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Some informed surmise on gold swaps and the International Monetary Fund

Section: Daily Dispatches

By Michael Kosares
July 29, 2001

quot;NEW YORK, July 27 (Reuters) -- COMEX gold finished New
York higher after a day in negative territory, driven
up by late news that gold miners will strike in South
Africa after all, and a late mustering of strength by
the euro currency, gold traders said Friday.....

quot;Most gold speculators figured all bets were off for a
strike and liquidated long positions placed in
anticipation of one. When news crossed the wires, gold
headed to its highs.quot;

* * *

The word I'm getting is that, strike or no strike, the
market wants to work its way higher. I think it all
gets down to the euro. That will be the primary
motivator for higher prices, though I won't dispute
that a strike in South Africa would be a good kick-

The European Union folks don't want to introduce the
euro in an ugly atmostphere. They do not want to sell
conversion from national notes in an atmospere where
the euro is tanking. That could lead to social and
economic discord, perhaps chaos and bank runs.

That's probably what Europe told Bush amp; Genoa,
and my hunch is that the United States will step aside
and let the dollar go, if it's possible. Pressure from
all directions is pointing to that quot;paradigm.quot; Central
banks are capable at least in the short term of
creating an atmosphere conducive to pushing a currency
in one direction or the other as long as their
counterparts in other countries are of similar mind --
the opposite of beggar thy neighbor, if you will.

Forget the past. It is now in Europe's best interest to
drive the euro higher and in America's best interest to
push the dollar lower. The New York Times warned today
that if corporate earnings don't begin to shape up,
staff is going to be cut. More and more, corporate
America is blaming the strong dollar. That's the
motivation on this side of the pond. I've already
outlined the motivation on the right side of the water.

I expect U.S. interest rates to go lower (possibly much
lower) and an effort made to provide a real rate of
return on the euro -- at least temporarily. Europe
would be well-served to push its rates higher. As it
stands, we have a ways to go, but if its not achieved,
we've got a problem on both sides of the Atlantic --
and thenit's 1930, here we come.

But it's all cosmetic until the day Europe pays for its
oil out of its own checkbook directly, not after a
dollar conversion at the bank. That will prove to be
the route to true freedom.

Gold is the place to be no matter what happens --
especially for Europeans for one set of reasons
(followed closely by Americans for another set of
reasons). Why the typical European investor hasn't gone
head over heels for the yellow remains one of the great
mysteries to me -- especially given the euro's sorry
performance. Afer all, Europeans are going to have to
give up their national currencies one day soon. It's a
done deal. Policy will be made in Brussels, not Paris
or Berlin, or Rome.

Sooner or later, the European saver will have to face
that reality and make a decision what to do with his
assets: accede or diversify. I would say the Swissie
and gold are in for better days, and that Europe may
lead the move to gold the way it did in the 1960s and
1970s -- the last time Europe made a quantum leap in
the direction of economic freedom.

Speaking of economic freedom, I've been working on
quot;News amp; Viewsquot; for nearly a week now (off and on). The
most interesting aspect has been a careful and
rewarding read of Greenspan's essay, quot;Gold and Economic
Freedom.quot; Did you know he talked about the dangers of
currency inflation migrating to the stock market in the
1920s, and that he believed it caused the Great

I read what he wrote in 1967 and said to myself quot;My
God, the man was foreshadowing his own Fed
chairmanship.quot; Spooky. Maybe Tolstoy was right -- We
are all carried by an inexorable Fate, even Alan
Greenspan. It is ultimate irony that he became the
perpetrator of the maladies and weaknesses he so
eloquently revealed, predicted, and warned against in

I would recommend that all take the time not only to
read but study the Greenspan essay. It's at the Gilded
Opinion page at Incredible how it
stands up even today. No wonder Greenspan said he
wouldn't take back a word of it.