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The U.S. strong dollar policy is beating up the South African economy but many in America don’t care. Most Americans are not even aware of the mechanics behind the strong dollar policy. These mechanics have been cooked in a cauldron of the U.S. Treasury and the Federal Reserve using an old clandestine recipe called gold price manipulation.
Historically, gold acts as a barometer for financial markets. Since 1995 the gold barometer has been tampered with so its usefulness as a warning beacon has been greatly dimmed. The price of gold and the dollar have an inverse relationship so that when the dollar is strong, the price of gold is usually weak. During the great Wall Street bull market of the 1990’s it was an absolute necessity for the dollar to be strong in order to attract and keep huge amounts of foreign capital each month. If the enormous transfers of foreign capital into the U.S. dried up, the dollar would weaken and if the price of gold was to rise, this would be a warning sign to investors to pull out of U.S. financial markets. The hidden agenda of the U.S. Treasury and Federal Reserve has been to keep gold within a tight trading range.
An organization in Dallas, Texas called the Gold Anti Trust Action Committee or GATA (www.gata.org) has uncovered the gold price manipulation scandal and detailed how it is being done. This is complicated business, to be sure. According to GATA the price of gold has been suppressed by a cartel of world central banks, U.S. government officials and a number of Wall Street bullion banks by short selling as much as 15,000 tonnes of gold. When a bullion bank shorts gold it usually borrows the gold from a central bank and sells it into the market place and then it is made into jewelry. The big problem for the bullion banks is that after they sell the gold they have a future obligation to return the same amount of gold to the central bank where they borrowed it. In the meantime if the gold price drops, the bullion banks can buy back the gold at a cheaper price than they paid for it and the banks make a profit. Here’s the tricky part. If the price of gold rises the bullion banks must buy it back at a higher price than they paid and they lose money. If the price of gold is a lot higher the banks could go broke.
The U.S. dollar is now falling off a cliff. So why isn’t the gold price rising? GATA says it’s the 15,000 tonnes of gold that have been sold short. Several of the largest financial institutions in the U.S. could easily fold if these banks have to buy back 15,000 tonnes at $400 per ounce when it was sold for $300 per ounce. This is a time bomb waiting to explode. In June GATA’s credibility saw a nice up-tick when one of Canada’s best fund managers, John Embry of the Royal Bank of Canada endorsed the belief that gold price manipulation is a reality and eventually will be defeated.
On June 9th President Bush gave a speech in New York on corporate responsibility following the almost daily revelations of corporate bankruptcies and accounting fraud. He called for confidence in the character and conduct of all American business leaders. Unfortunately for financial markets Mr. Bush’s hypocrisy spoke louder than his hollow sounding words. In 1990 the President sold shares in Harken Energy two months before the company announced a big loss, causing the price of the shares to drop. This is one of the practices Mr. Bush criticized in his speech. On July 10th it was announced that Vice President Cheney is being sued for alleged fraudulent accounting practices when he was a director of Halliburton Oil before he became Vice President.
On June 19th President Bush made a big deal about proposing $500 million to fight AIDS throughout the world but the proposed contribution will not go exclusively to South Africa. South Africa has more people with HIV/AIDS than any other country in the world. The number is approximately 5 million people. In all of Sub Saharan Africa the number of infected people is approximately 28.5 million. U2 rock star Bono accompanied U.S. Treasury Secretary Paul O’Neill on a tour of Africa in May. Bono’s self-assigned and heartfelt mission was to increase world awareness for HIV/AIDS, starvation and the oppressive foreign debt of African countries prior to the G8 meetings in Canada in June. Following the G8 meetings Bono sounded disappointed, “The scale of the response does not match the scale of the problem.” He said, “It was none of the vision we were hoping for.”
The United States could best help South Africa by stopping the manipulation of the price of gold. South Africa is the largest gold producing country in the world. In the year 2000 the country produced 13.8 million ounces of gold. According to GATA’s research gold should be trading at $650 per ounce or higher. At $650 that is a premium over today’s price of $335 per ounce. That premium applied to 13.8 million ounces is $4.6 billion. This is a conservative estimate as many gold analysts are looking for a gold price in excess of $1000 per ounce. When the gold price eventually does rise gold output will also increase as more mines become viable and this will provide even more money for the South African economy. An amount of $4.6 billion would go a long way towards building proper health care, education and alleviating unemployment, food shortages and disease. Periodic, miserly handouts aren’t enough. There needs to be a major change in Blatant U.S. Hypocrisy towards South Africa.
Copyright © Brian Walsh 2002. For fair use only
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