Steve Quayle News Alerts

SUMMARY
This report focuses on the growing interplay between international politics and religion, particularly as it affects the price of GOLD.

For students of Economics, a belief in 'free markets' is an ideal honoured in the breach. Most support the principle but readily find excuse to oppose implementation if the impact of adjustment threatens interests. Governments are noticeably prone as the latest World Trade talks so ably illustrate.

Returning to economics, it should come as no surprise to learn that the original name for the subject was 'Political Economy'. It underlined the fact that the best theories for regulating the production and distribution of goods and services would always be subject to the whims and fancies of politics. Commodity markets are no exception. Here we look at labour, copper and gold as prime examples.

S.1 Labour 'inflexibility'
In recent times South Africa's Reserve Bank Governor, Tito Mboweni, recalled with regret some of the restrictive labour policies he was responsible for introducing while in his previous job as Minister of Labour. To undo them today would cause a firestorm of opposition from recalcitrant unions. The fact that labour inflexibility contributes to the country's abnormally high rate of unemployment, carries little weight with workers facing short-term pain through wage cuts and lay-offs.

S.2 'Bear Squeeze' in Copper
The current international price of copper - up from a low of $1,340 in late 2001 to a recent high of $4,500 - is another example of a market which some consider distorted. Rumours abound of attempts by big players to exaggerate supply and push down price. Against this there are wild stories of a resultant 'bear squeeze' 1 which is artificially boosting the price. While this may in fact be true, few enquire as to how the 'short' position first arose. It apparently came about because a dealer acting for the Chinese Government - a major international user of copper- attempted to force down the price by offering to sell 200,000 tons of the metal which had yet to be produced. Buyers now demand their copper but fear the Chinese can't deliver. More fool the Chinese for trying to cheat producers by artificially forcing down the price.

S.3 The 'inexplicable strength' of Gold
Current developments in the world gold market present an even more interesting picture than the 'visible squeeze' in copper. With the price of gold recently breasting $500 and threatening to soar, conventional 'experts' have been at pains to explain the reason for gold's strength. They allude to the growing threat of inflation but, in the same breath, point to tame looking bond markets which suggest the opposite. They then go on to describe the gold market as:

'Frothy, but driven by momentum'.

In other words:

'It can go higher, but in real terms it's over-valued, so be careful'.

They then proceed to give a 12-month forecast of $450 to $510, when the price is already $509. It's what's called 'killing with faint praise'. It probably gets spewed out on instructions of the 'Gold Cartel' - a secret group of Central Banks and Bullion Banks 2 acting on behalf of the promoters of FIAT currencies. GATA's growing body of supporters firmly believes the Cartel has been responsible for successfully suppressing the price of gold for at least a decade.

S.4 The truth about Gold
If the market thinks there's a 'short squeeze' in copper, they have a far bigger surprise ahead of them in the gold market. For years Central Banks have brazenly portrayed a picture to the effect that their combined gold holdings totaled 32,000 tons, knowing the true figure, net of loans, is probably closer to 12,000. In proffering this charade they were aided and abetted by an IMF which bullied minor banks to 'stay in line' and treat 'gold loaned out' and 'bullion in the bank' as one and the same. The size of the discrepancy has now grown to such a magnitude as to render 'repayment' impossible. This implies that the 'lenders of gold' are assuming increasingly dangerous levels of risk. They are unlikely ever to see their gold again.

Proof of the IMF's sleight of hand in continuing to mask the true 'state of play' came from the Governments of Portugal and the Phillipines. Both countries innocently confirmed having received an IMF instruction to treat their gold holdings as a 'globular whole' irrespective of where the gold lay. Both politely refused and to date continue to distinguish openly between gold on hand and gold loaned out. They probably felt that to do otherwise would contravene all the normal requirements of GAAP - Generally Accepted Accounting Practice. If Central Banks were international corporations instead of Government-controlled entities, their actions would long ago have forced them to court or sent them to jail.

Adding fuel to the fire has been the fact that Central Bank 'gold sales' - whether direct or by way of 'loans' to intermediaries - have regularly contributed between 1500 and 2000 tons a year to overall annual supply. Central Banks have consistently used these offerings to close the growing gap between buyers and sellers. With disposable stocks nearly exhausted, such sales will shortly cease. That could cause the market to spike hundreds of dollars higher. The launch point is close. Yet despite this dire set of circumstances, the Cartel has managed to push the envelope, buying time by creating huge 'short' positions in the futures markets. Unlike private bullion banks which are accountable to shareholders, most Central Banks are relatively impervious to normal profit and loss considerations. If push comes to shove, they can always resort to printing.

S.5 Russian Bear triggers 'squeeze'
None of the above would have been news to the members of GATA - 'The Gold Anti-Trust Action Committee' - or readers of Bill Murphy's Le Metropole Café website. What may prove more of a revelation - even to the converted - could be to hear the reasons the writer ascribes in this report to the Russian change of strategy with regard to gold. One moment their Central Bank was leasing out 75% of their 500 ton gold stock - 377 tons to be exact. This was in undisputed support of Cartel efforts to suppress the price. It made 'loaned' gold available for sale. The next moment - and without warning - Russian President Vladimir Putin radically changed his stance. Overnight he threatened to DOUBLE his country's gold holdings through a combination of open market purchases and a total cessation of sales for the next three years. As his country is currently the world's fifth largest producer of gold, this constituted no mean threat. What gave rise to this dramatic change of heart?

At last count, Russian foreign exchange reserves amounted to a substantial $165billion. In relation to that figure, the purchase of a further 500 tons of gold at a cost of $8billion would be insignificant. What is NOT insignificant is the open and aggressive manner in which President Putin announced his 180 degree change of course. The first strategy was 'pro' the Cartel. The second will be very much 'anti'.

For an important gold producer such as Russia, it never made sense to join forces with the 'Gold Cartel' in their conspiracy to suppress the price, yet major producers like South Africa and Australia were doing the same - lending gold, selling gold, all in the interests of promoting the 'bigger picture' through international co-operation with Western Central banks and their "Gold Cartel' instrument. The exact extent of Russia's gold loans only came to light as a result of some sharp 'sleuth work' by GATA stalwart James Turk. Following Putin's announcement, Turk noticed a 'fill in' statement by Russian Central Bank Chairman Sergei Ignatyev. He referred to the fact that Russian Gold reserves had remained static for the past six years. Ignatyev then proceeded to reveal that the Bank previously segregated their gold reserves into three categories:

1. Monetary Gold - being gold coins stored in the vault. 2. Allocated Gold - being gold bars similarly stored in the vault. 3. Term Deposits - being gold deposited with banks to earn interest.('leased')

It turns out that $6billion worth of Russian gold currently falls into category 3. The writer's friend Bill Murphy commented as follows:

"So it looks like the gold cartel has done a helluva job on the Russians….75% of Russia's gold has been lent out. They are in the same position as other central banks that have lent their gold. No wonder Putin wants to increase their gold holdings. He was probably fuming when he found out what their central bank had done."

With due respect to the writer's friend Bill, it is doubtful whether the Russian State has yet reached the point where the Chairman of their Central Bank would dare pursue policies at odds with his President. There has to be another reason. Enter Islam. The short and long term implications for gold are dramatic. The prospects of rising tension in the Middle East provide an uncanny fit with end-time biblical prophesy as set out in the Old Testament book of Ezekiel, chapters 38 and 39. All with be discussed at length in this report, including a frank analysis of the spiritual roots of ISLAM as seen through the eyes of experts. One such is a man whom many consider to have been: 'The Greatest Man of the Age'. His name was Winston Churchill. He also made a famous quote about Russia and never wavered in his attitude towards Israel, the Jewish people and the whole principle of 'Zionism'. Some of his far-sighted statements will be resurrected.

1. RUSSIA'S EQUIVOCAL STANCE ON ISLAM
The writer's August report - No.72 - was entitled:

EAST RAND BASIN - dewatering waits on gold

It was published on August 23, shortly after the writer and his wife returned from a month-long trip to the US and Canada. The purpose of the Canadian leg was to attend GATA's gold conference at Dawson City in the Yukon Valley. Section 4 of EM72 was therefore entitled:

FEEDBACK FROM 'GATA' IN THE YUKON

It occupied the last page of the report and described how the writer, as one of six scheduled speakers at the conference, had been led to depart from his planned topic, and address instead the problem of:

'ISLAM AND ISLAMIC RADICALISM

Being a mining conference it naturally caused a bit of a stir but the President of one of the two companies sponsoring the event, came up to the writer as he stepped from the podium and whispered in his ear:

'Peter George, that speech was delivered under the anointing of the Lord'

Christians will have no difficulty understanding the phrase. For the benefit of other subscribers - all of whom are equally valued- it meant the writer had said what he felt God tell him to say. He was simply being obedient.

Present at the conference - at his own request - was Russian energy expert Andrey Bykov, an economic advisor to President Putin. Commenting on the writer's speech after the event, he said to conference organizer Bill Murphy:

"He is of course correct. The greatest threat facing Russia today is both Islam and Islamic Terrorism."

In retrospect, and unbeknown to the writer at the time he made his speech, Russia's attitude towards the West, Gold and ISLAM were all about to undergo a profound and simultaneous re-balancing process. The result would trigger a sea-change in the market for gold. Russia's relationship with Iran held the key.

1 A Bear Squeeze occurs when short sellers cannot deliver on their contracts - usually due to selling more of the underlying asset than physically exists. Once 'longs' realize what has happened, and understand the mis-pricing and vulnerability of the 'shorts', they buy the underlying asset to the extent that the shorts, in trying to buy back the sset for delivery, cannot get enough stock. In the process the price rises at a rate out of all proportion to the rest of the market.

2 A Bullion Bank is a large investment bank tasked with borrowing gold bullion from Central Banks and short selling it into the market. The BB profits by buying back the bullion at a lower price and pays a small interest charge to the CB for the use of the bullion.

http://www.gold-eagle.com/editorials_05/george122705.html