U.S. Dollar Dethroned

November 13, 1999

What we are witnessing is the death of the dollar as we know it. This is a chess game where the loser's currency devalues greatly. All the moves from all corners of the world are centered around gold, the dollar/IMF, and the new Euro currency. This is the Achilles' heel of our new-age bubble economy that will blind-side most Americans when they wake up and see gold revalued 20 or more times higher. They will ask, "Where did that come from? I thought gold was dead." The answers we get will miss the point. Perhaps it will be blamed on Y2K or on hoarders or LTCM or hedge funds or derivatives. The correct answer is (and remember this) currency needs a basis of discipline that will prevent money from being printed, credit being created out of thin air as the dollar has been since 1971. That is why the Euro is backed by 15% gold valued at market. In 1971, President Nixon removed us from the gold standard. That is when the present situation started in earnest. Since then we have been in a dollar exportation game that has flooded the world with over $400 billion dollars, mostly held overseas in Central Bank accounts to purchase oil and other world-trade settlement items.

With the advent of the Euro, the destructive actions of the IMF, and the large dollar overflow, we are seeing desperate moves by desperate players -- all in the background to an otherwise goldilocks economy. So, how soon becomes more an issue of how can we tell we are getting close?

Watch the players move their pieces.

-- First, the US was taken off the gold standard in 1971.

-- Oil went up in 1973.

-- Next, gold was demonitized in 1976-1978 and made cheaper in dollar terms, while OPEC bought up gold-repayment contracts from the mining companies as they were loaned OPEC petrol-dollar profits through bullion banks . The BBs, in turn, leased private and some Central Bank gold into the gold markets that made gold cheaper and cheaper as it was sold into the world paper gold markets. They did these moves even to the point of hedge funds jumping on board to short the gold market. Now many of these gold contract repayments are near default as gold is no longer available in quantity to pay back the oil countries their gold that they had been receiving from the mines. Some of these folks are obviously concerned (BIS/Euro/Asia/OPEC).

-- In 1982, the great bull market of the Century started. Much of the money in the bull market came from excess liquidity resulting from credit expansion in our banks. Since gold was no longer needed to back the dollar, banks and the Fed were free to create money without a resulting rise in the price of gold (this is the lack of discipline brought on by not having gold backing. As gold should have been allowed to rise as the dollars were created).

-- 1988-89 was when Japan's bubble economy burst. They have been struggling ever since.

-- In 1994 through 1999, hedge funds shorted the gold market in earnest further increasing the gold shortages above. The BRE-X scandal broke gold's back and almost destroyed the gold mining as an investment further depressing the price of gold.

-- In 1999, the Bank of England announced a public gold auction of half of their gold reserves. The Euro was announced. The IMF became embroiled in a scandal. The European Union announced they won't fund any more gold leasing except for 2000 tons (sale) over four years. Gold hit a 20-year low. Gold rose from $252 to $338 in one week. Rumors are floating currently that the Bank of England doesn't want to auction any more of its gold. Ashanti and Cambior (two gold mining companies) actually lose money when gold rises $80, because they (like many others) were threatened with a lower credit rating by bullion banks if they didn't further hedge their production. Many gold mining companies and hedge funds scramble to cover their short gold positions. Gold lease rates rise to nearly 10% during the $80 price move. Inflation indices of the US government start to show signs of inflation. Greenspan gives the doom and gloom (for him) Jackson Hole speech. The long-term bond yield continues to remain above 6%.

Conclusion: BRE-X almost seems as though, in retrospect, it was orchestrated to lower the price of gold, something not really mentioned then but makes sense now. The pace of chess moves has increased in frequency and intensity in 1999. Where it took years to see these changes before they are now coming weekly and daily. This indicates that the end-game is near. The stock market bubble seems to inversely track the efforts to contain gold in a box. In other words, as the stock market finishes up the greatest bull market; gold and the Euro promise to bring in a new gold and Euro market at the expense of the DOW, NASDAQ, and dollar.

Predictions (general and specific):

-- Long-term bond yield above 7% or higher.

-- DOW and NASDAQ to converge, where the NASDAQ will rise to meet the DOW as the DOW lowers to meet NASDAQ. As that becomes evident, folks will begin to question values (as if some aren't already, for example Greenspan).

-- An increase in volatility and a divergence in COMEX and London Bullion Market Association gold prices from actual physical gold prices, where physical will continue to gain a premium over paper such that the paper markets either fold or certain large players fold.

-- Bubble market to be held together until after election next year.

-- Gold to rise above $1,000 after election.

-- Banking and dollar crisis after election next year.

-- Rumblings of gold backed US currency.

-- More nationalization of gold mines overseas as more hedge positions put additional mining companies at risk.

-- Several large gold mining companies to fold or be taken over by their banks.

-- Gold to continue to play in the news on an ever increasing basis.

-- IMF to value their gold at market.

-- OPEC to eventually accept Euros in payment for oil.

-- More financial scandals similar to PEI and Armstrong (scapegoats?).

-- Talk of new regional currencies.

-- China to dishoard dollars and buy more gold.

-- Paper millionaires from bubble market to lose fortunes by buying on dips - as markets eventually correct.

-- Political rumblings of gold confiscations, gold mine taxes, and new dollar currency based on gold.

-- Euro to rise significantly against the dollar after the election.

-- European Union to create a standing army and navy.

-- India to become a more dominant world player.

-- Solar and wind power to become more popular.

-- Big push to get off oil dependency as gasoline goes above $2.50 per gallon after the election.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.