Fool's Gold

"Dear Pundita:
I am so upset I am having trouble writing. I think it all started when I switched to the Atkins diet, the insomnia, I mean. Anyway, I couldn't sleep so I started listening to an all-night radio show called Coast to Coast AM, which has been really hard because I have a day job. I don't know if you've ever heard it, the show I mean. It's about ghosts and alien sightings, aliens from outer space, but they have a lot of other stuff also, including terrorism. About 10 days ago there was a terrorism expert on, Steven Quayle. Have you ever heard of him? Anyway, he told the Coast to Coast host that the real jihad against America is not military but to destroy the dollar. He said the terrorists plan to make Islamic money, the gold dinar, into the world's reserve currency and they are conspiring with governments like China and Russia to destroy the dollar.

"It all sounded crazy, but then I went to Steve Quayle's website and found an article by Jim Sinclair, a gold expert. Have you ever heard of him? Anyway, he said the same things as Quayle but only worse. Then I went to Jim Sinclair's website and found a recent article where he said that while he was in India he met with influential Muslim leaders who told him the real jihad against America was always to destroy the dollar! They told him just what the terrorism expert Quayle said on Coast to Coast! But that's not why I'm so upset. After rereading what I just wrote, I think I better start a new paragraph.

"By the time I finished reading the article, this was around 2 in the morning and I couldn't sleep. So I turned on Coast to Coast (it's on seven days a week) and JUST as I tuned in, I heard an ad saying gold could double in price and now was the time to invest in gold! Pundita, THINK OF THE ODDS! I JUST tuned in and right away heard the price of gold could double! After JUST reading Jim Sinclair's warnings that gold is going much higher! So I am thinking it might all be true. What do you think? PLEASE post a reply on your blog!! By the way, I hope the raccoon liked the crab bisque I sent.

[Signed] Sleepless in St. Louis"

Dear Sleepless:

People are always trying to pry from Pundita how her foreign policy team is so wise about so many things. For some reason, and I don't think this has to do with the crab bisque, the raccoon has taken a liking to you, or at least is gravely concerned about the state of your health. Thus, after I read your letter to the team, the raccoon prodded Pundita to reveal the policy team's secret for staying calm in the face of news that revolves around leaks to the news media and "exclusive" reports that quote unnamed officials or unnamed influential leaders, unnamed diplomats, unnamed Capitol Hill aides, or the pesky "unnamed source at the state department."

The team thinks according to Wildlife Logic, which, to come down to it, is rather Darwinian. Put another way, the team thinks in terms of a pecking order. So the team zips through mountains of foreign policy questions simply by asking Pundita, "Is [X] a chieftain?"

Now let us apply this secret to your particular worries by asking the following questions. Is the host of Coast to Coast AM radio show a member of the ruling class? No. Is Steven Quayle a member of the ruling class? No. Is Jim Sinclair a member of the ruling class? No. That means all these people are on the outside looking in.

Now, what about those "influential Muslim leaders" who told Sinclair that the real jihad against America is financial? Are they members of the ruling class? Here we must try to reason in the manner of wildlife.

No, they are not members of the ruling class because members of the ruling class don't communicate with gold traders. They leave such chores to underlings, who turn the chore over to other underlings who are even lower in the pecking order.

Now ask yourself whether George W. Bush is a member of the ruling class. The answer is yes of course. Now, what does it mean to have a member of the ruling class as President of the United States? It means Bush doesn't need to depend on advisors, books, newspapers, or inside sources to understand how The Casino works and know what the Lords of the Craps Table are up to. All that knowledge is in his molecules. So, when it comes financial warfare, it's very hard for the enemy to get the jump on the 43rd US president

(The Casino is Pundita's name for the international monetary system; the Lords are Pundita's way of referring to the bosses of The Casino.)

Now, to address your specific questions. You want to know whether gold has entered a bull market. You want to know whether there is any truth to the talk about making the Islamic gold dinar (IGD) the world's reserve currency. I'll deal with the IGD question first.

Of course the enemy schemes to destroy the US economy by any way he can. This did not receive headlines in the US but around November 2000, Saddam Hussein openly declared war against the US dollar (USD). He refused to accept payment for oil in dollars and demanded payment in euros.

However, if you have a general idea of the floor plan of The Casino , you know that Saddam's petrocurrency war was quixotic at best. The same can be said for any scheme to replace the USD with the IGD as the world's reserve currency.

The idea for the IGD came from the Iranian government, which is another way of saying it came from mobsters. However, those particular mobsters are very familiar with The Casino and know how the Lords of the Craps Table operate. That means they know the IGD would have a very limited use in the international monetary system. So why try to sell the fantasy that the IGD (or any gold instrument) could become the world's reserve currency?

The answer is a matter for speculation. Certainly, the financial brains employed by the mobsters don't collect paychecks for thinking up quixotic currency schemes. So what are they really up to?

Well, Tehran is not a model for transparency in government. What is known for certain about Tehran is that they are always scrounging for vast amounts of cash. This is to pay off the armies of terrorist mercenaries they employ and to make clandestine/black market purchases of services and materials relating to weapons, particularly WMD.

So the first question is how the IGD scheme might fit with cash-on-the-barrelhead payments. I've not researched the question. But taking a shot in the dark, maybe they seek to cash in on the runs on gold in China and India. The runs started just around the time that the Islamic Gold Dinar scheme came to the table, which was around 1991. If I recall, the first IGD was issued in 1992.

Another guess would be that the Tehran mob knows that many of the people they pay off with cash don't have the Financial Times on their reading list; indeed, many of them can't read. They don't know squat about The Casino, and they wouldn't care to know. I'm talking about sheep and goat herders who perform double duty as smugglers, couriers, and contraband producers. And you have to stop and think: companies that manufacture suicide belts are not listed on the stock exchange.

None of those people like paper for pay. They prefer payment in gold. They can melt down the Islamic Gold Dinars and make them into something useful, such as dowry jewelry. And they can use the coins for bartering and bribes.

Next, your question as to whether gold is headed into a bull market.

The Casino is long overdue for renovation; how gold might fit into a revised international monetary system has always been a subject for debate.

And until China and India clean up their respective banking systems, which are models of inefficiency, obstructionism, and corruption, the people in those countries won't trust their banks. So, the people park their savings in gold, gems, and other tangibles that can be converted easily to cash when needed.

The past decade saw a runaway demand for gold in those two countries. This is because the economic liberalization programs set in place by the Indian and Chinese governments meant that large numbers of their citizens moved out of the most extreme poverty. Thus, they moved into a position where they had money for more than the basic necessities and money to save.

So until the Chinese and Indian governments cry Uncle! and fix their banking systems, demand for gold in those countries will only increase at a galloping rate.

Meanwhile, the price of oil had been kept artificially low, and for decades. The upside is that the relatively cheap oil fueled economic growth in "developing" countries, which contributed to stability in the global trade markets. That in turn kept the price of gold low. Gold is the refuge of the OPEC crowd when they get especially nervous about the stability of global trade. If they're not especially nervous, they scale back their position in gold.

The downside is that the low price of gold meant that exploring for veins of gold and more efficient ways to mine gold didn't have much impetus. Once demand for gold leapfrogged in China and India, that meant more and more people were chasing a very limited pot of gold.

In short, the investment philosophy of the OPEC crowd no longer has a virtual monopoly on the price of gold. The Asian gold hoarding factor is now significant.

The alert reader might ask whether Indians and Chinese trust plastic any more than they do their neighborhood bank. The answer is, of course not; credit cards are associated with banks.

Asian distrust of plastic is a situation that Citibank and every other plastic issuer on the planet are trying to correct. For all I know, this extends to every credit card company in the galaxy and beyond. Come to think of it, there could be a connection between the recent increase in UFO sightings in China and the competition to persuade the citizens of China to sink up to their eyeballs in credit-card debt.

By now, I hope dear reader can see that the fundamental factors fueling the rise in gold price have nothing to do with the enemy's desire to financially ruin the US economy. Gold has long been overdue for a rise in price.

The question is how much the current price of gold might fall when Beijing and Delhi finally have no choice but to move their banking system into the 21st century. The other side of the coin, so to speak, is how far the price of gold might rise before those governments clean up their banking system.

As to whether gold can be pushed into an "artificial" fall during the near term -- never say never. If it happens, it would not be the first time that the Lords of the Craps Table went to war on gold speculators. Indeed, one way to define the difference between a gold trader and a gold speculator is to say that the traders remember the last time the Lords made mincemeat out of them. That was before many Americans who listen to Coast to Coast AM were born.