The real factors driving the gold price
are many, and a complete listing is very difficult to provide. They
are the essence of the sequence of Gold & Currency Reports here. The bullish gold prospects rest heavily on a weakening USDollar, as well
as the planning and gradual installation of global reserve alternatives.
The gold price rises whenever the
USDollar is discredited or disrespected on the global financial stage, which is very often, and will
ample justification. The gold price rises when
the global banking system, especially the US & UK &
European banks, show clear
signs of insolvency.

They are busted. Furthermore, revelation of COMEX and LME
fraud brings attention to the artificial low
price engineered by the gold cartel, otherwise
known as naked shorting. The
disparity of physical gold and paper gold price has brought great attention to
gold. Shortages exist broadly. Jeffrey Nichols is managing director of American
Precious Metals Advisors in New York City. See his
article in the UK Telegraph (CLICK HERE).
He wrote:

"From a long-term perspective, gold is a bargain at recent prices in
the $900 to $930 an ounce, and will
remain so even as it begins to move into a higher trading range. Recent gold
market developments and technical price action, along with
broader economic and financial market developments, suggest gold is bracing for
a resumption of its long march upward
and a retest of its historic high in the months ahead. First and foremost, the
bullish outlook for gold rests on the increasing likelihood of accelerating US
inflation in the years to come, and an associated unprecedented rise in
investor demand for the yellow
metal. This nascent inflation has not yet been reflecting in world financial markets. But, judging from anecdotal
evidence and the financial press, and the warnings
of a growing number of institutional
investment managers, we believe a
gradual, subtle, but important, upward
shift in inflation expectations is already under way.
Inflation doves (and others fearing imminent deflation) point to the currently
low, almost negligible, rates of
consumer price inflation and the narrow
interest-rate spread between
ordinary US Treasury securities and US Treasury Inflation Protected Securities
(TIPS) as evidence that inflation and inflation expectations remain subdued.
This, along with other important
factors that we will discuss in subsequent posts, has helped keep
gold prices down in recent months.

We think those looking at the US Consumer Price Index are focused
on the wrong inflation indicator.
Instead, a look at the gross domestic product price deflator, a broader, more
reliable, and less volatile inflation indicator, rising at an annual rate of
2.9% in this years first quarter, should be enough to put fear in the hearts
of economic policy makers. But, as far as we
can tell, they are looking at the CPI and still worrying
more about deflation. Importantly, in our view,
if only a small percentage of investors become worried
about inflation, gold could, and likely will,
benefit long before any sign of a broad based rise in inflation expectations
appears in the interest rate differential between
ordinary Treasury securities and TIPS, the so-called TIPS spread. In other words, by the time the broad financial markets
register a worsening of inflation
expectations, gold will have already
made a major move to the upside. It provides an early warning
or leading indicator of inflation, signaling the coming acceleration long
before financial markets begin to quiver." Most early warnings are
ignored!

Hedge Funds: Many hedge fund managers have been increasing their gold
investments lately. About 20% of the SPDR Gold Trust ETFunds outstanding stock was owned
by hedge funds as of the end of 1Q2009. The increased stakes have come when the gold price has climbed above the 900 price
level. They must regard hard assets as insurance against further turmoil in the
financial system, including a decline in the value of paper currency, if not
bonds generally. Paulson went much
further, investing $1.3 billion to buy Anglo Americans (AAUK) remaining stake
in South African miner AngloGold Ashanti Ltd. (AU). Paulson also recently
introduced to investors a new
investment instrument pegged on the price of gold. David Einhorn of Greenlight
Capital has been buying more stocks in the gold mining sector, and adding to
his GLD fund position during Q1 as well.

PS: If gold makes the same rise as in the
1970 decade, from trough to peak, then gold should rise to $6214 per ounce.

According to M1 money supply, if the gold
supposedly in possession by the USGovt backs the available money supply, then
gold should be at $5469 per ounce.

In no way does the USGovt have 287 million ounces in
possession.

On a global basis, if the total amount of
central bank reserves was converted
to gold, in such a manner as to back all the money in the world, then gold should rise to $5426 per ounce. If
the USGovt gold holdings were to
collateralize the entire US
foreign trade deficit, then gold should rise to $31,822 per ounce.

And the climax: If the USGovt gold holdings were to collateralize the entire USGovt current and
future liabilities (like Social Security and official pensions), then gold
should rise to $192,401 per ounce.

A decline in the Dow
Jones Industrial stock index is due, in order to reflect the dreadful condition
of the USEconomy and US
banking system. A decline in the Dow
to 6000 or 7000 should lead to an equivalent gold price, like $6000 to $7000
per ounce, if the Gold/Dow ratio of
‘1is honored as it was in 1980.

       
*******

PRICE INFLATION IS MORE LIKELY THAN US-FED
DRAINAGE . For an excellent discussion of how
price inflation could enter the picture suddenly and significantly, see "This
is Not the 1930s, part II" by Michael Pollaro (CLICK HERE).
He explains the excess bank reserves, and a lot of inflation in the pipeline.
Banks usually hold 3% to 4% of their reserves as excess reserves, but now they hold an incredibly high 92%. Only when an ‘All Clearsignal is given on the USEconomy
will banks channel the bulk of their
excess reserves into loans and investments. That bulk is now being stored with
the USFed earning an interest yield. Could we
be witnessing a baseless ‘All Clear’
signal, orchestrated and phony? Yes! Chairman Bernanke will
have great difficulty withdrawing USFed bank reserves, since an increasing
proportion are in the form of toxic assets with
no active market to sell them. Even if they could, the result would be greater strain on an already beleaguered
USEconomy. For political and credit market reasons, do not expect any
noticeable drain. That means price inflation awaits
the landscape on a path of least resistance.

◄see  "Forensic Examination
of the Gold Carry Trade"  — the Financial Sense article (CLICK HERE).
Some highlighted points follow. The
World Gold Council (WGC) and Gold Fields Mineral Services (GFMS) are the two leading gold institutes that support the gold
cartel in their criminal deeds. For years, GFMS refused to acknowledge the growing
flow of borrowed
gold, central bank hedging, commercial hedging, and producer forward sales. The result was
gross under-reporting of annual supplies hitting the market.

Major central bank ownership
of gold bullion is officially stated at 30 thousand tonnes. In reality, it is
much less.

The mechanism that permits over-statement
of gold bullion in possession is double counting the gold, counted once who holds it, counted again who
leased it. Even the Intl Monetary Fund admits the central bank gold is double
counted. Kirby explains how the gold
lease rate equals the LIBOR borrowing
rate minus the Forward Rate (GOFO), which is the return earned by the lender of bullion.
So a negative gold lease rate comes from the LIBOR rate lower than the gold forward
rate. Central banks routinely accept steep losses in the lease process during
periods of time when the gold price
is rising dangerously in their viewpoint.
They typically sell into a falling GOFO lease rate. The only motivated
institution is the central banks, who must prop up their increasingly debauched and worthless currencies.

Former USFed Chairman Alan Greenspan
openly admitted in 1998 that "central banks stand ready to lease gold
in increasing quantities, should the price rise."  Not only is
this practice a betrayal of Congressional contractor duty, but it is stupid
from a management angle. The Gold Anti-Trust Action committee in December 2007
launched a lawsuit against the US
Federal Reserve under the Freedom of Information Act to obtain documents about
gold swap activity. In April 2008,
the USFed responded by providing a flood of documents containing mostly
irrelevant information, a distraction to the lawsuit
demand. The case is still open in formal challenge and appeal. Kirby concludes
that the same stonewall methods are
being used by the financial syndicate that today are used to prevent disclosure
of TARP fund usage for the banks.