Gold, having risen above US$800 per ounce on November 2, caused us to review the bullion holdings on deposit with streetTRACKS Gold ETF. The following chart shows those bullion holdings measured in millions of ounces to one decimal place at the end of each three month quarter beginning with October 31, 2006 and ending with November 2, 2007. We also show the percentage increase from October 31, 2006 at the end of each quarter end.

FusionCharts.

FusionCharts.

The increases in the quarter ended October 31, 2007 (depicted as November 2) and in the month of September are quite striking. While whether such increases continue remains to be seen, they do suggest marked increased interest in gold accumulation as a store of wealth.

The U.S. ‘Goods Only’ Trade Deficit stood at approximately 7.0 trillion at December 31, 2006, and at August 31, 2007 stood at approximately 7.5 trillion. The monthly ‘Goods Only’ Trade Deficit in 2007 to August 31 is set out in the following chart (billions rounded - source U.S. Census Bureau of Economic Analysis, October 11, 2007):

FusionCharts

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Current annualized U.S. GDP growth and inflation forecasts broadly seem to be in the order of 3.3% and 2.7% respectively. At the same time current U.S. dollar forecasts suggest that the U.S dollar measured against the Euro will remain in the present trading range for the balance of 2007. Given the current state of U.S. trade deficits, the extent of and continuous growth in U.S. debt, the current sub-prime issues affecting stock markets, U.S. Consumer debt and dollar concerns, ongoing conflicts in Iraq and Afghanistan, and ongoing terrorism concerns, we think any such forecasts should be viewed with healthy skepticism. Inflation forecasts likewise may be effected by the Feds 50 basis point drop in interest rates last week. Stay tuned.

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From an economic perspective, it is easy to see how manufacturing adds value by converting raw or processed materials into tangible end-user products. That U.S. manufacturing jobs have been eroding in absolute numbers over the past ten years is irrefutable. This has been particularly in the case in industries such as Automotive, Electrical Machinery, Footwear Manufacturing, Furniture Manufacturing, Lighting Products, Office Machinery, Textile Manufacturing, and so on (for example, see Congressional Research Service Report for Congress, China’s Trade with the United States and the World, January 4, 2007). Based on U.S. Department of Labor statistics U.S. manufacturing jobs declined in the ten-year and seven year periods ended July 2007 by approximately 14% and 18% respectively.

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For many years The Peoples Republic of China (‘PRC’) has reported a GDP annual growth rate of 8% - 10%, creating an unprecedented demand and upward pressure on prices for basic commodities such as copper and crude oil. While there are many economic issues related to China that bear directly on the economic wellbeing of the U.S., perhaps none is as important as how a slowdown in U.S. Consumer spending would affect China’s GDP growth rate and its then behavior in respect of how it prospectively would deal in such circumstances both with the large amounts of U.S. dollars it holds and its continuing purchase of raw materials required to fuel its growth. This is because it is generally believed that the U.S. consumer spending is significantly important to on-going global (and given the U.S.’s apparent continually increasing dependence on economies external to its own) and U.S. economic growth, with the consequence that if the American Consumers reduce consumption the world (read China in particular) macro-economic engine may slow down significantly or reverse direction.

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The U.S. consistently ran Trade Surpluses from 1960 to 1970, but after 1970 has incurred Trade Deficits in every year except 1973 and 1975. The following two charts show the aggregate ‘Goods Only’ Trade Deficit by Decade for the Decades ended 1979, 1989, 1999, and 2009, where we have assumed that the Trade Deficit for 2006 will be repeated in each of 2007 through 2009 when the Trade Deficit has increased on a year over year basis in every year after 2001. Based on current monthly trade deficit levels we believe it likely, barring a serious recession, that the Trade Deficit we have interpolated for the Decade ended 2009 will be greater than the amount we have calculated (Data – Balance of Payment basis: U.S. Census Bureau, Foreign Trade Division).

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