Dear CIGAs,

Included for you convenience is the Broad Dollar index, the Canadian Dollar and the Australian Dollar along with an assortment of charts of gold in various currency terms.

Please note the impressive action in gold when measured in alternative currency terms. We here in the US are somewhat short-sighted at times forgetting that gold is a universal currency and that investors from other nations are interested in how it is performing in terms of their own domestic currency. To illustrate how powerful this current leg in gold is, note the chart strength being demonstrated by gold in terms of the Russian Ruble, the Swiss Franc, and the British Pound, which made new multi year highs this week. In addition, gold in Canadian Dollar terms and Australian dollar terms is putting in bullish price action as down-sloping trend line resistance gives way and horizontal resistance levels come into play. I have already sent up charts earlier today of Euro gold and Yen Gold both of which are impressive, especially Yen Gold.

In short, what we are witnessing is a confirmation that gold has entered fully into the second stage of its bull market in which it is either outperforming many other currencies or threatening to outperform them. In other words, it is truly trading as the ultimate in currencies. That is why the attempts by the monetary authorities to suppress its price are meeting with such incredible difficulties. Buyers from all over the world are moving into gold and those who are attempting to stand against them are finding that they have bitten off far more than they can chew.

The enemies of honest money (gold) are not blind to this and trust me, they are making certain that they have long exposure to the gold market. That is one of the things that Jim is saying when he talks about the non-recourse loan situation in gold and who the lenders are!

Click here for today’s action in Gold, the Broad Dollar Index, the Canadian Dollar and Australian Dollar

The Commitment of Traders report this week is not particularly revealing since it missed the big move up of the last few days, but we pretty much already know who is doing the buying in the gold market without looking at the report and we know who is doing the selling.

I want to call your attention to the fact that this week’s reports will reflect the big events of the Monday of this week when we saw some quite significant moves in a number of markets than can be traced back to the conclusion of the G7 summit that took place last weekend. You will recall that it was on that day that the dollar demonstrated what a few of us termed a “laughable” rally since it was obvious that this was an entirely staged official sector ploy put on in an attempt to save face for the monetary officials who in reality are helpless to reverse the downdraft in the dollar. It is my belief that the buying in the dollar was completely contrived for public consumption last Monday and that like any other intervention it did not last long as the primary trend, which is down, quickly reasserted itself. Willing sellers were eager to pounce on the dollar using the short-lived engineered bounce as an opportunity to either get short or get shorter.

Nevertheless, what you will see in the COT reports this week for Gold, the Euro, and the Yen, and no doubt that of many other currencies as well, is a reflection of the dollar’s brief rally which gave birth to speculative long liquidation in an assorted number of other markets. By Wednesday of this week, all that was behind us and gold shot to a 28 year high while the Dollar dropped to a new decade plus low and the Euro went on to make another decade plus high.

The open interest in gold not only met the 500,000 level this week, but eclipsed it. With the kind of buying we saw taking place in there today, I would not be the least bit surprised to see open interest total 510,000 when they release the data on Monday morning for today’s session. As usual the top callers in gold have been dead wrong once again and by the records that I keep, many of them have the dubious distinction of having the poor dupes who pay them for their rotten services sitting on the sidelines with the gold bull freight train leaving them behind in the station. After all, these are some of the same guys who were braying and bleating that a top was in three weeks ago based on their “expert analysis of the COT reports”. Depending on where your starting point is, gold has traveled a minimum of $30 higher since then and a maximum of $40. That is a respective $3,000/contract or $4,000/contract worth of gains that their subscribers have lost.

There is an old saying about going to the well once too often. That is exactly what has happened to these self-anointed prophets who have plagued the gold community since 2001. They were fortunate to have managed to pick a few tops in the past so they deluded themselves into thinking that they alone possessed some sort of innate sixth-sense that put them in unique touch with the gold market so that top picking was an effortless accomplishment that could be done seemingly at will. All that was necessary was to convince their paid subscribers that they possessed this secret gnosis and that for a reasonable price they would share this gnosis for all those who were willing to surrender the labor of their hands for it.

What they overlooked was the nature of markets, the nature of gold and the nature of currencies. Quite simply – bull markets ALWAYS run further than people expect they will. Emotions such as fear and greed are powerful agents of market action and are more often than not underestimated by those trying to pick levels at which markets will turn. The gold market is a relatively small market when measured in financial terms and the entrance by even a rather small amount of well-capitalized investors or traders can drive it like a dinghy in a hurricane. Besides, the demise of the US Dollar and the stunning rally in crude oil has investors flocking to gold in droves and let me assure you, they are not running to the internet to read what some COT-based top picker is saying about the gold market before they step up and buy it. When you see crude oil prices over $90/barrel and rising, it is pretty damn hard to make an argument that it is not without inflationary implications.

The Canadian Dollar continued its torrid rally against the Greenback while the Australian Dollar, which to me still appears headed for parity with the US Dollar, made a brand new multi year high.

Watching the melt up in the US equity indices can best be described as watching a train wreck in slow motion for what we are witnessing in there is nothing but a mirror image of the meltdown in the US Dollar and the horrific implications on the inflation front that are coming our way/

Enjoy your weekend and remember to let the gold market tell you what it wants to do. Use the tools you have been taught here.

Dan

Click here for today’s Commitment Of Traders charts with commentary from Trader Dan Norcini

Dear CIGAS (Comrades In Golden Arms),

In answer to many inquiries, this time after gold has maximized its potential on the upside, it will not fall as it did in 1980. Actually it will stay within a range at the high level as now a fulcrum point wherein gold rises slightly above and slightly below due to the increase and decrease of “International Liquidity.” This is the Federal Reserve Gold Certificate Ratio, modernized and revitalized. That will be the point of the low in the US dollar decline which I see at .5200

What you need to understand is the gold market is not the bastion of you and I, but of the establishment in the disguise of the buy side of the short of gold over the counter derivatives. This is what Chung Phat and Dr. No knew when I used to tell you about their activities in 2002 and beyond.

The buy side of the OTC short of gold derivative which becomes the lender to the producer at the end of the day takes stock in one manner or the other as the producer simply cannot pay the cash owed. Just have your accountants look at what I outlined to you yesterday. You will see I am absolutely CORRECT. Therefore, the OTC short of gold derivative grantor has always known that their play was not for the profit on the transaction, but to be the majority stockholders of the major gold producers. How can you really believe that they will wish the price of gold significantly lower when there is a tool out there to both hold gold up and stop a dollar debacle, all in one.

It will not cost the Fed or US Treasury anything at all because the market will trade gold as if there was to be a costly move, thereby removing the need to act. It is like the method the PPT uses to control the general equities via the equity indices.

Just review the case studies of any of the companies that have run into derivative problems and you will see exactly what I am telling you is already occurring where control of the producers by dilution as a result of losses on OTC short of gold derivatives are concerned. Simply look at the few reports on who was on the other side of the Ashanti situation, since as it was a clear giveaway. Now there is silence on who the creditors are as a product of the loss developed by the close of the OTC derivative short of gold.

As such you can forget the talk of any action that would, like in the 30s, make holding gold or gold profits illegal or taxed to death.

Let’s go back to late 2002 to review the Modernized and Revitalized Federal Reserve Gold Certificate Ratio and how it will hold gold at prices at and near $1650 while establishing the low in the US dollar, probably by late 2011.

Monday, December 23, 2002, 2:41:00 PM EST
The Gold Cover Clause/The Deflation Solution

The Gold Cover Clause Reserve Ratio
The Final Solution

First:
To understand the key ingredient in this presentation, the reinstatement of a modernized Gold Cover Clause, you must comprehend what in fact the dollar is. To understand this I suggest that you need to think of the dollar in its essential role as the common share of the United States of America. Just as common shares of corporations fluctuate in the market place, so do currencies, and the common shares of countries. Much like a quarterly or annual report, the reported Budget Deficit portrays the quality of economic management of this country. The Trade Surplus or Deficit is akin to the earnings report of the corporation, the USA. The level of the discount rate is the dividend rate of the common shares of the USA. Second: We can track the establishment of the Instant Gratification Economy in the late 60's to its birth in the Nixon Administration. That unfortunate birth took place with the reduction of the requirements of the Gold Cover Clause from 5% to 0% . The function of the Gold Cover is to assure that the size of the money supply does not exceed a given amount of gold cover. The sterilization of the Gold Cover Clause handed the control of the supply of money in the USA over to quasi-political special interest control. It was this act that gave birth to the paper economy of the USA, thereby founding the ensuing three generation Instant Gratification Economy funded by the over production of dollars, now, IMO, confirmed by Chairman Greenspan's own words. Why has the present Chairman of the Federal Reserve System made this distinction so positive to the function of gold in a monetary system?

How would the Gold Cover Clause Affect Gold?
Author: Jim Sinclair

A: Greenspan has noted that the best year for the equities markets in the 30's was the year after gold was revalued.

There is a real potential of a modified, modernized Federal Reserve Gold Certificate Ratio for Monetary Aggregates (AKA the Gold Cover Clause) may well occur. If this approach was adopted, I believe it would be a powerful US dollar-positive act. It would affect gold in the following ways:

1. A depreciation of the gold price from that point forward would not be in the best interest of an expanding economy. It is reasonable to assume that the Central Bank interest in leasing gold and/or selling gold would logically be reduced if not eliminated.
2. Gold would still be influenced by the 5 Elements (The Golden Keys), but would be apt to find a floor level in bear phases higher than before.
3. Should the 5 Elements go positive for a bull phase in gold, then it is reasonable to assume the circumstances would not be too much different from the present.

However it is my opinion that the probabilities support gold in a range of $50 above and $50 below the point at which Gold Cover Clause occurred for most of the time. It is unlikely that the mechanism would occur before June of 2004 when it might be seen as a tool with which to influence the economy, assuming the tax cuts fail then to significantly influence investment decision by businesses.

How Gold Re-enters the US Dollar Equation.
*From “Gold and Dollar Market Summary, Thursday, June 9, 2005*

1. The dollar again enters a full blown bear market as a product of its deteriorating internal fundamentals.
2. The march into the new system of Authoritarian Free Enterprise continues as a result of all the measures being adopted and reinforced to combat terrorism – perceived or otherwise.
3. There comes a point in the dollar decline that the public will support draconian measures as they are reassured by eminent authority and political consensus that this is the correct system fix.
4. At this point, major wealth reassumes a long dollar position.
5. There are two key items in the draconian plans, the first of which is the significant reduction of Federal entitlement spending for the common benefit of all. This is intended to stabilize the US Federal Budget deficits and save the dollar, thereby creating jobs and improving the US and global economic system. That is the spin. Authoritarian Free Enterprise favors the authority of commerce and not the common good. This is when policy changes will occur, the deficits will come into balance and the US dollar will enter a bullish period.
6. In the second move, gold enters the picture. Gold convertibility is not what will occur and the Gold Community will not be pleased by the role gold will play. Gold is coming back into the system not at the pleasure of present gold advocates but at the pleasure of the masters of the global economy.

Wednesday, May 28, 2003, 6:05:00 PM EST
More on the Federal Reserve Gold Certificate Total Value Ratio
Author: Jim Sinclair

Q: Regarding the "Federal Reserve Gold Certificate Total Value Ratio" discussed recently on your web site.

If I understand you right, the US government is to rescue the dollar by promising to limit their issuance of dollars based on the amount of Treasury gold.

This is supposed to be some form of limited, modified gold standard. They never allow an audit of the physical gold said to be on hand. Even if the number of bars were counted, how would we know who it really belonged to? Doesn't this make any such revived "gold standard" rescue attempt meaningless?

A: No it does not because there never will be an audit and 98% of the world will take whatever the Treasury says as gospel. Look at yesterday's rally in equities because each of those buyers believed what the government is saying.

Q: Whatever the ratio of dollars to gold which they promise to adhere to, what is to prevent them from later incrementally changing that ratio as has been done in the past? Doesn't this make any such revived "gold standard" rescue attempt meaningless?

A: Yes, that is possible. But a rescue for the dollar most likely in these terms will come if the two tax cuts, a war, the rebuilding of Iraq by US companies, and the spending of all allocated funds fails to deliver the economic conditions required for reelection of the present administration.

Q: If I understand you correctly, there would be no actual re-deemability of US dollars for gold. This is like a mortgage which cannot be foreclosed. Doesn't this make any such revived "gold standard" rescue attempt meaningless?

A: That is correct. It is a balance sheet fix for a balance sheet problem and will work for some time if adopted.

Q: In short, how is this smoke and mirrors gold standard going to add any credibility to the dollar since it will depend entirely on confidence in the US government which is exactly what has caused the problem?

A: Smoke and mirrors are what causes markets to occur. I comment on what I see coming. Nobody wants to hear me pontificate on what I think is correct. I am here to tell you what I see coming, not what I think should be coming.

Second:
Items that control, act as alarms. Gold was a control and an alarm that rang through its price. Currency parities were alarms in terms of market fluctuations to or away from parity rates. Nixon's sterilization of the Gold Cover Clause accelerated the world economy on a course to a condition devoid of an alarm system. Today's body economic is much like the human body with the disease whereby the body loses its ability to feel pain, thus inadvertently placing itself in harm's way. We now live in an "Alarm-less Casino Society" within the "Instant Gratification Economy", now in the throes of its own demise. That is why the markets have become pure casinos in which a daily crisis sounds no alarm. An interesting question one might ask oneself is: What post-Nixon Governor of the Federal Reserve has failed to prime the money pump in the USA during the last two years of an incumbent president's term in order to grease the wheels of the economy and equity markets, facilitating the incumbent's re-election?

Third:
Gold has one primary role in its relation to a currency. That role is not convertibility. Convertibility dealt with gold's role in controlling Trade Balances. The source of the problem is not trade balances; it is the freedom to create violent changes in the supply of money. Gold has only one monetary function; it acts as a control. Gold could control the very item that stands at the foundation of today's nemesis, the errors in human judgment resulting in mismanagement of the money supply. It is a glaring contradiction for an economic society, built on the ability of free markets to effect economic distribution, to trust a group of 'quasi-political special interest people with titles' with the management of our economy via the expansion or contraction of the money supply, primarily. Communism and socialism are supposedly dead; the USA is in the process of paying a high price for it is a socialist principle to allow the titled few to manage the economy as has been the case since the reduction of the Gold Cover Clause to Zero.

Fourth:
To determine how a group of people with the ability to act will perform in a market crisis, we need only examine their reasoning and action in a previous situation. The recent extreme decline in US equities has been blamed in part on the Imperialistic Attitude of CEOs acting in some cases above and beyond the law. In order to attempt to create a return of confidence in the paper assets, the common shares of US corporations, new laws have been passed for mandating corporate management's ethical behavior. This is what is called a Legislated Enforced Ethic. Therefore, one can conclude, that in an economic crisis the minds of those empowered to act will gravitate towards a solution that includes the utilization of legislated enforced ethics, especially if the means are already legislated and in the system.

Fifth:
Definition - A spiral is a grouping of cause and effect that work to accelerate each other towards an event which then empowers the spiral itself. There exists a clear downward spiral of events, each affecting the other with no evidence that this cycle will end. A downward spiral in markets is not much different from a downward spiral
in the human experience. In that sense, a downward spiral such as depression requires intervention in order to reverse it. Psychotropic drugs, as an intervention, are often prescribed in order to provide an intervening window that can prevent the depression down spiral from going to its predictable end. Should the patient grasp that opportunity provided by the intervention, taking a more positive look at their circumstances, real progress may occur in their lives. Similarly, to reverse a downward economic spiral of today's proportion, great intervention is necessary to affect a long-term recovery.

Sixth:
Who says that the US dollar, once it closes below 104 on the USDX index, cannot at some time in its 21-month future window of Bear possibilities put on a NASDAQ-type decline? We live in a Casino market world affecting all markets, played by tranches of money larger than that of the central bank individually or collectively. Nobody in the established investment community expected the NASDAQ to do what it did. Nobody in the established investment community expects the US dollar to do what it will do. The heart of the Down Spiral is the US dollar. To stop the Down Spiral, should it get totally out of hand, before a collapse of the $72 trillion dollar
mountain of sewage, unfunded, specific obligation paper, called derivatives, the dollar will have to be rescued long-term by some act to resuscitate faith in that paper asset, the US Dollar.

Seventh:
The Present Economic Spiral, which will cause a significant rise in the gold price and a significant further drop in the US dollar is: In the Environment of an expanding US Budget Deficit we are experiencing an expanding US Trade Deficit, which impacts an expanding US Current Account Deficit which now at 5% of US Gross Domestic Product produces significant currency adjustments in the US dollar.

As a result of a new decline in the dollar below the first low of 104 as measured by the USDX index, non-US holders of US Government Securities will begin to reduce their purchases. The shift in momentum of purchasing reverses the previous up trend in this market, which will result in a surprise increase in interest rates in the environment of weak business conditions internationally. This results in a further drop in general equities from any recovery level or from the present levels, as we have always seen that declining US equity prices are accompanied by further declines in the US Dollar. Therefore a further drop in the US Dollar occurs. And therefore the down spiral marches on and on. This economic spiral will continue to push gold higher and the dollar lower. Each time it impacts upon itself, the factors in the Down Economic Spiral further impact the holders of US Treasury instrument, producing the 5th Element of a Long Term

Bull Market in Gold by creating the most unexpected Long Term Bear market in US Treasury instruments due cyclically and fundamentally, as explained above, to occur. Historically US interest rates are not made by the Federal Reserve. Rather, US interest rates are a product of the market level of US Treasury instruments. That is a key concept to keep in mind.

Eighth:
As part of the conditioning that has taken place during the experience of the three-generation "Instant Gratification Economy", the majority of market participants, even those akin to gold, believe that governments are more powerful than markets. This is a fallacy about to be proven wrong. Markets are the most powerful economic forces in a world awash in paper money. Markets force monetary policy, not the other way around. The Tools to Prevent a Deflationary Melt-down

War is Now Declared on "Deflation" And the Fourth General in the CONFLICT
Is Chairman of the Federal Reserve, Economic General Alan Greenspan

The Tools Are:

1. A devaluation of the dollar in terms of gold by allowing an appreciation in gold's price without significant opposition by central banks.
2. Reinstitution of a modernized Gold Cover Clause in which the gold holding of the USA will be rationalized to the then existing market price for gold. The holding of Gold for the purpose of this new Federal Reserve Ratio will be considered as the percentage required for the then outstanding liabilities. To expand monetary aggregates, the price of gold must rise or the US Federal Reserve, on behalf of the Treasury, would be required to buy gold. A firm gold market then becomes the friend of the Fed and not the enemy of the dollar. The necessary aura of gold acting as a control would bring greater confidence to the US dollar at the devalued price in terms of the gold price and work toward the appreciation of the dollar versus other currencies.
3. Adjustment of the Tax Code with a focus on those areas that historically support investment in business activity, which is a most Republican approach to tax codes. Expansion of tax benefits for business investment.
4. Expansion of monetary aggregates to any level required should inflation figures go to net negative basis with significant expansion ahead of that event in an attempt to prevent deflation.
5. Fulfillment of all presently financed government projects.
6. The potential of a War What all this means to the Gold Investorl

• This bull market in gold is generational and not cyclical in nature. It will span a much longer time than any advisor so far has suggested. It may well exist for the next 30 years.
• There is no need to be concerned that a missed sell point for a trader under $400 gold is a lost opportunity. In fact gold will continually make higher lows and higher highs into the predictable future.
• Gold producer hedgers who refuse or cannot reverse their hedge positions are in serious trouble.
• Gold shares have a bright long-term future.
• The value of properties in promising gold fields will increase significantly.
• Exploration for new gold properties will increase significantly.

**Note for Compendium owners: The above post uses excerpts from 88.pdf, 659.pdf, 2972.pdf and 141.pdf, all available in full on your Compendium CD**