As has been well documented both here, in The Privateer, and on most of the Gold websites, Spain has sold 80 (or more) Tonnes (2.572 million oz) of Gold over the past two months. Spain has also being selling off its foreign exchange reserves, busily flogging its US Treasuries, British Gilts and various other forms of government debt paper. Two weeks ago, the extent of these sales was reported to have reduced Spain to about 12 days "worth" of imports at the current rate at which Spain is importing. Spain runs the second highest current account deficit in the world, on a nominal basis at just over $US 98 Billion.
On a per capita basis, Spain, with a population of 40 million, has a deficit of $2,450 per person. The US, with a population of 300 million, has a deficit of $2,870 per person (all figures estimated up to the end of 2006). So, as you can see, Spain's predicament is not as great as is the one in the US, yet it is Spain, not the US, which is desperately selling their reserves in order to be able to keep importing.
The US, in contrast, is in no such fix. Its foreign reserves are derisory anyway and its official Gold holdings are in reality unknown. For nearly four decades, the US Treasury has been reporting them at an unchanged 262,000,000 oz or 8150 Tonnes. The Treasury still "values" its Gold reserves at $US 42.22 per ounce, that being the last official price at which the US Dollar was "redeemable" in Gold. Since that price was set AFTER the closing of the Gold window in August 1971 (when the US Dollar was still "redeemable" at $US 35.00 per ounce of Gold), needless to say no Gold has ever changed hands officially at that price.
But nobody really knows how much Gold the US holds in its official coffers. Nor does anybody know how much of the Gold that IS held is owned by the US government or by other governments. Nobody in the US government is telling, their lips have been sealed for nearly 40 years, since before the start of the fiat currency era. Nobody has paid much attention to how much Gold or foreign exchange the US has. The holding of any kind of "backing" behind the US Dollar has been held to be irrelevant for decades. Why? Because the US Dollar is the world's "reserve" currency. It IS the reserve.
This explains why the headlines scream about Spain having 12 days or less "worth" of imports left in their foreign reserves, but nobody raises so much as a glance about the situation in the US, which is worse whether measured on a nominal or a per capita basis. The laws of economics and of money do not apply to the USA as far as the the global investing community is concerned. The US isn't subject to economic or monetary law - it MAKES economic and monetary law.
In recent weeks, Spain (and Portugal and Greece) have sold off large parts of their remaining Gold reserves. This has served to "cap" the $US Gold price at or below the $US 690 level. But the plunge in Gold prices over the past three weeks from $US 690 to the mid $US 650s has not been a result of these Gold sales, it has been the result of a vast ramping up of volumes in the paper Gold markets, mostly the US (Comex and CBOT) paper Gold markets. Take a look at the data for trading on the Comex over the past week presented above. Take a look at the volume on Thursday, May 24, the day when the spot future Gold price fell $US 9.30.
This is how the Gold price is being "controlled". It is not being controlled by the sale of the metal, it is being controlled by the manipulation of paper CLAIMS to the metal, in this case in the form of forward and futures contracts. The US Treasury and the IMF learned way back in the late 1970s that trying to control the Gold price by actually selling Gold is a mug's game. So did British Chancellor Gordon Brown when he tried the same stunt with the Bank of England Gold "auctions" a few years ago.
As stated in the current issue of The Privateer (read a quote here), the US is in the process of distorting its reporting on the state of its economy to an extent unprecedented in its history. This is true for the simple reason that the REAL state of the US economy is worse, much worse, than it has been in US history. Not having the distraction of war, although right now the biggest concentration of US naval power since the start of the Iraq war in 2003 is concentrated off the coast of Iran, the US government has to resort to these distortions. Wanting to bend as far as they possibly can to prevent the US from starting a war in Iran, the rest of the world is going along with these US government fabrications. FOR NOW!
But no level of distortion (or distraction for that matter) and no level of desperation on the part of the world's financial establishment can go on breaking economic and monetary law and getting away with it. In this context, Mr Jim Willie has produced an excellent and comprehensive analysis of the REAL state of the US Dollar in a piece on 321Gold titled: Don't Cry for the US Dollar. We highly recommend it to your attention.
At present, there is a globally shared interest in dissuading the US by any means possible from taking the incredibly dangrous and potentially disastrous step of invading Iran. The US has been trembling on the verge, without actually tipping over it, for two months now. It cannot stay in such a state of limbo much longer. Either it attacks, or it refrains and in the process, acknowleges that its entire situation in the Middle East is both untenable and unsustainable.
A little Spanish Gold selling, a lot of Gold price manipulation on the paper Gold markets, and a "hold" being put globally on any overt US Dollar selling is the present situation. It won't last. No manipulation of economic data or frantic denial of economic fact has EVER prevented the operation of economic and monetary laws. At best they have delayed such operations. That is all that the present situation can hope to accomplish. And the longer the delay, the worse the reaction when the delay can no longer be maintained.
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