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Now India''s central bank admits considering diversifying out of the dollar
By Michael Kosares
Centennial Precious Metals, Denver
www.USAGold.com
Thursday, March 10, 2005
Previous Japanese dalliances with gold were always
a reaction to tough trade talks -- times when the
United States was pressuring Japan to lower trade
barriers and allow its currency to float (presumably
higher). This week's comment by Prime Minister
Koizumi did NOT come as a reaction to trade talks
and should not be interpreted as a negotiating ploy.
This is an important departure that top market
analysts will not take casually. These comments
register genuine concern about the nature of Japan's
reserves and their VALUE, and carry long-term
implications for the dollar.
Koizumi pointedly remarked (in what appears to have
been an unguarded moment) that "it's necessary to
diversify the investment destinations" of reserves
"while considering what's profitable and what's stable."
If that is not an arrow well-aimed at the heart of the
dollar, then I don't know what is.
Steve Barrow at London Bear-Stearns captured what I
believe to be the main point: "The market will believe
Koizumi. This is an issue that's not going to go away.
That's going to undermine the dollar."
In taking this all into consideration, we should not
forget the comments last week from South Korea that
it might diversify its $200 billion in reserves. South
Korea, the third- largest holder of dollars in Asia, is
in a better position to act on its concern in that its
holdings are substantially less than China or Japan.
That may be where the dam breaks first, though none
of us knows what is going on behind the curtain in
Asia. In this context, Koizumi's comments may
simply be what has bubbled to the surface from a
much more intense and active strategy than anyone
anticipated until his slip of the tongue.
If and when the euro breaks the $1.40 barrier we will
be in a whole new ballgame. It has been my belief for
quite some time now that the G-7 were attempting to
manage the dollar's devaluation within a band over the
past few years and that the strategy had been
successful. Gold has been part of that managed
relationship. This explains why analysis of the euro's
prospects has also been an analysis of gold's.
Now if the Koizumi slip-up reveals the reality in Tokyo,
speculators could blow the strategy out of the water
and we could see the beginning of a run on the dollar.
One is left with the mental image of major currency
players crowding at the door with Warren Buffett
already standing on the other side saying, "I told you
so."
Barclay's foreign exchange department immediately
translated the Koizumi comments as a positive for gold.
Why? Because Japan has small gold reserves for a major
world player and is the country most in need of a gold
diversification. International Monetary Fund sales in this
context become a very small threat to the overall market.
As the biggest holders of dollars, Japan, China, and
South Korea would position themselves as the most likely
market for that gold. The problem is that the United States
contributed most of that gold to the IMF and under the
circumstances it would take something more than
diplomatic niceties to get the United States to part with
it. Anyone who thinks that the United Nations/IMF/World
Bank milieu is still joined to the U.S. Treasury
Department's hip doesn't understand the Bush
administration's view of these organizations.
So the economic war heats up. Those who own the gold
ultimately will make the rules. Not only that -- they will
survive the "battle for survival" as the post-World War
II/Cold War rapprochement draws its final breaths.
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