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Monday, March 28, 2005

Interest Rates

During this USD rally (correction from going down) it is important to remember the difference between "nominal" interest rates and "real" interest rates, and how they relate to the inflation rate. Currently in the US, a 1 year certificate of deposit from a bank pays a nominal interest rate of about 2 1/2%. Official government inflation rates are about the same. Therefore, the real interest rate on that certificate is 0% if you go by official government inflation rate numbers. US government inflation rate numbers are substantially understated so that the real interest rate from a certificate of deposit is actually substantially negative; not 0%.

Historically, any government fiat token, the USD in this case, is going to trend down when real rates are not about 2% above inflation rates. Currently, the rate at which the US central bank is increasing its rates is low enough so that their rates will not play catch up to real rates. They want a lower dollar despite US Treasury Secretary Snow constantly saying the opposite.

The markets really set interest rates. The US's central bank (the Fed) follows the markets. Current US rates are way too low, especially considering real inflation. The bond and note markets are starting to understand this as the price of bonds and notes are decreasing (which means rising rates) along with the US stock markets; a bad sign when both of these markets go down at the same time which is what has been happening in the last few months. So expect rising interest rates as the USD goes lower since current nominal rates have so much catching up to do to get ahead of real rates. So a weakening USD is good for the USD price of gold since it will take more USD to buy the same amount/weight of gold. And what goes along with a rising price of gold are rising interest rates. Rising USD priced gold/silver along with rising interest rates is normal. Rising rates will not strengthen the USD untill real rates get realistic. If the history of governments and human nature are any guide, there is still a long way to go before the price of gold/silver top out.

By the way:

It looks to me that this correction in gold and silver is over or almost over. Next week should see prices start to move up. Statistically rare is the USD now being up 7 days in a row. Silver being down 7 days in a row. Some silver stocks being down 8 days in a row. And, gold open interest on the Comex exchange being back down to historical lows.

Monday, March 21, 2005

Frank Veneroso's New Gold Report

( BW)(TX-GATA) New Report on Gold Market by Veneroso Vindicates GATA

Business Editors

¶ DALLAS--(BUSINESS WIRE)--March 21, 2005--Frank Veneroso, perhaps the world's foremost gold market analyst, has written a new study of the market that the Gold Anti-Trust Action Committee says concurs almost completely with its long-held positions.

¶ Veneroso's report has been posted at the Internet site of Gold Newsletter and concludes:

¶ -- The gold market is "managed" by central banks through their sales and leasing of gold.

¶ -- The central banks are probably attempting an "orderly retreat" with gold, trying to control the speed of its ascent.

¶ -- The central banks will exhaust much sooner than is generally expected the supplies of gold they are willing to sell or lease. They won't spend anything close to their last ounces.

¶ -- Gold's strength even as speculators on the commodities exchanges sell their positions is an indication that central banks are seeking to cover their
short positions at every opportunity.

¶ -- The price of gold in a market not manipulated by central banks will be above $600 per ounce.

¶ -- The gold supply-and-demand statistics of GoldFields Mineral Service, on which the gold trading and mining industries rely, are so contrived and mistaken as to
have become "ludicrous."

¶ Because Veneroso's report is so contrary to the dubious spin put on the gold market by establishment financial news organizations, Gold Newsletter's editor,
Brien Lundin, has generously given permission to GATA to post the report in the clear at GATA's Internet site here:

http://www.gata.org/VenerosoReport.html

¶ GATA considers Gold Newsletter to be an essential
tool for gold and silver investors, the more so now that Veneroso is writing for it, and new subscribers to Gold Newsletter are offered a year's subscription for half price, $99, here:

¶ http://www.goldnewsletter.com/subscribe.htm

--30--AM/ny*

CONTACT: Gold Anti-Trust Action Committee
Bill Murphy, 214-522-3411
LePatron@LeMetropoleCafe.com

KEYWORD: TEXAS UNITED KINGDOM INTERNATIONAL EUROPE
INDUSTRY KEYWORD: MINING/METALS ADVERTISING/MARKETING BANKING
ENVIRONMENT
SOURCE: Gold Anti-Trust Action Committee

ZZZZZ
#1119211

Saturday, March 19, 2005

The US Treasury's TIC report

"TIC" stands for Treasury International Capital System and came out a few days ago. These TIC reports over a number of months are showing that major central bank purchasers of USD denominated debt are no longer purchasing this debt, which they use as central bank reserves, at the rate of increase that they used to buy at. They are still buying (adding) US debt to their central bank reserves but in lessor amounts. Their buying growth rate peaked out roughly during the last half of 2004. Here is a link to a .pdf file with a chart of China's, South Korea's and Japan's buying rates. This decreasing rate of purchase of US debt instruments for foreign central bank reserves means less demand for the US dollar. When the US dollar loses enough value central banks will have to actually start selling their US dollar denominated reserve assets, a lot of which is US Treasury debt instruments.

Example

The big jump in the Carribean Banks number is probably the US Treasury buying it's own debt because now a days it is having a problem selling its debt. The US Treasury would not want to admit to this, and would need a means of hiding their buys.

Sunday, March 06, 2005

Sledgehammers Held High Over the Head of America

And these hammers have long handles. Between the US government's budget deficit and the US's current account and trade deficits, the US as a whole is currently borrowing at an annual rate of just under a $trillion dollars a year (and this is a growing amount) from the rest of the world. In America's case, budget, current and trade deficits are essentially loans from the rest of the world. Estimates on the Web are that this amount is about 80% of the world's savings. I don't know how accurate these estimates are. Non-American entities hold trillions and trillions of USD denominated debt. Never mind selling this debt that they have; if they just stop making new loans to the US they would put about an 11% dent in the US economy. This in turn would create job losses, home mortgage defaults, financial business and personal bankruptcies creating an even bigger snow balling dent in the US economy. At the beginning of the 1930's Great Depression (which extended into the '40s) the US was a net creditor nation. Today it is a record breaking net debtor nation. Not a good position to be in when facing another Great Depression.

Sure, the US has an increasing GDP. So what? What is GDP? What does it really measure or show? It measures transactions. You have to look at the nature of all those transactions. Depends on what other things in the US economy look like or are doing. There are all kinds of record breaking debt being accumulated (transactions) in the US. American's salaries and wages (transactions) are not keeping pace with inflation (the devaluation of the USD by the Treasury and the Fed, with the help of some foreign cental banks). There are not enough jobs being created for Americans needing to enter the job market for the first time. I'd say that the *increasing* US GDP, given America's current situation, is an indication of wealth consumption, not creation. In other words America is becoming poorer and its standard of living is heading down, big time.

How much longer do you think the rest of the world is going to continue *increasing* the amount of its loans to America, the out of control borrower? Instead of the current $30-50 dollars a square foot for rent in a high rise in a major city in the US, some time in the future, you might be able to rent for $0.25-0.50 cents per square foot in some cases. Don't laugh. That has already happened in Dallas, Texas a number of decades ago. Wait a minute. I forgot. The USD has lost a lot of value since then. Ok, lets say $2-3 a square foot.