Why did gold go into reverse on Thursday?

Section:

By Michael Kosares, Proprietor
Centennial Precious Metals, Denver
http://www.USAGold.com

Wednesday, September 24, 2003

Dubai did not produce an accord. It did not even produce
an accommodation. It ended as little more than an
affirmation of the status quo. So much so that the United
Kingdom and Japan basically said that nothing happened;
China dug in its heels, and the United States claimed that
G7 had achieved some sort of understanding on flexible
exchange rates.

The foreign exchange markets initially signalled the United
States would get its way, but the jury's still out on this
one. The dollar cratered yesterday and gold made another
solid move to the upside.

Yesterday, Treasury Secretary John Snow -- after everything
that happened before, after and during Dubai ... after the
United States pushed hard for China and Japan to realease
their currencies -- reiterated that the Bush administration
sees "no change in the strong-dollar policy." He said this
on the same day he proclaimed that Dubai had produced
"a milestone change" in worldwide currency policies (which
suggested flexible interest designed to drive the dollar lower).

The Wall Street Journal yesterday printed this headline on
its front page: "U.S. Push for Weaker Dollar Rattles Markets
Around Globe." In that same article, Japan's finance minister
stated that there would be "no change in fundamental policy."

That policy is not very complicated. It calls for Japan to
intervene in the currency markets to drive down the yen for
the upteenth time over the past year.

With this amount of confusion among the players -- all
attending the same conference and signing off on the
same "statement" -- is it any wonder that the markets are
asking questions about what really happened in Dubai?

Let me be among the first to state what appears from the
outside to have happened at Dubai:

Nothing.

The March of Folly will continue at an economy near you.

In Japan, you will continue to export to the United States
and add to your $500 billion in dollar reserves.

In China, you will continue to export without restriction to
the United States, use your dollar reserves to cleverly buy
influence the world over (note the Chinese financing of the
EU GPI system, opposed by the United States), and all
the while continue to position yourself as the primary
power in Asia.

In Europe you will continue to accomodate U.S. currency
policy while pushing your own agenda toward a free and
prosperous Europe -- free of the United States and
prosperous enough to keep the euro in circulation.

In the United States, you will continue to import without
restriction and build debts and deficits in a one-way march
to a potential economic disaster.

We will do these things because there is not other course
to be taken, nothing else that can be done. The
cross-currents run in all sorts of indefinable directions, but
one thing is clear: When we go down this time, we are ALL
going down, and the inability of the top economies to come
to a real understanding in the face of these multiple threats
will prove to be our collective undoing.

In the end, we will get a new monetary agreement with the
majesty of Bretton Woods, but it won't come until this
system fails -- utterly and completely. For their own reasons
the players will not let it happen any other way.

That's why I own gold. That's why you should own gold. It
doesn't matter in which currency you denominate your
savings and investments.

The March of Folly is here for the interim.

Gold is a winner in either scenario -- the status quo or
bumping China and Japan off their high horse.

In the former situation, currency printing and debt in all
the participating nations will create strong gold demand in
all those economies as more people grasp what's really
happening.

If we go the other way -- if the dollar begins a rapid
decline -- gold will benefit from the old dollar-gold
competition (as it did yesterday).

Timing and intervention will be an issue for short-term
paper players. Physical owners will come to fully
understand this statement by Richard Duncan in "The
Dollar Crisis: Causes, Consequences, and Cures":

"The economic house of cards built with paper dollars
has begun to wobble. Its fall will once again teach the
world why gold -- not paper -- has been the preferred
store of value for thousands of years."

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Centennial Precious Metals
3033 East 1st Ave.
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www.USAGold.com
Michael Kosares, Proprietor
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