Foundational Gold Trail Commentary

The Inside Story on the Gold-for-Oil Deal that could Rock the World's Financial Centers

(Sun Jul 19 1998)

Mr. Kosares,

Why does the Euro start life with such small "exchange reserves" of other currencies? It is because they will have little need of them. For most nations, exchange reserves are used to defend the local currency, that is, buy on the open market your money with other countries money (dollars?). In the typical "operation" this would be done to raise value of the domestic currency. However, today, the Euro countries as a group will run little if any "account trading deficits" with other countries. Do compare to the dollar, with perhaps 14+ billion of trade deficit currency flowing out of America each month and we see what currency will need "defending"! Also, with perhaps 500 billion or more of dollars held as "exchange reserves" we do ask, "if these reserve dollars are to be sold to make room for a new reserve, who will trade Euros for them and at what "exchange rate"? The ECB and it's system CBs will not be in a position to buy dollars, as they will be holding to many "non reserve" dollars. With the American "payments deficit" having "no end", dollar assets have no "purchasing reality". They will quickly become a "nonreserve exchange liability"! One use for dollars may be to purchase ESCB gold, then sell this gold to the ECB for Euros. Another would be to purchase gold on the open market and hold this as matching the 15% gold reserves of the Euro basket. The end result will find to many deficit dollars outside of the US with no way to return home. These dollars will find gold and in doing so will drive up in value one of the ECBs main "exchange reserve assets" without exporting the coming American inflation into the Euro trading block. It is "the master plan" and comes to conclusion.

More to the purpose of maintaining the world economy, the BIS will now begin this act in concert with other CBs to devalue the dollar against gold! They have begun this already, by writing Euro notes for future delivery against these contracts. With LBMA trading 1,000 ton a month, there is much realignment to be done during the next year. I expect gold to cross $360 soon, as the floor is now established with billions of homeless dollars. Time grows short as the plan has been laid out with "no turnback". The ECB has said openly, "gold is now MONEY"! And this will change the dollar asset world you live in!

The US Federal Reserve will now have little choice but to raise interest rates as the dollar currency inflation of past years moves from "paper assets" into real things. With many other economies and nations (ME and China included) about to anchor themselves to the Euro Block, they will enjoy a rebirth of low inflation growth not seen sense before the dollar went off the gold standard! Many persons and nations will sell "dead, nonperforming dollar assets" as these will not show a real return for many, many years. Much as the way gold is viewed today!

I leave this small part of a news article for added thought:

TOKYO, July 6 (Reuters) - What if the Euro keeps rising after its launch, leaving the dollar far behind?


Former presidential advisor Bergsten has forecast the net debtor position of the United States, which has already passed $1 trillion, will shortly exceed $1.5 trillion. In its annual report released in June, the Bank for International Settlements said: ''the BIS is concerned that the markets will lose patience with the accumulation of U.S. external debt and drive the dollar sharply lower.'' Analysts say the launch of the Euro may trigger a reversal in the dollar's current strength to reflect huge U.S. debts.


(Sun Jul 19 1998)


From Q Ball: I would like to ask Another his opinion on this. What are his thoughts on what some people are predicting to be a dominance of OPEC nations in terms of oil production. Specifically forcasted in the following page says that OPEC production will surpass NON-OPEC in about the year 2006.

ANOTHER: QBall, This is true. The Middle East nations, in particular, have shown their reserves to be much greater than ever thought possible. These "new/ larger" reserves have come to be known about, only in the last eight years. It was the "possible existence" of this oil that created muchfear in the American Capitol, prior to the 1970s. In that time, it was known that the Western economy was growing on low priced energy. Thisgrowth would soon consume all "local / domestic" reserves that, in turn, would bring much dependence on low cost Middle East oil. The reserves in this region were, and now even more so, are the lowest cost to produce in the world. As all oil was sold in dollars, and US$s were then, still somewhat attached to gold, the ME producers had "no need" to raise prices! The political forces in the West needed much higher oil prices to "stimulate exploration" to avoid the "strategic problem" of "all oil supply from one region". Make no mistake, there is enough oil reserves in the ME to supply "all world" for "many grandchildren"! It was in this time that the events created by the "politics of dollar currency", allowed the decision to remove the gold backing from the US$. This move, broke the "gold bond to oil", and created a need for more dollars per barrel of ME oil. The oil producers, as expected, did create "Beirut Resolution titled XXI. 122"!

Partial reprint from report by others:

"Shortly after the gold window was closed in August 1971, OPEC called an emergency meeting with U.S. and other nations' finance ministers in Beirut. The result of the meeting was the Beirut Resolution titled XXI. 122. It called for adjustments to OPEC's crude oil pricing whenever the dollar had been devalued. The resolution called for OPEC's price adjustments to be triggered whether or not dollar devaluation was caused by government action or by market forces. If the dollar lost purchasing power, OPEC could raise its prices."

QBall, this was the beginning of a move by dollar advocates to raise this commodity price by inflating the "world reserve currency". As an "also", the ME was shown to be and caused to be "unstable" for dependence for oil production. Not all nations agreed with this move. The French and Germans did not, and by 1980, Europe was working with the BIS to implement a new "reserve currency". They did long for a "money" that would resolve "Beirut XXI" and allow for the purchase of low cost reserves, not the high US$ cost "world oil supply" , of perceived strategic importance to America alone.

The "new Euro" did take much longer to create, and the Gulf War did create a crisis of payment for oil. In this time, early 1990s, the currency of gold was brought "into use" as a "temporary" partial payment until the Euro could be presented. A paper gold market, of sufficient size, was created, that as such, it could hide discount payments to a few producers for oil. Today, if these claims on paper were converted into bids for physical, it would take all of the "tradable gold" in existence! It was this "leverage" that forced the Euro makers into gold. Gold backing for the Euro would not be enough! Only "exchange reserves of gold" would allow oil priced in Euros. We move to this end today. Tomorrow will see ME oil in good supply for a new trading block of nations.

Thank You


From Gary: Dear Another, I have recently begun investing in gold and I find that your comments on the future of gold give me support in these dark time for gold investors. However, I was a little concerned recently when I read your writings in which you based your belief on the price of gold increasing on a comment from Peter Fava. As you noted, he is the Chairman of the London Bullion Marketing Association and he gave his opinion that the price of gold will rise to $320 by the end of the year.

ANOTHER: Sir, I do not base my Thoughts on the open discussion of "only the one", but on the actual commitments and actions of many. I would say these times, they are dark indeed for any form of paper investment in gold. However, the sun is at "midday" and shows the brightest period in your history, for real physical gold! The future will show a "great loss" for men of courage that invest formost in paper. Quiet minds will think: "I did not know dollar assets would find such a fate" and "had I known physical gold could hold such wealth, no other investment was needed"!

As such will be the world investment climate, you will see these thoughts "flow from community to community". LBMA? Often, changes in events are preceded by public announcements, done with much "conservative nature". The Bank Of England did also state a short time ago, that, gold trading loses were coming. In the past, I have found, "when a small nose appears under my tent, life will change before a good nights rest is at hand"!

Thank You


From Ian Shaw: Sir, If I have interpreted your comments correctly, you take the view that the Euro will continue to fly after a successful launch. Supposing the Euro does not fly, but crashes to the ground after several years because of, for example, a Europe - wide economic policy applied by the ECB. What would be your views on gold in the event of such a happening?

ANOTHER: Mr. Shaw, This bird, you call a Euro, it is unlike any we have ever known! It has already crashed to the ground with the weight of metal! It will not fly and it cannot move, as it is built for "durability" and "stability", not erratic movements! It also has a "great appetite" for the food of it's choice, Gold! Unlike any currency of past, this Euro will eat gold reserves and not grow fat. A common past problem of foods with "gold backing"!

Sir, Between now and sometime next year, a great deal of paper gold commitments will be executed to purchase physical gold with dollars. This gold will then be sold to the ECB for Euros, as such, the ECB will hold the gold as "Exchange reserves" and the dollar selling entities will hold the Euros as "exchange reserves". All will rush for this new Europe trading block, as the perception will be: "this debt dollar, it's decades old balance of payments deficit has no end" and "see this new Euro, is this balance of payment positive, see them buy more gold reserves to prove it"! A golden door has been created, that will allow nations caught in dollar reserves to borrow gold in paper form, from the Euro makers. At first, this moved oil assets out of dollars, now it prepares the world for a change of reserve currencies. Look closely and see, "as the dollar/IMF world is brought closer to close, is not the borrowed gold offered more freely"? Do not the lease rates drop further? Do not the holders of Yen, outside of Japan, cross the Yen for borrowed gold as that currency falls? The Yen and the dollar/IMF are one in the same and soon fall together! Direct CB commitments for lent gold will be covered with Euros, but who will cover LMBA and with what? You see, Mr. Shaw, this market is not of a supply and demand world, and is much about the real world currency you have never known.

Thank You


From David Powell: If China were to devalue the yuan, what effect would it likely have on the US$$ gold price and why? PS: Great website! Keep up the good work! (and THANK YOU!)

ANOTHER: Mr. Powell, In the time before us, China will trade in Europe with "great intensity"! As this trade develops, little use will be found for use of dollars in trade and little purpose for to devalue the yuan, except for the revenge against neighbor nations. A good purpose will be found to trade dollars for gold! The gold could be sold to ECB or gold could be held for reserve of 15% or higher to match Euro group reserve requirements! Much will be the future for this position! As such the Yuan may become part of Euro Group basket, yes?

I think, in the future, for one to make their currency lower against the dollar will be as:" trying to hold the hand one meter below a falling stone"?


FromWilliam Hsieh: ANOTHER: I appreciate your emphasis on holding gold and Euros. My question is how do we hold Euros now when the currency is not yet born? Is the German mark today a reasonable proxy for the Euro? What will happen to currencies like the German mark, French franc, etc. when the Euro is finally introduced-- i.e. will they fall as people convert the European currencies for the Euro? Thanks.

ANOTHER: Mr. Hsieh, As the exchange rates move little in currencies of Euro group, before end of year, the Euro basket exists now. On Jan. 01, 1999, each currency will make up a fixed portion of a Euro. As a person within the country, you will purchase with the present currency, whatever it's portion of a Euro, it will buy. After a time, all eleven group moneys, will be converted into actual Euro currency. I see that the China will buy dollar debt issued in Europe, by Euro group countries as a means to obtain Euro reserves when that debt is converted. Perhaps, this be the answer you receive from a broker, concerning "unborn Euros", yes? Even today, the BIS trades gold in "unborn Euro form"!

Thank You


From Michael Kosares: Something came up while you were gone. The head of the World Gold Council recently suggested to the Gulf Co-opeartion Council that it bring its gold reserves up to match the 15% to 20% reserve of the ECB. Do you think that the Euro might cause a domino effect around the globe as other economic blocs back their currencies with gold to compete ( or live in concert) with the Euro?

ANOTHER: Mr. Kosares, Thank you for your question. I think, this "domino effect" is in progress now. For some it is in the "thinking stage", but for others, I see the BIS is now much busy in the brokerage business. You are very correct to see the next currency devaluations as being "against gold"! Some countries will form "blocks" to compete, however, they will be cut off from the "unloading of falling dollars". To what CB will they sell? It will be as "the anchor that is around neck, yes? I think, we will see nations of small dollar holdings, attempt to match reserve status percentages of Euro. With, as you say, "the eye on joining" the "basket"!

All are much confused and upset that the dollar price of gold does not reflect this. It is sad that these persons are given to paper leverage with "no reward" as the value of a lifetime walks slowly before their estate! Our history will read, that persons of simple life, will find they have made the greatest leverage investment ever seen and thought of it as only the small trade. When gold moves from "bottom to top of world currencies", many will find their assets in the "Estate Of Kings"

Thank You


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