The US Dollar and Gold

["Gary Santos" <evs@xxxxxxxxxxx>]

I would like to get comments on the above issue especially what policy
response is likely on the part of the Fed in light of the introduction of
Mahathir's Gold Dinar, the Arab Dinar and other such new currencies. I was
made to understand that some policy circles have proposed a new currency
based on a basket of commodities.

As for my thoughts, I append below an email I recently sent to another
discussion group:

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I did not want to bias anyone with my prognosis but here are my thoughts
which I hope will solicit more from the group:

There are three factors that are putting heavy pressure on the US dollar:

a. A deteriorated and deteriorating external position. Deficits in the trade
and current accounts and a hugely negative net investment position.

b. A frustrated world that has its savings and central bank reserves largely
in US dollars and has seen its purchasing power deteriorate since 1971. The
gold dinar of Mahathir and the Arab dinar of Saudi Arabia et. al. are just
present manifestations of this frustration. I understand the Russians
reintroduced a gold coin (last year, was it?), the chervonet, and are
currently talking of a Gold Ruble.

c. Improving (and that's an understatement) gold fundamentals given a
demand-supply deficit of 1,000 tons per annum and what appears to be a
humongous short position in gold with producers unwinding their hedges.

It certainly doesn't help that China opened a gold exchange in Shanghai last
October and that Governors Greenspan and Bernanke gave those "We can print
money" speeches last November and December. From the news coming out of GATA
and LeMetropole, it would seem by the timing of the price of gold that the
Chinese and Arabs have stepped up their gold buying. Gold just broke $354 (a
magic number according to the gold bugs as it is tied to the hedging
programs of the shorts) as I write this note.

As for the counter, I suspect that it would be best for the slide of the
dollar back to support levels be accomplished (there are those who think
that the dollar decline so far is being managed downwards) before the Gold
Cover Clause is reinstated given the gold the US has in West Point(?). But,
now you tell me that that gold is gone??? (***Please send me a copy of this
Fed report and of the commodities-currency report as I would certainly want
to read it for myself.***) If that is indeed the case, I can only think of
one other thing -- food. If there is one thing that the Arabs don't have and
that is America's strength, it is food. Food for oil. Perhaps, this is the
gist of that move for a currency backed up by commodities.

The interesting thing in this Longwave forum is the cyclical nature of the
currency-gold issue -- we have come back full circle to the 1930's, don't
you agree? Now that I said this, all the more I believe a war is upon us.
Any stalling on the part of the US and Britain is only because of the
trouble Venezuela is causing to the effort.