Gold in the mainstream......

I recently had a question posed to me by one of my customers. "Is it only Goldbugs that see the financial imbalances in the World today?" My response was to rattle off several articles that I had seen and were clearly in the mainstream press and written or originated from some very high profile people.

One thing about Goldbugs, we do have a more global and long term view of things financial. It seems to me that the press is somewhat myopic in their views and find it difficult to report news in the total sense. However, part of my job is to assemble the financial puzzel and give customers the global view.

These articles are mainstream and cover many of the areas that make a very strong case for Gold.

1) Fedspeak in Reuters.......

UPDATE 1-Fed says weaker dollar needed to address deficit
Thu Oct 7, 2004 07:28 PM ET (Recasts, adds details)
NEW YORK, Oct 7 (Reuters) - The widening U.S. current account deficit will require a decline in the value of the dollar, a top Federal Reserve official said on Thursday.
Dallas Fed President Robert McTeer said there were only two ways to address the deficit: for U.S. incomes to shrink so that people purchase fewer imports, or for the dollar to weaken.
"Over time, there is only one direction for the dollar to go -- lower," he said in response to a question at an event hosted by Market News International.
The current account gap, the broadest measure of trade and investment flows between the United States and the rest of the world, ballooned in the second quarter to a record $166.18 billion.
On the subject of interest rates, McTeer made it clear that a significant deterioration in the economic data could prompt the central bank to pause its monetary tightening campaign.
But he also offered a relatively upbeat view of economic growth going forward, predicting third-quarter gross domestic product growth of 4 percent or above and implying that such a pause might not therefore be imminent.
"Certainly, there could be a number so bad that we would pause," said McTeer, who is not a voting member of the policy-setting Federal Open Market Committee under this year's rotation.
However, he said during later audience questioning that it is also possible the Fed could accelerate its tightening cycle should the data dictate this is needed.
Price increases would be unlikely to threaten the Fed's monetary plans, he said, arguing that the past three months of data had put inflation fears to rest.
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© Reuters 2004. All Rights Reserved.

2) Bloomberg reviewing Gold.....(NEW)

Gold May Climb on Higher Oil Costs, Lower Dollar, Survey Says
Oct. 11 (Bloomberg) -- Gold may rise for a sixth straight week on speculation that higher fuel costs will increase the precious metal's allure as a hedge against inflation, a Bloomberg survey showed.
Twenty-two of 43 traders, investors and analysts surveyed from Sydney to New York on Oct. 7 and Oct. 8 advised buying gold, which is sold in dollars. Fourteen recommended selling the metal, and seven were neutral.
Gold rose 5.5 percent since early September as oil surged 21 percent, reaching a record $53.40 a barrel Oct. 8. High costs for heating oil, diesel and natural gas may pinch the economy and force the Federal Reserve to slow interest-rate increases. Concern that rising rates would damp inflation and boost the dollar sent gold to a six-month low in mid-May.
``Higher oil prices are certainly inflationary,'' said Stephen Leeb, who manages $100 million at New York-based Leeb Capital Management, which has 4 percent in gold equities. ``At the same time, they force the Fed to hold interest rates lower than they would like, and they also exacerbate our trade deficit. All three impact positively on the price of gold.''
Gold futures for December delivery rose 0.8 percent last week to a six-month high of $424.50 an ounce on the Comex division of the New York Mercantile Exchange, close to the 15- year high of $433 reached April 1. Prices are up 13 percent since reaching this year's low May 13. A futures contract is an agreement to buy or sell a commodity at a specified price and date.
The majority of gold investors and analysts correctly predicted the market's direction 13 times in the 25 weeks since the debut of the Bloomberg survey, including the past six weeks.
Linked to Oil
Gold has moved almost in lockstep with oil in the past month at a correlation coefficient of 0.91. The maximum reading is 1. The coefficient measures the degree to which two variables move in unison.
Crude oil, up 64 percent this year, may rise next week, a separate Bloomberg survey of analysts showed. Refiners may not secure enough imports to make up for the drop in output from the Gulf of Mexico, where production platforms were damaged by Hurricane Ivan.
Some investors buy gold in times of inflation. Gold futures soared to $873 an ounce in 1980, when U.S. consumer prices rose 12.5 percent from the previous year.
U.S. consumer prices rose 2.7 percent in the year ended in August, compared with 1.9 percent for the 12 months ended in January, government figures show. They may rise by 3.5 percent in the next six months, the highest since May 2001, Leeb said.
Rising Costs
The average retail price of a gallon of gasoline in the U.S. has risen 28 percent this year to $1.938. The Reuters/CRB index, which tracks 17 commodities including heating oil, gold, hogs and coffee, reached a 23-year high of 287.62 last week.
Starbucks Corp., the largest U.S. chain of coffee shops, on Oct. 6 raised its average price per cup by 11 cents in North America to cover higher ingredient costs. It was the first increase since August 2000.
``Higher oil prices are alerting everyone to the inflationary forces building in the economy,'' said James Turk, managing director of Channel Islands-based Goldmoney.com, which stores about $24 million of gold for owners in 102 countries. ``I remain bullish both on the short-term and the long-term prospects for gold.''
Gold reached to a six-month high on Oct. 8 after U.S. companies added fewer jobs than forecast last month, sending the dollar to its biggest decline in two weeks against the euro.
Payrolls climbed by 96,000 jobs, the Labor Department said. Economists expected 148,000, the median of 74 forecasts in a Bloomberg survey.
Weaker Dollar
The dollar fell amid speculation the Federal Reserve will skip an interest-rate increase at one of its two meetings this quarter. Rising rates increase the opportunity costs of holding gold compared with other investments, such as bonds that pay interest and stocks that offer dividends.
Higher oil prices also contributed to a wider U.S. trade gap, causing the current account deficit to reach a record $166.2 billion in the second quarter, the Commerce Department said last month.
The dollar fell against the euro and yen last week after Federal Reserve Bank of Dallas President Robert McTeer said the U.S. current-account deficit will lead to a decline in the value of the dollar. He was the third Fed official in a month to link the dollar to the deficit.
A widening gap raises concerns that more dollars will have to be converted to other currencies to pay for imports. Gold reached a 15-year high on April 1 as the dollar fell to a record against the euro.
May Top 15-Year High
``We've got to see an attack on the 2004 high of around $430 at some point soon -- maybe next week or the week after,'' said Graham Birch, who helps manage about $4 billion in assets at Merrill Lynch & Co. in London.
Hedge-fund managers and other large speculators increased their net-long position in Comex gold futures in the week ended Oct. 5 for a third straight week, the U.S. Commodity Futures Trading Commission said Oct. 8.
Net gold purchases rose 39 percent to 114,092 contracts, the highest since April 13, the Washington-based commission said. Speculators amassed 144,253 contracts in early April, the most since at least February 1983. To contact the reporter on this story:
Choy Leng Yeong in Seattle at clyeong@bloomberg.net.
To contact the editor responsible for this story:
Steve Stroth at sstroth@bloomberg.net
Last Updated: October 10, 2004 14:13 EDT


3) China tells the truth aobu the US Dollar........

Crisis looms due to weak dollarJiang Ruiping Updated: 2004-09-28 08:42
Many international institutions and renowned scholars have recently warned that the possibility of a US dollar slump is increasing and may even lead to a new round of "US dollar crisis."
Since China holds huge amounts of US-dollar-denominated foreign exchange reserves, the authorities should consider taking prompt measures to ward off possible risks.
It is still too early to conclude if the US dollar is heading towards a crisis. But it is an indisputable fact that it has gone down continually. Its rate against the euro, for example, has dropped by 40 per cent since its peak period and it lost 20 per cent of its value against the euro last year alone.
It is becoming more and more evident that the possibility of a further slump of the US dollar is increasing.
From a domestic perspective, the worsening fiscal deficit will put great pressure on the stability of the US dollar.
In 2001 when the Bush administration was sworn in, the United States enjoyed a US$127.3 billion surplus. The large-scale tax cuts, economic cool-down, invasion of Iraq and anti-terrorism endeavours have abruptly turned the surplus into a US$459 billion deficit, which accounts for 3.8 per cent of the US gross domestic product (GDP).
By the 2004 fiscal year, the US Government's outstanding debt stood at US$7.586 trillion, accounting for 67.3 per cent of its GDP, which exceeds the internationally accepted warning limit.
The deteriorating current account deficit of the United States is another factor menacing the future fate of the dollar.
In recent years, the US policy that restricts exports of high-tech products, coupled with overly active domestic consumption and the oil trade deficit caused by rising oil prices, has deteriorated the US current account balance. This poses a great threat to a stable US dollar.
During the 1992-2001 period, the average US current account deficit was US$189.9 billion. In 2002 and 2003, however, the figure soared to US$473.9 billion and US$530.7 billion respectively. Experts predict that following its increasing imports in the wake of its economic recovery and continuing high oil prices, the United States will hardly see its current account balance improve.
Given the huge US current account deficit, the US dollar, if it is to remain relatively stable, must be backed up by an influx of foreign direct investment (FDI).
In 1998, 1999 and 2000, FDI that flowed into the United States was US$174.4 billion, US$283.4 billion and US$314 billion respectively. Starting from 2001, however, global direct investment began to shrink and US-oriented direct investment also decreased. In 2003, FDI into the United States was 44.9 per cent less than that in the previous year.
The decrease in FDI will put more pressure on the US dollar, which has been endangered by the huge US current account deficit.
Internationally, the Japanese Government's intervention in the foreign exchange market may become less frequent following the gradual recovery of the Japanese economy.
To deter the Japanese yen's appreciation and promote exports, the Japanese Government used to intervene in the foreign exchange market to keep the yen at a relatively low level. In 2003 alone, it put in 32.9 trillion yen (US$298.76 billion) to purchase the US dollar. The intervention constituted a major deterrent to US dollar devaluation.
As the Japanese economy fares better, the Japanese Government tends to back away from the market. Since April, it has not taken any steps to swing its foreign exchange market.
Another factor behind the risks of a US dollar slump is the weakened role of the so-called "oil dollar."
Given the deteriorating relations between the United States and the Arab world, quite a few Middle Eastern oil-exporting countries have begun to increase the proportion of the euro used in international settlement. Reportedly Russia is also going to follow suit.
If an "oil euro" is to play an ever increasing role in international trade, the US dollar will suffer.
In China's case, its rapidly increasing foreign exchange reserve will incur substantial losses if the US dollar continues to weaken.
At the end of 2000, China's foreign exchange reserve was US$165.6 billion. By the end of 2002, it rocketed to US$286.4 billion before it soared to US$403.3 billion by the end of 2003. By the end of June this year, the reserve was registered at a staggering US$470.6 billion.
About two thirds of the reserve is dominated by the US dollar. As the dollar goes down, China will suffer great financial losses.
Experts estimate that the recent US dollar devaluation has caused more than US$10 billion to be wiped from the foreign exchange reserve.
If the so-called US dollar crisis happens, China will suffer further loss.
The high concentration of China's foreign exchange reserve in US dollars may also incur losses and bring risks.
The low earning rate of US treasury bonds, which is only 2 per cent, much lower than investment in domestic projects, could cost China's capital dearly.
Due to high expectations of US treasury bonds, international investors used to eagerly purchase the bonds, which leads to bubbles in US treasury bond transactions. If the bubble bursts, China will suffer serious losses.
Moreover, since the Chinese trading regime requires its foreign trade enterprises to convert their foreign currencies into yuan, the more foreign exchange reserves China accumulates, the more yuan the Chinese authorities will need to put in the market. This will exert more pressure on the already serious inflation situation, making it harder for the central authorities to conduct macro-economic regulation.
Besides, investing most of its foreign exchange reserves in US treasury bonds also holds great political risks.
To ward off foreign exchange risks, China needs to readjust the current structure, increasing the proportion of the euro in its foreign exchange reserves.
Considering the improving Sino-Japanese trade relations, more Japanese yen may also become an option. During the January-June period this year, the proportion of China's trade volume with the United States, Japan and Europe to its total trade volume was 36.5 per cent, 28.6 per cent and 37.4 per cent respectively. Obviously, seen from the perspective of foreign trade relations, the US dollar makes up too large a proportion of China's foreign exchange reserves.
China could also encourage its enterprises to "go global" to weaken its dependence on US treasury bonds.
And using US assets to increase the strategic resource reserves, such as oil reserves, could be another alternative.
The author us director of the Department of International Economic under China Foreign Affairs University.
(China Daily)

more to come...........................