Globalization and gold flows

In May I ran across some statistics regarding the global gold trade in 2006. Dubai is apparently rising as the new center of the gold trade, taking over from Amsterdam.

According to GFMS Gold Survey (2006) the world's production of gold (2,919 tonnes) is distributed geographically in the following proportions; to China (800); India (700); the Middle East (535); Europe (444); North America (235); Russia (87); South America (75); and Australia (10).

Lightly crunching the numbers, that means that China and India combined consumed over half the annual production for 2006. Add in the contribution from the Middle East and recycled petrodollars, and the proportion rises to over two-thirds. It's reasonable to infer that the price of gold to a large degree represents the fortunes of the emerging economies of China and India, along with a lesser contribution from the price of oil.

How Iran may strike back

Some days ago, it was reported that Hezbollah sleeper cells were being activated in Canada. There's no particular reason for Hezbollah to limit target recon operations to Canada. The purported reason is revenge for the February assassination of a Hezbollah leader, for which Hezbollah blames Israel. However, there may be deeper motivating reasons, given that one expert claimed that such attacks would alienate supporters.

Today, in response to alleged Israeli military exercises, Iran warned that it would deliver a devastating response to any attack. Iran's Revolutionary Guard provides assistance to Hezbollah. Given the timing, it's conceivable that Iran may employ Hezbollah as a proxy to retaliate against Israeli interests on a global scale should Israel launch an air strike. Similarly, it's conceivable that Iran may consider extending such operations to retaliating against American interests globally should the USA launch air strikes.

How to get the world to fund a bailout

It appears that pension fund investments are fueling a bubble in commodity prices. According to the article, the top five companies doing these swap agreements are: Bank of America, Citigroup, JPMorgan Chase, HSBC North America Holdings, and Wachovia. All of the firms have taken billions of dollars in writedowns in the asset-backed security bust. By not plugging the swaps loophole, US regulators are effectively bailing out these companies without resorting to directly raiding domestic tax coffers. Unfortunately, contributing to the speculative rise in commodity prices is effectively an indirect tax upon the entire world.

It is ironic when the very act of hedging against inflation directly results in inflation, by driving up the price of economic inputs. Inflation becomes a self-fulfilling prophecy.