when seen in this context.
Central Banks have stopped selling and some are now buying.
 Often,
gold market observers focus only on the buying of gold by central banks. But
of equal importance is the visible fact that the signatories of the European
Central Bank Gold Agreement [exclude the I.M.F. from this for this purpose]
are no longer selling gold anymore. They want to keep their gold. The
times that now lie ahead will bring to the fore why central banks hold gold
in the first place.
Central Bank
buyers of gold are those that have far too low a percentage of gold in their
reserves and are doing what they can to buy more [China is now contracting
with foreign mining companies directly for their gold ore]. This silently
shouts that gold is wanted by central banks across the world. Extend that
one step further and the only gold easily available to a government is that
of their own citizens.
G-8
The meeting this
weekend of the G-8 did not convince observers that governments are going to
resolve the global economic crisis, nor send it firmly on the road to
recovery. Yes, deficits will be reduced, but growth will suffer badly. Europe
will affect the U.S. economy. With the velocity of money slowing and the M3
money supply shrinking, we are now alarmed at the probable crises that are on
the horizon, because of this incomplete performance of politicians. It may
well be that we have taken a step towards confiscation of gold. How many more
steps are there before this happens? Will they too, be taken?
Julian
D. W. Phillips
Gold/Silver
Forecaster – Global Watch
GoldForecaster.com
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