The Aborted Italian Gold Sales Plan

As always, I am on the lookout for information that might be of great interest to my readers. Given that I've been showing a keen interest in gold recently, I thought that I should share some of the following information with my readers. This is important in that Italy is a G8 nation, and might be showing a general trend that might not be seen overtly in the other great eight industrialized nations.

The Aborted Italian Gold Sales Plan

Sales of gold by European Central Banks are primarily for the adjustment of national reserves in terms of structure or size. They are not intended under the rules of the European Union, intended to pay the bills of the governments of Europe, so when the subject came up, after a consistent record of the Bank of Italy’s refusal to even contemplate the sale of the country’s gold reserves, everyone was surprised. The reality was suddenly the government of Italy wanted to put their hand into the country’s coffers in an exercise that would never have solved the country’s debt problems.

The Italian parliament approved a reserve plan allowing the government to look into using the Bank of Italy's substantial gold reserves to cut the country's huge debt. Italy has some 62% of its foreign exchange reserves value in gold at about 2,452 tonnes. The resolution inserted into Italy’s next budget committed the government to:

"Undertake, also in its relations with the European Union, a survey of all instruments useful to producing a significant reduction of the national debt, through agreed ways of using the reserves of the central banks, in gold and currency, in excess of that required by the agreement with the E.C.B. for the defense of the Euro." The wording suggested that Italy’s government would try to re-think at EU level the existing limitations on the use of the gold and currency reserves of Europe’s central banks. This was bound to ruffle the feathers of the European Central Bank!

The government plan aimed to cut Italy's debt to 103.2% of gross domestic product (GDP) in 2008 from 105.1% of G.D.P. this year, about €27 billion ($36.9 billion), using the central bank's gold and foreign exchange reserves. If Italy were to sell 1740 tonnes of its gold it would have achieved this target. However it would have taken four years to do this under the ‘ceiling’ limitation of 500 tonnes if the C.B.G.A. is extended again under the same terms provided Italy was the only seller, during which time we have no doubt the Italian’s debt would have risen past the present level]. This achievement undoubtedly would have been swamped by the underlying problems in the Italian economy within a smaller period of time. Italy's debt is the world's third highest in absolute terms. This plan was unlikely to change that.



Was this plan reasonable? Not at all. Italy has had a very long record of poor management of its currency management in common with other European countries. One of the saving graces of the country with such a record is that it had the wisdom to hold large gold reserves in case the record continued, with gold always there to bail them out of the mess. The Italians could have undertaken sales of gold after Budget day 2008, once the Italian government had approved their next year’s budget. There was room though for gold sales, under the present agreement, for around 370 tonnes in the last two years of the agreement, which runs through until September 26th 2009, but no more. This would have made the exercise pointless.

It appears old fashioned now to think that national spending behavior should be limited to stop the bleeding, then repayment of debt undertaken, from new income. In high debt situations the sight of gold reserves to politicians in Europe except in Germany seems impossible to resist. Add to that a complete lack of understanding of gold as savings for a rainy day and you get another repeat of governments grabbing the piggy bank.



Wisely, the Bank of Italy kept silent. Because the plan crossed the lines of the Maastricht Treaty and impinged on European Central Bank territory, it was up to the European Central Bank to put the Italian government in its place. Italy’s approach was not solely an attack on gold reserves, but an attempt to adjust the policies of the Eurozone and interference in the activities of the European Central Bank.

The European Commission, was sharp in its response on the use of the Bank of Italy’s gold reserves to lower the country’s debt, saying, "It is up to the E.C.B. to decide about the foreign reserves including gold reserves of the € area member states, in full independence." Did we detect more than just a re-establishment of the order of financial seniority here? We would hope so in the days when the composition of reserves is becoming a sensitive issue, with the importance of gold in extreme times rising through the levels of priorities in the face of a weakening $ and shaky credit?

The matter is now put to rest, leaving a substantial shortfall in the ‘ceiling’ of gold sales for the entire Central Bank Gold Agreement 2,500 tonnes and the balance of announced gold sales to date short of that by around 400 to 500 tonnes.

Dumping the Dollar

China Prepares to Dump U.S. Dollars

By David Vaughn
Aug 20 2007 12:26PM

www.goldletterdv.com



The following is a good 6 dollar spike occurring in the middle of the week. Though too many are concerned with gold not breaking 700 already gold still continues to consolidate, gain steam, and become stronger still.



Now the title of this article is a pretty lofty accusation. We have heard this as a possibility countless, countless times but it has always been just a rumor. Is the possibility still just a rumor?

“China’s "nuclear option" to dump the dollar is real” “…China, not the Federal Reserve, controls US interest rates by its decision to purchase, hold, or dump US Treasury bonds…” “…Washington does not have hegemony over Chinese policy, and if matters go from push to shove, Washington can expect financial turmoil.” “China has many markets and can afford to lose the US market easier than the US can afford to lose the American brand names on Wal-Mart’s shelves that are made in China.”

Now just what would be the real cost should China stay true to their threat to dump U.S. dollars?

“Now let’s consider the cost to China of dumping dollars or Treasuries compared to the cost that the US is trying to impose on China.” “…consider that if China were to increase the value of the Yuan by 30 percent, the value of China’s dollar holdings would decline by 30 percent. It would have the same effect on China’s pocketbook as dumping dollars and Treasuries in the markets” “By dumping dollars, China expands its entry into other markets and accumulates more foreign currencies from trade surpluses.” “As is usually the case, the harm we suffer is inflicted by Washington.”

China has a carefully controlled socialist government that strictly controls any “official” statements coming from China. When China does want to send out a serious government endorsed statement it uses analysts and researchers to make a statement directed on the world stage and for all the world to take in – especially the United States. So what have the Chinese reported to us recently that has American politicians, including Fed Chairman Ben S. Bernake, quacking in their shoes?

"China threatens 'nuclear option' of dollar sales" "The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a Yuan revaluation." "…such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels." " …Beijing had the power to set off a dollar collapse if it chooses to do so." "The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles…"

We see the economic storm building in intensity and this is no joke or imagination. Both the Fed and the rest of the world are presently injecting massive never before sums of billions of dollars to keep the world wide financial system door open. But right in the middle of this storm China, cool as a pickle, makes a threat it is thinking about selling an appreciable sum of those 1.333 trillion U.S. dollars it holds.

“China steps up currency fight by 'absurd' threat to sell $US dollars” “A Chinese Government researcher has issued a veiled threat to US policymakers not to get too tough in insisting the Chinese Yuan should appreciate. The researcher, He Fan, told the state-run China Daily that China had accumulated "a large sum of US dollars" and that its holdings contributed "a great deal to maintaining the position of the US dollar as an international currency". If the Yuan’s exchange rate against the dollar did not remain stable, said Mr He, who works at the China Academy of Social Sciences, China could be forced to take strong action. China has $US1.33 trillion ($1.55 trillion) in foreign exchange reserves, with $US407 billion in US Treasuries, the second largest after Japan. A substantial sell-off of the reserves could spark a recession in the US economy, financial analysts said.” “Mr He's statements were an apparent response to the US Senate Finance Committee, which last month approved legislation aimed at pressing for faster appreciation of the Yuan.”

Now is that not bravado and guts or what? If we look at all of this as a poker game played on the world stage I would say China believes itself to have the winning hand. You still think this is a joke? That is because you do not read enough. An astute reader can very quickly substantiate these allegations as real and with meat on their bones.

"Several U.S. senators have renewed calls in recent weeks to punish Beijing if it does not let the currency, the Yuan, rise in value."

This is not an idle joke or saber rattling to increase readership. This is very real my friends. A very serious financial crisis is occurring right before our face and what intrigues me is that there is not a major effort to hide these events. The Fed Chairman is loudly and publicly stating the huge sums of liquidity he is injecting in our financial system. Now that is either supreme confidence and bravado or a sense of hopelessness that the crap is soon to hit the fan and there will be no way to hide its consequences. I’ll let you decide.

"The dollar continued its decline in global currency markets yesterday, intensifying worries among some economists that mounting U.S. budget and trade deficits could send the U.S. currency into a tailspin." "The decline rekindled the fears of some analysts that the dollar could be headed for a severe sell-off…" "…foreigners might dump U.S. holdings." " …it would erode U.S. living standards below what they would be by making imported goods more expensive."

Folks, I really do not believe this to be a veiled threat. I firmly believe China is going to exercise a controlled dumping of U.S. dollars. When a new power comes on the scene it is quite normal for the fresh power to flex its muscle and to show its superiority.

"Hi David, good article." "VAE VICTUS"-Woe to the vanquished. Brennus leader of the Celts demanded a ransom from Rome, to be paid in gold. The Romans complained directly to Brennus that the measures were counterfeit, upon which Brennus drew his sword and threw it on the scales, exclaiming "vae victus!", for the conquered have no rights." "VAE VICTUS, AMERICANUM!! And bring out more gold."

Sean M.

Read the following below and wag your tail.

"An investment adviser halted withdrawals Tuesday, prompting unfounded fears that the credit crunch had started to touch money-market funds. But problems in the subprime mortgage market continue to take their toll on small lenders."

Yeah. Right. How do you like those “unfounded” fears that the credit crunch has started to touch money market funds?” We haven’t even seen the beginning of what all this financial mortgage crisis will obliterate. But gold remains strong and is getting only stronger.

"The Nymex metals market was the lone bright point Friday. Gold recovered from its losses of a day earlier as investors rushed back to that traditional haven amid the uncertainty in other markets." 'The market is starting to look at gold and silver as a place to maintain some value…"

Gold Letter, Inc. reviews gold, silver, uranium and other resource stocks under valued and poised to rise in this time of increased demand for all resources. Natural resources and related contrarian stocks will only escalate in value as the world continues to experience unprecedented population growth. Gold Letter’s 10 best performing stocks are up over 2,000% and GL’s top 55 performing stocks are up over 500%. Close to 90% of all Gold Letter's recommendations since inception in January, 2003 are up over 250%. GL charts are computer generated and updated every hour while markets are open.

Gold Will Always Be Accepted

Gold, as it has been argues here before, is perhaps the best investment. THis is because of its historical acceptance as your good old legal tender.

From the mouth of PreciousMTrader, we get the related interesting world statistic that:

"Today, there are 4.3 billion ounces of gold in the world and the supply is increasing by only 1.8% each year. On the other hand, $5.8 trillion US dollars are floating around the world, and the supply is growing 4 or 5 times faster than gold."

Now, stop to think a second. If this is the case, then

now add to the obvious intrinsic value of gold versus the falling value of currencies (due to global over-issuance of money and credit) the premium for the "fear factor", as Rense.com reports that "March 21st 2007 will be one of the most significant dates this month. Iran has outlawed the American dollar and will put anyone in jail that uses it in their country after that date. They have the ominous notoriety of being the first nation in the world to do such a thing. On the heels of Iran's decision, North Korea has followed suit and also outlawed the use of the American dollar in their country. Finally, Malaysia the next day did the same thing."

Therefore, always think about what the motivations are for an article. Even if Gold does seem like a great investment, remember that there are companies out there that will try to get cash for your gold. Cash is becoming worthless, so perhaps it is time to go out and look for good deals on gold.

Precious Geological Commodities

Once you are out of debt, a good place to start investing is in the companies that have bought up Iraq's hydrocarbons. A good reason is that many of the resources have been untapped, and therefore will be of great number once the drilling begins.

Some more information on these oil deals in Iraq can be read here.

The new draft law calls for reviewing and renegotiating these contracts. They include a contract signed by what is now Lukoil Holdings (LKOH.RS) in 1997 to develop the West Qurna oil field but subsequently canceled by Iraq. China National Petroleum Corp signed in the same year a contract to develop al-Ahdab field and Russia`s Stroitransgaz won the right to explore for oil at blocks in Iraq`s Western Desert.

The Kurdish government signed five contracts with foreign oil companies before 2005, including oil and gas companies such as Norway`s Det Norske Oljeselskap (DNO.OS) and Canada`s Addax Petroleum Corp. (AXC.T).

According to the new draft law these contracts would be reviewed by the Kurdish authorities and they need to be approved by an independent consultant appointed by the federal oil and gas council, to be established by the draft law.

Don't worry, our Navy is in the region to protect these precious geological commodities.