You will like this...........Found this article at Contrainthinker.com
This is what they are saying about the author of this article.
"The Boys at Gold Eagle are pestering Vronsky to post this guy - they rate him in the top 3 worldwide!"
Anyways here is the link to the article and the article. The refrences to gold are at the end. EXCELLENT ARTICLE.
https://www.prudentbear.com/internationalperspective.asp
International Perspective, by Marshall Auerback
Where Is The Dollar’s “Safe Haven” Status When You Need It?
March 23, 2004
Terrorist bombing attacks influence election results in Spain, violence erupts again in “stabilised” Kosovo, more US troops get blown up by suicide bombers in Iraq, Sheik Yassin, founder of Hamas, is killed by Israeli forces (presaging yet more violence in the Middle East), and the Taiwanese President and his Vice President get wounded in an assassination attempt days before that country’s close run Presidential elections.
All this, in the mere space of a week. One might accordingly expect the dollar’s recent recovery to be perpetuated through a “flight to safety”, especially with so much of the current instability now emanating from Europe’s own backyard. But the greenback’s sluggish performance has been one of the less remarked features of this fear-filled week. Instead, it has been gold which has played the role of safe haven, a paradigm shift which may significant future implications for the capital markets.
A week ago Spain's centre-right government was gliding towards a third election victory. Now, more than 200 lie dead after the bombing of Madrid and the Socialists are back in power. Philip Stephens of the Financial Times posed the following question: “Was it that the carnage in Madrid reminded them that the government of José Maria Aznar had defied the people to back the US war in Iraq? Or was it that the government was suspected of manipulating the evidence about the authors of the atrocity for narrow electoral advantage?”
Most likely, he concludes, it was a combination of the two. But that’s not how the event was read by the vast majority of commentators, nor is it said, by Al Qaeda itself. The “insta-pundit” analysis suggests that the bombings have demonstrated the effectiveness of political terrorism and exacerbated underlying fractures in the alliance of Western democracies. José Luis Rodriguez Zapatero, the new socialist prime minister-elect, has put Spain firmly in the Franco-German anti-war camp by reaffirming his pledge to withdraw his country's troops from Iraq. Mr Zapatero remarked rather sharply on Monday that Mr Bush and Mr Blair might like to "reflect" on their decision to remove Saddam Hussein.
The consensus now has it that the geopolitical backdrop in Europe looks far more abysmal. As if to confirm that sentiment, within days of the Madrid tragedy, London’s Metropolitan Police Commissioner, Sir John Stevens, predicted that a terrorist attack on Britain could be inevitable. The further fracturing of European relationships will be taken as a huge victory for the terrorists. All of a sudden, the political context in which the euro predominates looks decidedly less favourable, goes the theory.
What about Kosovo? Last weekend, the Albanian province erupted back onto the world’s headlines, as the accidental death of two Albanian boys provoked a massive retaliation against the Serbs. Thousands of Albanians went on the rampage, killing more than 20 Serbs and wounding 500. At least ten Serbian churches and seminaries have been set on fire or blown up. The UN authorities have evacuated effectively the whole of the Serbian population from the few enclaves which have struggled on South of the Ibar river. The only part of Kosovo now populated by Serbs is north of this river, which horizontally bisects the divided town of Mitrovica. KFOR, the NATO force policing the area, has restored stability, but the underlying problems (namely, of ongoing ethnic cleansing and repeated violent skirmishes) have not gone away in spite of the fact that the problems of the Balkan States have been swept off the pages of our newspapers and the screens of our televisions. Again, not great news for Europe, on the face of it.
Although seemingly disparate events with no apparent connection, it is worthwhile considering the ongoing troubles in Kosovo in the context of the now familiar refrain that however great the costs of action in centres of instability, such as Iraq, the costs of inaction are far greater. Supporters of the war in Iraq, especially in the US, who have in recent days contemptuously dismissed the verdict in Spain as a simple exercise in appeasement, have fallen back on this argument, whose effectiveness in putting opponents of the war on terror on the defensive is due to two elements.
First, the “costs of inaction” are by definition unknowable, because that inaction did not occur.
Second, the suggestion is that inaction is the easy option, an excuse for cowardice, or evidence of heartlessness.
Another version of the same argument to the opponents of the Iraq war is “Would you stand by and do nothing?” As the problems in the Balkans demonstrate, however, sometimes the costs of action are all too easily quantifiable and lead to many unpleasant, unforeseen consequences, as the recent eruption of violence in Albania illustrates.
Again, like the Spanish election results, one could read the re-emergence of problems in Albania as euro-bearish because a fractured, disjointed response to global terrorism implicitly suggests higher risk premiums for the region. Furthermore, a backdrop in which terrorism raises its bloody head is highly unpropitious in terms of engendering consumer confidence across the continent, at a time when growth is already sluggish.
Of course, if one examines the problem more deeply, it is also possible to consider the notion that Kosovo’s problems prefigure those of Iraq, in a manner that has equally troublesome longer term implications for the dollar. Recent events in Kosovo show the falsehood of the argument which claims that “action” is better than “inaction”. The choice is, in any case, falsely presented. As commentator John Laughland has noted, the alternative to “action” is not inaction but a different course of action:
“Now that we know that the original genocide against the Albanian population was as illusory as the weapons of mass destruction in Iraq – and that, in any case, both the ‘genocide’ and the WMD were only pretexts for the real war aim of regime change - it is no longer possible to claim that Kosovo is better off now that ‘action’ was taken. It is just about possible that ‘action’ might have had something to be said for it if the UN and NATO authorities had done something to re-build Kosovo after occupying it. Instead, all forms of sensible action – like restoring the infrastructure or helping the economy – were ignored, in favour of the basest and most futile forms of political tokenism, such as holding elections for bodies with no political power, or pursuing other meaninglessly political correct initiatives.”
Events in Kosovo might actually be providing us with a rare insight into the likely future of Iraq.
Of course it is possible that the Iraqi resistance will prove too much for the occupying armies and that the situation will evolve more rapidly than in the Southern Serbian province. But if it does not, perhaps Iraq by 2008 – after five years of occupation – may indeed become a Middle Eastern version of Kosovo and slumped into the same futile poverty and violence. Given America’s ongoing role there (“we’ll stay until the job is done”), one can perhaps begin to understand the market’s lukewarm inclination to accept the dollar as a viable safe haven counterpart to a more problematic euro.
What about Taiwan? Taiwanese President Chen Shui-bian and Vice President Annette Lu were shot last Friday while campaigning for this weekend's presidential election. Although their injuries were not life-threatening, the attempted assassinations came at a time when China’s rhetoric toward Taiwan has become increasingly bellicose, and threats of an invasion seem less fanciful. In the event, President Chen Shui-bian of Taiwan was declared to have won a second term by a razor-thin margin on Saturday, but the opposition Nationalist Party called for the election to be annulled and suggested that the president might have staged an 11th-hour assassination attempt to get votes.
The disputed outcome complicates what had already become a delicate diplomatic test for China, which claims sovereignty over Taiwan, and the United States, Taiwan's main ally. China remained officially neutral in the election but clearly favored Mr. Lien, who says he would like to improve relations with China.
Chinese leaders have long feared that Mr. Chen wants to lead Taiwan toward a formal independence, and they have vowed to prevent that by using military force if necessary. If his victory stands, the immediate prospect for reducing tension across the strait appears remote. On the face of it, again, one might expect this sort of elevation in Asian political risk premiums to catalyse a general flight to safety out of Asian currencies into the dollar, much as what occurred in the aftermath of the Tiananmen Square massacre in 1989. So far, not so.
By definition, a “safe haven” implies that the asset class concerned is a refuge to which one turns when times get tough. But just as there is little point in seeking the sanctuary of a church on the verge of burning down, there seems little merit in re-embracing the greenback when the US itself remains an epicentre of instability, given the taxing role the Bush administration has set for itself of remaining the world’s sole dominant superpower, and the corresponding adverse economic impact that flows from this strategic decision.
As we have noted in the past, permanent military domination of the world can be an expensive business. For fiscal year 2003, the US defence appropriations bill came to $354.8 billion. For FY 2004, the Pentagon requested and received an increase to $379.3 billion, plus an additional $15.6bn for nuclear weapons programs administered by the Department of Energy and $1.2bn for the Coast Guard. This puts the total closer to $400bn. These amounts included neither intelligence budgets, expenditures for the reconstruction and administration of Iraq (which Paul Wolfowitz once laughingly described as virtually self-financing through the country’s oil revenues), nor do they incorporate the health and pension benefits that accrue to the military personnel (all of which takes the military budget up to something closer to 8% of GDP).
The first Gulf War was a pittance in comparison, since the US only had to meet around $7bn of the total $61bn cost. Japan came through with an astronomical $13bn, whilst Saudi Arabia, the UAE, Kuwait, Germany and various other American allies, all contributed a total of $54.1bn.
Moreover, a current account deficit now around 5% of GDP represents a considerable economic obstacle for a country with imperialist aspirations. By way of comparison, the United Kingdom ran a large current account surplus throughout its years as an imperial power, which allowed it to ignore the economic consequences of a disastrous venture such as the Boer War. Indeed, on the eve of World War I, Britain’s current account surplus as a percentage of GDP was 7 per cent. The US has committed itself to its new global commitments at a time of unprecedented financial fragility. It is almost as if Argentina had embraced similarly hegemonic aspirations.
And America’s increasingly complex role in the Middle East has just become considerably more fraught with problems in line of the Israeli decision to kill Sheik Ahmed Yassin, founder and head of Hamas. Hamas had always insisted that Yassin was the head of Hamas' "political" division and that wasn't he involved in planning suicide bombings.
Previous Israeli governments have held off going after Yassin for fear of what might follow. According to Israeli papers, Hamas released a statement suggesting it will retaliate not only against Israel but also the U.S: “The Zionists didn't carry out their operation without getting the consent of the terrorist American Administration. And it must take responsibility for this crime.” The dollar’s “safe haven” status becomes a little bit more undermined with each surge of violence in the Middle East, especially if blowback manifests itself on US shores.
So what has become the safe haven of choice? One week does not a bull market make, but it is noteworthy that during a time when the paper currencies essentially treaded water, spot future Comex Gold has had its best weekly rise for five months, rising from $US 395.60 to $412.70. Although we expect further central bank action to discourage its rise, gold still looks set to challenge its recent peak of $433.
Until recently, the yellow metal was seen as nothing more than a variant of the “anti-dollar” – i.e., its strength was seen as nothing more than a corollary of dollar weakness.
More recently, this has changed. In fact, the persistent strength of commodities, including gold, in the face of recent dollar strength has been one of the unremarked features of the markets in recent weeks. If one looks particularly at the “barbarous relic”, it has been strong as the bond market has crashed. It has done well when the bond market has recovered. Recently, it has even been strong whilst the dollar has recovered marginally.
What message is this conveying? The U.S. has a massive net external debt and an unsustainable current account deficit. Why has the dollar not crashed? The usual answer is that the world’s other major currencies – the euro and yen- have their own very serious drawbacks, to which recent events, such as those in Spain, Kosovo or Taiwan, have drawn greater attention. Many have remarked that, if all of the world’s currencies are unattractive, gold might regain some luster as a reserve currency and a store of value. It helps that nominal interest rates everywhere are negligible. It also helps that, in a world of ubiquitous excessive debt, gold is the one asset that is no one’s liability. Could gold’s recent strength finally be signaling its re-emergence as a viable safe haven of choice? The next few weeks in the markets could be very telling indeed.