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Can the "Bernanke Put" Lift Gold Sharply higher?By Gary Dorsch "I only know of two men who really understand the true value of gold, an obscure clerk in the basement vault of the Banque de Paris and one of the directors of the Bank of England. Unfortunately, they disagree," remarked Nathan Mayer Rothschild, the former owner and operator of England's Royal Mint Refinery, and the primary gold agent to the Bank of England in the early 1800's. When the Bank of England's gold reserve was drained by the costs of the Napoleonic wars, down to 235,000 ounces (£1 million) against note issue liabilities of £15.5 million, it was Nathan who sent secret shipments of gold and silver to Wellington's army in Europe and financed the defeat of Napoleon. In 1825, it was Nathan who rescued the Bank of England and prevented the collapse of the entire British banking system, after a run on gold caused the collapse of 145 banks.
The London Gold Fix was set at the London merchant bank NM Rothschild, from Sept 1919 until April 2004. NM Rothschild had profound influence at the London Bullion Market, where trading volume was 42 million ounces of gold per day (more than twice South Africa's annual gold production), including dealings in physical, leased, and forward sales. The Rothschild empire helped to establish and finance oil giant Royal Dutch Shell, cemented De Beer's control of the world's diamonds, and following World War II, invested in vast areas of resource rich properties in Canada, and in base metals giant Rio Tinto. Legend has it, that the Rothschild fortune measures in the trillions of dollars. Rothschild's huge stash of gold and natural resource shares is tailor made for the day when the public wakes up to the fraud of fiat currency. Nowadays, the clerks at Bank Paribas are working overtime, trying to determine the value of sub-prime US mortgage debt sitting in their vaults. European banks are afraid to lend money to each other, after two German banks nearly collapsed from the toxic US sub-prime slime. Eschewing a sense of responsibility, the Federal Reserve is expected to try and cover-up the mess, conjured-up and distributed by Wall Street brokers, by exercising the "Bernanke Put", or lowering the federal funds rate and flooding the world with more US dollars. London Gold "Closely Watching the Fed" Gathered around a table in one of the Bank of England's grand meeting rooms, a select group of Britain's top gold traders could not believe what they heard. It was May 1999, and the gold price was stagnant around $275 /ounce, after a long and extended bear market. The UK's Treasury chief Gordon Brown had decided to sell 400 tons, or more than half of the country's centuries old gold reserves. In a move that astonished dealers, Mr Brown insisted on selling the gold in open auctions. The first sale drove the price down to $254, the low-point of an 18-year slide. There were 17-auctions between July 1999 and March 2002 yielding an average of $275 an ounce. The proceeds were unwisely switched into 40% Euros, 40% US dollars, and 20% yen. Since March 2002, the US dollar has plunged 42% against the British pound, while the Japanese yen is 23% lower against sterling.  With gold now trading at $680 an ounce, Mr Brown's decision to break ranks with the US, Japan, France, and Germany by selling 400 tons of its gold, has cost UK taxpayers more than £2 billion. Then, moving further away from monetary discipline, the Bank of England oversaw the rapid expansion of the British M4 money supply, to 13% growth in July 2007, or double its growth rate in March 2002. The rapid expansion of the British M4 money supply, to a 16-year high, is fueling house price inflation, running at a annual 12.8% in August, up from 10.3% in the previous month. "Broad money is growing rapidly and that does pose an upside risk to the inflation forecast, so money certainly matters," BoE chief Mervyn King confessed in Nov 2006. BoE hawk Andrew Sentance added on July 10th, "The rapid pace of money growth is a warning signal we should pay attention to."  To regain some control of the UK's M4 money supply, the BoE hiked its base lending rate five times, or 125 basis points to 5.75%, to its highest since April 2001. The last rate hike occurred on July 5th, "The margin of spare capacity in businesses appears limited, and most indicators of pricing pressure remain elevated. The balance of risks to the outlook for inflation in the medium term lies to the upside," the BoE said. The upside risks to UK inflation emanate from the double-digit growth of the British money supply. And while the BoE's baby-step rate hikes to 5.75% reined in M4 growth to 13% in July, it still leaves the central bank far behind the monetary inflation curve. In order to lower the growth rate of M4 into single digits, the BoE would probably need to lift is base rate another 75 basis points to 6.50 percent. But newly installed UK prime-minister Gordon Brown, argues there is little point using money supply targets to control inflation since the relationship is not stable. "Rigid monetary rules that assume a fixed relationship between money and inflation do not produce reliable targets or policy," he said on June 10th. To read the rest of this article, click on the link below: http://www.sirchartsalot.com/article.php?id=67 Sep 5, 2007 321gold Ltd |
In
1919, the Bank of England, determined to restore London as the
main gold market, reached an agreement with seven South African
mining houses to ship their gold to London for refining, after
which it would be sold through NM Rothschild at the best price
obtainable, giving the London market and the Bullion Brokers
a chance to bid.