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Growth in demand for gold outstrips production

Section: Daily Dispatches

12:03p ET Thursday, November 25, 2004

Dear Friend of GATA and Gold:

Be grateful for the Bloomberg story appended here
about a new essay by Paul McCulley, managing
director of Pacific Investment Management Co., the
big bond house, but the story doesn't tell the half
of it.

For McCulley, who sits at the pinnacle of the world
financial establishment, has just acknowledged most
of what GATA Chairman "Wild Bill" Murphy has been
screaming for years: that what the West likes to call
markets are actually vicious rig jobs that
expropriate the developing world.

Of course McCulley says it in a nicer way and has a
better tailor. But see for yourself; the full text
of his essay is here:

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

* * *

Pimco's McCulley Says
'Little to Fear' From Dollar's Slide

By Monee Fields-White
Bloomberg News Service
Thursday, November 25, 2004

The United States, as a net international borrower, has
"little to fear" from the dollar's slide, said Paul
McCulley, a managing director at Pacific Investment
Management Co.

A falling dollar may spark faster inflation, which
typically benefits borrowers, McCulley said in a monthly
report on Pimco's Web site. The firm manages the world's
largest bond fund. The U.S. currency is down almost 17
percent since the end of 2001, based on the Federal
Reserve's Trade-Weighted Major Currency Dollar Index.

"If you are a borrower, higher inflation is actually your
friend," said McCulley, who helps manage about $100
billion of the firm's $400 billion of assets. Treasury
Secretary John Snow should "quit embarrassing himself
and the president by uttering the words 'strong dollar.'"

Pimco is a unit of Germany's Allianz AG.

The dollar fell to a record $1.3189 per euro yesterday
in New York trading, according to EBS, an electronic
currency-dealing system. The New York Board of Trade
index averages exchange rates between the dollar and
six other currencies, with the euro accounting for 58
percent. The index's 1995 low was 80.05, the weakest
for the dollar since 1992.

Snow said on Nov. 18 after meeting with finance
ministers from Hungary, Slovakia, the Czech Republic,
and Poland, that "everybody knows what our position
is: the strong dollar, currency values set in open

A day later, Fed Chairman Alan Greenspan helped
spark a decline in the dollar after he said that foreign
investors may tire of financing the U.S. current
account deficit and diversify into other currencies or
demand higher U.S. interest rates.

"A diminished appetite for adding to dollar balances
must occur at some point," he said at the European
Banking Congress in Frankfurt.

The current account is a measure of trade, services,
tourism, and investments. The shortfall was $166.2
billion in the second quarter, suggesting the U.S.
needs to attract $1.8 billion per day in foreign
investment to keep the dollar stable.

Foreigners, who finance the gap by investing in U.S.
assets, held half of the $3.8 trillion in marketable
Treasury securities outstanding in September, up
from 34 percent in mid-2001, according to Treasury

The Fed has "won the war on inflation," McCulley
said in May. The inflation rate for personal
consumption expenditures, the largest component
of gross domestic product, was 0.7 percent excluding
food and energy prices in the third quarter, the lowest
since the last quarter of 1962, the government said on
Oct. 29.

"It is patently clear that America doesn't have -- can't
have -- a currency policy, strong or weak, if it wants to
retain sovereignty with respect to its interest
rate-policy," he said.

European leaders have blamed the U.S. deficit -- $412
billion in fiscal 2004 ended Sept. 30 -- for the euro's
gains against the dollar, and ministers from 20 industrial
and emerging economies cited the shortfall as a risk to
global growth. The dollar shed 36 percent versus the
euro since President George W. Bush took office in
January 2001.

U.S. officials rejected Germany's efforts to insert a
sentence criticizing "volatile" currency moves into the
joint statement issued by the Group of 20 finance
ministers and central bankers after their meeting last
weekend, said two German officials, who declined to
be identified.

"The right time for America to debauch its currency,
as all right-thinking countries who issue debt in their
own currency should want to do, is when a falling
dollar inflicts more growth pain on countries with
appreciating currencies than it does inflationary pain
on the United States," McCulley said.


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Dr. Fred I. Goldstein, Senior Broker



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