James Turk: New bullion fund admits that it may not actually have the gold

Section:

By Noah Barkin and Nick Antonovics
Reuters
Sunday, November 21, 2004

http://www.reuters.com/financeNewsArticle.jhtml?
type=businessNews&storyID=6876144

BERLIN -- A communique from the G20 group of rich
and developing countries made no explicit reference
to currency swings on Sunday, despite mounting
concern in Europe and Japan over a slide in the U.S.
dollar to multi-year lows.

German Finance Minister Hans Eichel said he would
be lying if he said foreign exchange rates had not
been an issue at the meeting, but on currencies, the
communique simply called for greater flexibility in
emerging Asia.

It also urged U.S. budget consolidation and structural
reforms in Europe and Japan as steps necessary to
foster stability in markets.

The G20 statement said that the global economic
environment would remain positive in 2005 but cited
a number of risks to the outlook.

"We expect that the macroeconomic environment will
remain favorable in the next year. ... However, downside
risks have increased due to oil price volatility, persisting
external imbalances and geopolitical concerns," a copy
of the final communique read.

But the G20 stopped short of urging an end to the decline
in the dollar, which last week fell to a record low of
$1.3074 against the euro and is sitting at a nine-year low
against a basket of foreign currencies.

G20 countries had been at pains ahead of the meeting to
say it was not a forum for discussing exchange rates
and Eichel reiterated that line at a closing news
conference on the communique and refused to elaborate
when questioned repeatedly by reporters. A weak dollar
can hurt growth in exporting countries like Germany and
Japan by making goods they produce more expensive
abroad.

In an escalating war of words, European governments
have blamed the falling dollar on the huge U.S. budget
and current account deficits.

The United States, which remained silent for much of
the weekend meeting, struck back in a statement
released at the same time as the G20 communique,
saying all countries were responsible for boosting
growth and correcting trade imbalances.

"Addressing global imbalances in particular is a shared
challenge," U.S. Treasury Secretary John Snow said.

He said the United States was committed to cutting its
record budget deficit in half over 4 years through tight
spending restraint and steady growth.

"Growth among our trading partners -- including those
here in Europe also needs to increase and that requires
addressing structural barriers that stand in the way of
better performance."

Earlier this month, both Germany and France reported
unexpectedly feeble third quarter gross domestic product
growth of 0.1 percent.

One G20 participant said there was a consensus in
Europe that the weak third quarter had been an exception
and that growth would pick up going forward.

If that did not happen, however, he suggested there could
be scope for European interest rates to be lowered.

"There is a view that this option could be considered if the
weak third quarter growth was confirmed," the official said.
Asked if this was the view of European governments or
European Central Bank (ECB) officials in Frankfurt, he
replied: "I would hope both."

The United States has urged the ECB to cut interest rates
to boost growth, but it has resisted and the market
currently believes European rates will remain on hold for
the foreseeable future.

China, whose pegged yuan exchange rate is seen as
one of the reasons for the large U.S. current account
deficit, is also under some pressure to act to help
stabilize markets.

But the communique did not single the country out,
referring only to a broader need for flexibility in Asian
currencies.

The other preoccupation of the G20 has been the cost
of oil.

German Finance Minister Hans Eichel said at a closing
news conference that oil posed the most significant risk
to the global economic outlook.

In the communique, the G20 encouraged the promotion
of energy efficiency and sustainability, urged investment
in oil capacity and an increase in the dialogue between
consumers and producers.

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