E-Letter To The East African, All Africa.com And Sam Wainaina Re: Golden Policies That Ensure Africa Remains Poor

We cannot tell you how pleased we were to read your article, "Golden Policies That Ensure Africa Remains Poor" via AllAfrica.com. We have been virtually alone in the Black media, in America, in raising our concern over the dramatic fall in the price of gold, which absolutely occurred with the full knowledge and support of the Federal Reserve and US Treasury, as you claim. More than any other factor in the last five years, the drop in the price of gold and other commodities has ruined African economies.

The only point that we would differ with you on is in the explanation of the manner in which the price of gold has fallen. Your piece places the responsibility for the dramatic fall in the price of gold on the actual sale or rumors of sale of the specie itself. We disagree with that assertion and if you track the actual movements in the price of gold over the last few years we think that you will agree with our opinion.

While the actual demand for gold can determine its price, in the short term - with all other variables being equal, the overwhelming factor which determines the price of gold is the supply of dollar liquidity around the world. That supply is ultimately determined by the Federal Reserve, which through its Open Market transactions, can inject or remove dollars from the financial marketplace through the purchase and sale of U.S. Government securities.

It is that factor, which determines the price of gold. Gold being the most monetary of all of the commodities in the world, signals the level of dollar liquidity via its price level. The dramatic drop in the price of gold from over $400 an ounce in 1996 to near $250 in 1999 signaled that a monetary deflation was in effect and indicated that the Federal Reserve was not supplying a sufficient amount of dollars to the global marketplace.

While you are correct to recognize that the threat of IMF and world central bank gold sales can place downward pressure on the price of gold, such pressure is almost always temporary in nature. You should be aware that the fall in the price of gold beginning in 1996 was not caused by the phenomenon upon which you have placed your primary focus.

Having made that point of clarification, we applaud your efforts to take the masses into the backroom where some very shady dealings are taking place among the world's international banking community. And we stand shoulder to shoulder with you in your efforts to connect the dots and reveal how the actions and decisions being made in private offices in London and New York, for the benefit of a few, are absolutely ruining the lives of Africans and others throughout the world.

Sincerely,

Cedric Muhammad

Thursday, May 31, 2001