It all began on February 5, when Secretary of State Colin Powell gave his now infamous speech to the UN. As is well known to Privateer subscribers, and to most other people who follow the important news closely, Mr Powell's speech was revealed as a fabric of gross exaggerations and outright "porkies" within hours of his delivery. On that same day, February 5, spot future Gold soared to $US 390 in Asia and hit its intraday 2003 spot future high of $US 384 in New York.
The next day, February 6, the NYMEX in New York announced that they were boosting their margin requirements on Gold contracts by 50%. Spot future Gold closed down $US 6 (at $US 370) on the day and lost another $US 17.50 over the subsequent four trading days. Gold open interest declined by 15% over those same five days. At the beginning of the period, Mr Powell's speech made it seem that war was imminent. At the end of the period, Chief UN weapons inspector Blix's testimony made it seem that war might not be inevitable after all. No matter, Gold fell anyway. Between February 4, the day before Mr Powell's speech, and February 18, Gold fell $US $US 34.80 on a spot future closing basis from $US 379 to $US 344.20.
The next day, February 19, the US Treasury's reported "debt subject to limit" reached $US 6,399,975,000,000 - that's $US 25 million below the Treasury's debt ceiling of $US 6.4 TRILLION. The Treasury's debt subject to limit has been frozen at that level ever since - as this is being written, the Treasury's latest report is dated Thursday, March 13.
Cast your mind back to late June 2002. The Treasury's "debt subject to limit" was frozen $US 25 million below what was then the $US 5.95 TRILLION debt ceiling. On Thursday, June 27, 2002, Moody's issued a second warning that if the debt ceiling was not raised "soon" - THEY WOULD DOWNGRADE THEIR RATINGS ON US TREASURY DEBT PAPER. Can you imagine the impact this would have had. After all, if US Treasury debt is not "AAA" - WHAT IS?
The warning was never issued. Early in the morning of Friday, June 28, 2002, the bill containing a $US 450 Billion increase in the debt limit was abruptly brought to the floor of Congress by the Republicans. IT PASSED BY ONE VOTE - 215 to 214 President Bush signed the debt limit hike into law that weekend. The Privateer covered these issues in detail in Issue #453 published on June 30, 2002.
The situation surrounding the debt ceiling now is exactly the same as the situation was in June 2002. But in 2002, it was front page news. Today, there is no mention of it anywhere. A search on Yahoo finds dozens of stories about the "debt ceiling" dated May and June 2002. Since June 2002? Almost nothing at all. Try it, search Yahoo using either "debt ceiling" or "debt limit".
The "fog of war" obscures many things, by intent. One of the most important issues which has been obscured is exactly WHY the US Dollar has been falling, and as a corollary, why Gold has been rising. If you examine a weekly chart of the $US index, you will see that it began to fall in earnest in April/May 2002, just as the debate about the raising of the Treasury debt ceiling was coming to the boil. Between mid April and late June 2002, the $US index fell from 118 to 106.5 points.
The Dollar actually began falling in February 2002 when it began to become clear to more and more people worldwide that the US government was definitely embarked on yet another era of ever increasing budget deficits. This was a jarring change, since for the previous six-eight years, both the White House and the Congress had been crowing about budget surpluses and the potential to pay off ALL Treasury debt over the first decade of the twenty-first century.
As the budget deficit and debt ceiling message sunk in in early 2002, two things happened. First, the $US Gold price, which had been languishing below the $US 300 level for almost all of the previous five years, burst above $US 300, this time to stay. Shortly after that happened the slide of the $US acclerated. For years, US Treasury Secretaries had trumpeted a "strong Dollar" policy and backed it up by pointing to US government "supluses", the discontinuation of 30-year Treasury debt paper as being no longer necessary, and plans to PAY OFF US Treasury debt - in future. By early 2002 and the relapse back into official budget deficits, this message had died a merciful and long-overdue death.
Now, here stands the US government, with its Treasury having had to "freeze" the level of their debt once again. But their is no talk of deficits, debt ceilings, or anything else. EVERYTHING is swamped by saturation media coverage of the lead up to a war in Iraq. Wars, and the threat of wars, and the leadup to wars, almost always serve as a smokescreen used to obscure and deflect attention from domestic woes, usually economic. The present situation is a perfect example of this. So is the present Gold correction.
In our last Gold commentary , we talked about the "reverse Gold barometer". This week, you have seen it in action with a vengeance! We refer, of course, to Gold's $US 10.60 dive to a three month low of $US 336.00 on March 13. This one, like all the other big Gold falls in the present correction, was pushed by a rumour concerning Iraq. This time, the rumour was about a possible "surrender" by Iraqi military commanders. Last time, the rumour was about the possible wounding and/or capture of two sons of Osama bin Laden. Both rumours were quickly and strenuously denied by the US government. No matter, they had served their purpose.
The manipulation is now overwhelming. It effects not only Gold, but the Dollar, and US stock markets too. Meanwhile, as the Treasury trembles on the brink of what was seen as a debt default in June 2002, and as US economic statistics make anything which was going on back then seem benign in comparison, there is no mention of any of it anywhere. There is NOTHING on the airwaves or on the printed page except Iraq.
To quote an essay we wrote a few years ago, The Case For Gold:
"Money is NOT wealth, it is a medium by which wealth can be exchanged between consenting adults. If an adult does not consent, then money cannot produce an exchange. Nothing can produce an exchange if the potential parties to it do not consent. But an expropriation can be produced, by a government with sufficient power. To obtain that power, money must be controlled by government. Today, it is."
"And because the money you use is totally controlled by your government, dear reader, so are you. That is the case for Gold as money."
That remains a sad fact. To maintain their power, government MUST control what circulates as money. Government CANNOT control Gold. Therefore, the MOST DANGEROUS threat to government power is, and always has been, Gold in private possession used in exchanges.