Yeah, funny thing happened on the way to supposedly fighting the rise in gold, the U.S. still has all that gold (unaudited) in Fort Knox and the reason for leaving the gold standard was to stop the rush of gold from leaving the counrty to settle the then and growing deficit.

That gold ain't going nowhere because the U.S. understands at least one thing and they're getting it right, when the music stops on the fiat money you better have gold, and as far as we know it's all still there (here).

All-

As presaged in my 5:30am comment, the table is now all set for gold to get WHACKED today.

So Grant stole a march on Lee for once. Now we get to see who wins the race to Richmond. Gold down $13.

It may well turn out that I just buy all those miner positions back right here.

Safe trading all.

Bill: I found this article interesting so thought I'd pass it along to you for comment...if you have the time. It's just one market participant's opinion (Mr. Griffin) on what's behind the Paulson nomination, and he lays out an interesting scenario on what the Administration may be trying to accomplish. Of course, I'm not sure how believable it is. But what I really found interesting are his references to "the gnomes"...used in the same manner that you refer to the gnomes. Rather interesting I think...and I'm starting to "get it" thanks to your blogging....thank you.

Glenn-mp

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Bullish on This Conservationist Deficit Hawk
By Jim Griffin
RealMoney.com Contributor

6/5/2006 11:35 AM EDT
URL: http://www.thestreet.com/p/rmoney/marketcommentary/10289755.html

I'm encouraged by President Bush's nomination of Henry Paulson for Treasury secretary, and by Mr. Paulson's willingness to accept the nomination.

His private-sector experience in China and elsewhere in Asia could prove to be a critical credential as China's leaders struggle to manage that nation's transformation. Paulson presumably has built up a store of personal and professional credibility with key individuals over there, and this should carry over into the diplomatic and political realms.

The new Treasury secretary-designate is, or has been, an imposing figure in the world of finance. However, the nomination last week of the Goldman Sachs (GS:NYSE) CEO to be the guardian of the dollar's value apparently did not immediately impress the gnomes of Zurich: The U.S. unit continues to ease on the exchanges.

The dollar's future path will be a critical determinant of the results Americans will see in terms of real economic growth, inflation, interest rates and asset market values. A self-feeding selloff, always a possibility given the scale of U.S. external borrowing needs, could trigger dislocations that might result in a U.S. recession or accelerating inflation, or a stagflationary mix of both.

Lately, the dollar has been a market of many sellers and a scarce few -- but very large -- buyers. It is not a big exaggeration to say that the dollar is run not from Washington but from several cities in Asia. The asymmetry of this market balance is a major risk but also, handled adroitly, an opportunity for a managed adjustment.

It isn't necessary to win over the majority of the gnomes if leaders in Beijing, Tokyo and Taipei can be convinced to work with us to effectuate a solution over the intermediate-term to the world's imbalances, one that minimizes the chance of a crisis in the short-term.

A Treasury secretary of exceptional credibility can be a great contributor to such a solution. The private-sector Henry Paulson worked closely with key Asian leaders in his years as capo at Goldman. Presumably, he has the personal connections and professional credibility necessary to command respect in economic and financial matters. A critical judgment for markets and for foreign leaders to make is whether he really is the man at Treasury, or merely a puppet of the White House.

It is difficult to believe that he would have accepted the job -- and a 99% pay cut -- unless he has received assurances of a mandate to lead from Alexander Hamilton's old office. He doesn't need the job, after all, so presumably he was able to negotiate a long leash and substantial autonomy -- and he did bargain face to face with the president.

As China's economy develops, and as Chinese leaders give hints of a desire to adjust the fulcrum of their economy between domestic and foreign end-markets, a deal is there to be made. A currency held below its freely traded value, as China's yuan is widely suspected to be, grants competitive benefits to a nation's producers but imposes purchasing power penalties on its consumers.

Allowing the yuan to rise toward its natural value is a logical step in rebalancing away from heavy reliance on foreign markets toward greater emphasis on domestic. A Treasury secretary who is trusted in China and believed to have the ear and the pen of the president is in perfect position to broker that deal.

A deal between China and the U.S. to manage their bilateral exchange rate, announced or unannounced (and ferreted out by the market), will go a long way toward easing anxiety in the foreign-exchange market about the risk of a dollar crisis. It will also help to hedge the downside risk to the value of China's multibillions of U.S. holdings, to say nothing of the multitrillions held by U.S. investors.

I am of the opinion that the dollar should go lower as part of the global rebalancing solution, but I don't believe it needs to go much lower. As Japan and Europe ratchet up their economies, U.S. producers should be able to increase their current 10% inertial growth rate of exports. A somewhat more competitively priced dollar should potentiate that effect. If the preconditions for global rebalancing are seen to be put into place, then the success in that rebalancing will start to be discounted. The gnomes will then come around, and heavy selling pressure should come off the dollar.

I'm encouraged about the Paulson nomination, because its circumstances lead to the inference that he will have real leverage in the job. His predecessors either spoke up and got run off (Paul O'Neill) or toed the line and suffered a loss of credibility (John Snow).

Further, he is reputed to be a deficit hawk and an ardent conservationist. Neither of those labels would characterize the Bush administration up to this point, so his nomination hints that there may be some new thinking going on there. That has been the impression ever since the appointment of Josh Bolton, another Goldman alum, to be Mr. Bush's chief of staff.

Another critical element of global rebalancing is for the U.S. to raise its rate of saving relative to its rate of investment. If it fails to do so in the face of other necessary adjustments, such as Chinese rebalancing and Japanese and European re-energizing, then a global competition for access to resources and global overheating is a high likelihood. In such circumstances, the world's biggest debtor will be forced to the back of the buffet line, probably by means of renewed selling pressure on the dollar.

The quickest, most easily focused way to raise the national saving rate is to shrink the federal budget deficit. If the Treasury secretary-designate is truly to lead the Bush administration's economic policies, then spending restraint and revenue enhancement should rise to the top of the agenda. Discretion and political savvy imply that any talk of revenue enhancement will have to wait until after the midterm elections, but beyond that point it is not purely hallucinatory to imagine a new Bush administration bumper sticker: "Tax Carbon, Not Capital."

The recent market volatility has been a function of the difficulty in seeing how a soft landing might take place in a setting of soaring commodity prices and relatively inflexible economic policies. But now, with the retreat of speculative fervor in raw materials, and with the cooling of U.S. housing markets, the possibility of soft landing once again asserts itself.

Pragmatic on its face, the Paulson appointment is yet another argument for maintaining faith.

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Jim Griffin is economic consultant and portfolio adviser to ING Investment Management and its Hartford-based unit, ING Aeltus, which manages institutional investment accounts and acts as adviser to the ING Mutual Funds. His commentary on the financial markets is based upon information thought to be reliable and is not meant as investment advice. While Griffin cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.