Today's Daily Dig 

Thursday 2nd February 2006 AD

"CLOSING THE WINDOW"

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WHAT IS THE WORLD IS HAPPENING - 2006 ? 

If you have been wondering "what in the world is happening?" then make sure you are on the line for our specially convened executive briefing teleconference for early 2006. 

On the line will be AFE's Graham Daniels, Simon Heapes, Philip Judge and Sterling Energy's Justin Pettett. This session will brief listeners on this year's outlook on significant geo-political shifts and events, international monetary issues, the precious metals and energy markets and more. If 
your future is important, then don't miss this briefing. 

MORE INFORMATION AND REGISTRATION. HERE : 
http://www.anglofareast.com/teleconference.html

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Thursday 2nd February 2006 AD
"CLOSING THE WINDOW"

In early February 2006, Gold and Silver are now both in their 4-5th year of a confirmed bull market in US dollar terms, yet for most of this time they have been virtually sideways in most other currencies. 

Then, almost suddenly, in late 2005, gold and silver started to move up in price against major currencies such as the Euro, British Pound and even the good old 'gold' friendly Swiss Frank. So why the sudden change? To fully understand the present, and set the stage for the future, we must first dig into the past. 

In 1971 President Nixon broke a 27-year-old international monetary promise. With the "closing of the gold window" on August 15th of that year, the US officially turned its back on the Bretton Woods agreement. Under the 1944 agreement, the US became the world's sole reserve currency, while at the same time promising to pay foreign government treasuries and central banks 1 oz of gold for every US$35.00 surrendered at the US treasury. Over time the US tired of paying out physical gold against its foreign held dollars and ever-increasing deficits (1). 

For many, including us 'old fashioned gold bugs' it was considered that this unprecedented and unexpected action by the US would lead to the dramatic and sudden collapse of the USA and it's dollar. 

Yet, rather than partial or outright collapse as so many predicted, for the next 35 years, the US dollar would continue to soar as the international currency of choice. But why? How, for the first time in nearly 6000 years of monetary history, would a monetary instrument, no longer backed by gold, not only maintain, but continue to gain acceptance in the international market place? What was behind this US dollar strength? Had the dollar somehow become pseudo-backed by something else? 

"While no longer backed by gold" a monetary economist recently debated with me, "the dollar is now backed by the US technological miracle that spans the globe, and that's good enough," a point that remains debatable. But what is without question; over the last 100 years the dollar has moved from being 'gold backed' to 'petro-backed'. In the age of cheap energy, crude oil flowed virtually uninterrupted and freely worldwide, discovered, recovered, transported and refined largely by US affiliated companies and technologies, and all this sold and bought in US 
dollars using US dollar bank clearing systems. For now at least, OIL the 'King of Commodities' had become a more convenient backing to the world reserve currency than GOLD, the ageless 'King of Money'. 

Sincerely - Philip Judge pjudge@anglofareast.com 

(1) The London Gold Pool is an amazing, almost ridiculous story of Government's concerted efforts to contain the gold price in US dollars. 
More here : http://www.anglofareast.com/0139.html