Another Problem With the GLD ETF

In December I published A Problem With GLD and SLV ETFs where I briefly perused the GLD prospectus. It concluded, “For these reasons including (1) the quality of the gold is at issue, (2) no audit of the physical metal is permitted, (3) counter-party risk impregnates the investment vehicle and (4) there are strong conflicts of interest with complicit players in the central bank gold price suppression scheme; GLD and SLV appear impotent in reducing inflation or counter-party risk.”

Quality of Gold
From the original article, “Page 12 “In issuing Baskets, the Trustee relies on certain information received from the Custodian which is subject to confirmation after the Trustee has relied on the information. If such information turns out to be incorrect, Baskets may be issued in exchange for an amount of gold which is more or less than the amount of gold which is required to be deposited with the Trust.” On page 11 “In addition, the ability of the Trustee to monitor the performance of the Custodian may be limited because under the Custody Agreement the Trustee has only limited rights to visit the premises of the Custodian for the purpose of examining the Trust’s gold”. Therefore, it appears that an audit of the actual physical gold is precluded (Update: See comments 25 & 26).”

Reader Comment Raises an Issue
A perceptive reader commented (#25):
But I’m not sure how you get to “an audit of the actual physical gold is precluded” from “the Trustee has only limited rights to visit the premises of the Custodian for the purpose of examining the Trust’s gold”. “Limited rights” is not “no rights”.”

If Deloitte’s statement of 21 November in the 10-K is to be believed, they have “audited the … statements of condition … [and] such financial statements present fairly, in all material respects, the financial position of the Trust”. Now I am quite ready to be sceptical about the lengths DT went to check the gold was there. But, on the face of it, they have effectively stated that the $20bn worth of gold as per the balance sheet really exists and really belongs to GLD. And it’s hard to imagine they didn’t at least send someone to the premises of the Custodian to have a quick peep, though of course in this crazy world of mediocratic financial services it is probably unwise to have 100% faith even in that. [emphasis added]

Trust Audit Rights of the Custodian or Subcustodian
The latest 10-K (Commission File Number 000-32356) on pages 26 and 18 respectively: ” Gold held by the Custodian’s currently selected subcustodians and by subcustodians of subcustodians may be held in vaults located in England or in other locations.” and “In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust’s gold or any records maintained by the subcustodian, and no subcustodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.”

The audit test was performed to the standard of ‘reasonable assurance’. Piecing these assertions together it could be possible for subcustodians to provide incorrect information, either negligently or willfully, to the Custodian concerning the physical gold quantity or quality. If the incorrect information came to the knowledge of the Custodian then they would issue Baskets. Regardless the Trust is unable to visit the premises and examine the Trust’s gold or any records maintained by the subcustodians. As a result, the paper instrument would inaccurately represent the represented underlying physical bullion and the error would most likely not be discoverable.

Investment in Gold Versus Gold
In the 10-K on page F-3 SPDR Gold Trust asserts an “Investment in Gold, at cost” of $16,878,554,000. The term ‘investment in gold’ is used in multiple places throughout the 10-K. This is contrasted with other terms such as ‘Proceeds from sales of gold’. This raises the issue of whether gold and investment in gold are synonymous terms?

In accordance with International Accounting Standard 1, The Bank for International Settlement’s Annual Report, under Accounting policies footnote 14, treats Gold as a financial instrument. Under Notes to the financial statements part 5 the Bank is extremely careful to distinguish ‘total gold holdings’ as being comprised of ‘gold investment assets’ and ‘gold and gold deposit banking assets’.

In GLD’s case, the financial statements make a significant distinction between ‘investment in gold’ and ‘gold’. This is odd considering most companies do not make such a distinction between similar financial instruments such as ‘dollars’ and ‘investment in dollars’ or ‘euros’ and ‘investments in euros’.

Also odd is the lack of transparency over what GLD’s ‘investment in gold’ is comprised of. Is the phrase ‘investment in gold’ broader, narrower or completely different from the term ‘gold’? For example, can a COMEX futures contract, warehouse receipt or other similar OTC derivative fall under ‘investment in gold’? The term gold is well defined as a chemical element with the symbol Au and atomic number 79. Obviously, a warehouse receipt for gold is not gold unless the receipt is made of the chemical element of atomic number 79.

Mr. Turk addressed this particular issue and concluded, “If GLD declared its asset to be “Gold”, the fund’s auditor would have to substantiate that the gold really exists, which GLD of course cannot do because of the inability to audit or even inspect gold stored in subcustodians and sub-subcustodians, which is a risk noted in the prospectus.”

Because the Trust does have some gold in their vault the auditors are most likely satisfied to a ‘reasonable assurance’ concerning the rest of the gold.

Conclusion
GLD ETF Trust supposedly holds more than 1,000 tons of gold. That amount is surpassed only by the United States, Germany, IMF, France, Italy and Switzerland; assuming they have the gold they claim. Under the GLD prospectus and latest 10-K it appears that the Trust neither needs to own actual physical gold that constitutes atomic number 79 nor allow their auditors to see and touch the undefined ‘investment in gold’. I agree with the reader who asserted that ‘it’s hard to imagine they [auditors] didn’t at least send someone to the premises of the Custodian to have a quick peep’. In other words, ‘Just trust us, the gold is there.’ But why believe them?

By: Trace Mayer, J.D. on 19 February 2009 - part 2

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A Problem with GLD and SLV ETF's

The ’sweat of the sun’ and ‘tears of the moon’ are singularly unique commodities. They function as unencumbered equity and function as a presentation currency. For this singular reason they are largely hoarded not consumed and serve to protect against despotic government inroads by preventing confiscation through inflation which is a form of taxation without representation.

The ETFs GLD and SLV are commonly represented as being bullion. Accepting this assertion is naive and with potential financially lethal consequences. While GLD and SLV track the relative prices that is where the similarities with bullion end.

On May 20, 1999 Alan Greenspan testified before Congress, “And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.”

The ETFs GLD and SLV are not this ultimate form of currency. I will raise only a few essential issues although there are many.

Quality of Gold
Gold is a physical substance with a specific definition and is listed as element 79 in the periodic table. Gold is not subject to any risks and serves with complete fidelity only its master. Drafted by securities attorneys usually earning $500+/hour the GLD prospectus, which is similar to SLV’s prospectus, states, “Investing in the Shares involves significant risks. See “Risk Factors” starting on page 6.” Page 11 states “Neither the Trustee nor the Custodian independently confirms the fineness of the gold allocated to the Trust in connection wtih the creation of a Basket [issuances].” Page 12 “In issuing Baskets, the Trustee relies on certain information received from the Custodian which is subject to confirmation after the Trustee has relied on the information. If such information turns out to be incorrect, Baskets may be issued in exchange for an amount of gold which is more or less than the amount of gold which is required to be deposited with the Trust.” There is no assurance that the ‘gold’ held in the ETFs is actually the same gold as defined under the periodic table.

On page 11 “In addition, the ability of the Trustee to monitor the performance of the Custodian may be limited because under the Custody Agreement the Trustee has only limited rights to visit the premises of the Custodian for the purpose of examining the Trust’s gold”. Therefore, it appears that an audit of the actual physical gold is precluded (Update: See comments 25 & 26). In other words, ‘Just trust us, the gold is there.’

Counter-party Risk
The reassertion of counter-party risk is driving much of the risk in the current markets. Page 10 states “If the Trust’s gold is lost, damaged, stolen or destroyed under circumstances rendering a party liable to the Trust, the responsible party may not have the financial resources sufficient to satisfy the Trust’s claim.” On page 9 “The Trust does not insure its gold.” Further on page 12 “Gold held in the Trust’s unallocated gold account and any Authorized Participanet’s unallocated gold account will not be segregated from the Custodian’s assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant. In addition, in the event of the Custodian’s insolvency, there may be a delay and costs incurred in identifying the bullion held in the Trust’s allocated gold account.” Gold is not subject to counter-party risk or in other words the financial ability of a counter-party to pay. Clearly, GLD is impregnated with counter-party risk that may instantly and violently appear from within like the Alien.

Confict of Interest
There is economic incentive for the Custodians to loot the ETFs. From page 9 “Under the Custody Agreements, the Custodian is only liable for losses that are the direct result of its own negligence, fraud or willful default in the performance of its duties. Any such liability is further limited, in the case of the Allocated Bullion Account Agreement, to the market value of the gold held in the Trust’s allocated gold account with the Custodian, or the Trust Allocated Account, at the time such negligence, fraud or willful default is discovered by the Custodian”. Not only does the Custodian attempt to disrobe itself of liability but even if it is found liable it tries to assert damages accounted at the time of discovery of the default. The probability of such damages being woefully understated relative to the potential future market value in the event of such a default is extremely high. In effect, this provision gives the Custodian a perpetual call option on the GLD hoard.

Who are these parties that say, ‘Just trust us, the gold is there.’? Page 36 lists some Authorized Participants including such venerable, safe and secure Wall Street behemoths as Bear, Stearns & Co. Inc., Lehman Brothers Inc., Citigroup Global Markets Inc., Merrill Lynch, Goldman Sachs, J.P. Morgan Securities, UBS Securities and Morgan Stanley & Co. Given the past actions of these firms I am not sure I would want them anywhere near my gold.

For example, in June 2007 Morgan Stanley & Co. settled a class action lawsuit for $4.4 million where the complaint alleged ‘that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store. But Morgan Stanley either made no investment specifically on behalf of those clients, or it made entirely different investments of lesser value and security.’ While the efficacy of the claim may still be at issue the Better Business Bureau-like complaint from unsatisfied customers who initiated litigation does not inspire confidence for those seeking to reduce risk.

During a credit contraction and liquidity crisis the ‘relationship goes out the window’. On December 12, 2008 UBS ‘UBS AG announced today it has frozen one of its real estate funds until the end of next year, due to an inability to keep up with redemption requests from wealth management clients.’ Why? The spokeswoman said, ‘We closed the fund temporarily for the protection of the investor’. It would be most unfortunate to have one’s gold in the sticky fingers of such fine and upstanding firms that refuse to deliver to protect you.

Additionally, the GLD and SLV hoards may pose a convenient source of bullion for the United States government to steal. Given prior tyrannical history with FDR’s Executive Order 6102 this may be a material threat. On the other hand, Section 19 of the 1792 Coinage Act stated that those who ‘debased or made worse as to the proportion of fine gold or fine silver therein contained … shall suffer death’. Perhaps the Americans were more civilized than their French counterparts and preferred the appearance of due process of law when executing their bankers and politicians for destroying their economies with fiat currency and fractional reserve banking.

Accomplices To Central Bank Gold Price Suppression Scheme
During the 1990’s Mr. Rubin had devised the gold leasing scheme with the intent being elucidated by Dr. Greenspan’s testimony in 1998, “Nor can private counterparties restrict supplies of gold, another commodity whose derivatives are often traded over-the-counter, where central banks stand ready to lease gold in increasing quantities should the price rise.” Many of the previously mentioned firms are alleged by GATA to be complicit players in the central bank gold price suppression scheme. Mr. Robert Landis, a graduate of Princeton University, Harvard Law School and member of the New York Bar, has asserted that “Any rational person who continues to dispute the existence of the rig after exposure to the evidence is either in denial or is complicit.” Is it possible that GLD and SLV hoards are being surreptitiously used to continue the gold price suppression scheme?

Conclusion
For those desiring to trade paper gold the GLD and SLV vehicles may satisfy those requirements. But for those who desire the ’sweat of the sun’ or ‘tears of the moon’ in order to own the ultimate form of payment and therefore hearken to Chicken Little’s warnings and protect their assets then the GLD and SLV vehicles appear extremely deficient. Alternative forms of holding allocated gold bullion exist that are affordable, secure, convenient, trustworthy and not subject to counter-party risk. For these reasons including (1) the quality of the gold is at issue, (2) no audit of the physical metal is permitted, (3) counter-party risk impregnates the investment vehicle and (4) there are strong conflicts of interest with complicit players in the central bank gold price suppression scheme; GLD and SLV appear impotent in reducing inflation or counter-party risk. These are not risks to take during The Great Credit Contraction.

By: Trace Mayer, J.D. on 13 December 2008 - part 1

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Abu Dhabi Bond Sale Earns High Rating

Abu Dhabi’s upcoming $10bn bond programme, of which an initial tranche of at least $2bn-$3bn is on a road show in London and the US, received on Friday the third-highest rating from the three major credit rating agencies.

Bankers and analysts expect the bond sale by Abu Dhabi, the capital of the United Arab Emirates, to be used to help finance government-linked companies and provide the private sector with a benchmark sovereign yield curve.

Though cash-rich thanks to the country’s hydrocarbon wealth, the Abu Dhabi-based UAE central bank has seen its reserves depleted by fiscal measures to prop up the banking system and Dubai, its debt-laden neighbour.

Standard & Poor’s, Fitch Ratings and Moody’s Investor Services assigned the Abu Dhabi bond the third-highest rating available, AA or Aa2, reflecting the UAE capital’s financial strength.

Farouk Soussa, S&P credit analyst, said the bond is “supported by the government’s very strong asset position, which provides significant financial flexibility, the country’s high level of political stability and wealth, underpinned by its rich resource endowment”.

But Abu Dhabi is facing increasing financial commitments, while depressed oil prices are weighing on revenue and the global financial crisis buffets its sovereign wealth fund.
The Abu Dhabi Investment Authority has lost money on investments in financial institutions such as Citibank, but still holds an estimated $750bn according to Preqin, a data provider.

Abu Dhabi has injected $4.4bn of capital into five of its banks, and the central bank recently extended $10bn to Dubai to help it meet external debt commitments coming due this year.

The federal finance ministry has also deposited Dh50bn ($13.6bn) of a promised Dh70bn into local financial institutions, to help them weather the storm.

Bankers expect Abu Dhabi will have to step up its support of Dubai, which is groaning under the weight of about $80bn external sovereign-linked debt and a spluttering economy.
The bond will be backed by dividends from ADNOC, the national oil company, and income earned by its sovereign wealth fund.

The bond sale will also provide an important yield curve that companies in the UAE can use to price their own bond issuance, which is expected to rise now that the local stock markets are in the doldrums and banks are reluctant to lend directly.

By Robin Wigglesworth in Abu Dhabi
Published: March 27 2009 22:46 Last updated: March 27 2009 22:46

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Where Does The Gold ETF Get Its Gold?

One of the most commonly heard "theories" about how the world's most popular gold investment product - the SPDR Gold Shares ETF (NYSEArca:GLD) - is defrauding investors is that the trust can't possibly contain the gold they say they have because there is no evidence of any transfers of this size on any gold market. The logical conclusion, of course, is that the ETF is a sham.

All it takes is a simple phone call to completely debunk this "theory", something that, to my knowledge, no one has bothered to do until about an hour ago when I picked up the phone and began dialing after quickly locating the contact page at the GLD website.

Anyone wanting to cast doubt on the quantity and/or quality of the bullion backing the gold ETF should start looking at HSBC (Hongkong and Shanghai Banking Corporation) instead of the Comex or any other gold market because that's where the gold transfers occur.

In a quite pleasant conversation with Natalie Dempster, Head of Investment in North America for the World Gold Council, it was learned that purchases made by "authorized participants" result in gold being transferred from "unallocated" accounts to "allocated" accounts at HSBC in London.

Since these are internal transactions, records are not made public.
That's why no one can "see" where the gold is coming from.

As noted on many occasions before, it is my firm belief that if you want to own gold, you should buy the stuff in physical form and put it somewhere safe. Anything short of that - whatever you buy and from whomever you buy it - is a distant second to this option if your aim is to ensure that the stuff is really there.

Now, I have no idea whether HSBC is doing what they say they're doing or whether they are another Bernie Madoff outfit, filling out all the proper paperwork and putting smiles on their customers' faces until the day eventually comes when they are revealed to be another massive fraud.

Maybe someone should call HSBC and ask them for these records.

But, to simply say that the ETF can't have the gold they say they have because no one can see these transactions on any market, yet no one bothered to pick up the phone to ask the people who run the fund just why that is .... well, that's about the sloppiest bit of writing I've come across lately.

(Note: For those of you haven't already seen it, there is a highly informative and recently expanded list of Frequently Asked Questions at the GLD website.)

By: The Mess that Greenspan Made Thursday, March 26, 2009 2:06 PM

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Dubai World Central – Cargo Gateway of the Middle East

Dubai has been a trading city for almost 200 years. The Creek has played a major role in the economic development achieved by Dubai. Since the early days, when Dubai was a center for pearl fishing and pearl trade, Dubai's trade development was attributed to the creek. While the discovery of oil in the sixties has been crucial to Dubai's development, trade still remains the heart of Dubai's business life, just as it has been for generations. Currently, the non-oil sector contributes more than 90 per cent to the economy.
Dubai's natural creek attracted traders from all over the world. Ships and dhows from the Gulf, Iran, the Indian subcontinent and even from European coasts called on Dubai. These ships laden with between 200 and 300 tons of cargo used to anchor at the creek to fulfill the needs of the local markets or for re-export purposes, emphasizing the historical position of Dubai as a center for regional trade. This tradition still continues due to its geographical location, mid-way among Europe, Asia, Africa and the Americas. Dubai has achieved an outstanding position as one of the world's most important transit hubs in a very short span of time.

Dubai Cargo Village (DCV) was built at a cost of $75 million in 1991 as a response to the growth in air and sea freight and to facilitate transshipment operations between the Indian sub-continent, South East Asia, the Far East and Europe. The central position of the UAE on the world map is a vital factor in the phenomenal success of the Dubai Cargo Village, as it has become an important fulcrum for the movement of cargo in the region. Due to its consistent performance with a positive, steady growth, its world-class facilities and effective administration, it is no surprise that DCV has earned the title of the Best Cargo Hub in the region (2007). The Dubai Cargo Village forms a gateway between the East and the West to a market of more than 1.5 billion consumers and is a purpose-built complex that has an annual freight handling capacity of 750.000 tons. The phenomenal growth of Dubai, the determined expansion of the Emirates Airline and the increased popularity of air cargo transportation has produced remarkable results, see below chart: Annual Freight Handling 1978 - 2005.

Cargo Gateway of the Middle East
When Dubai Cargo Village began 17 years ago, it was designed to handle 150.000 tons of cargo but within a few years the facility became too small for the burgeoning cargo demand. With currently 112 airlines coming into the Dubai International Airport (IATA code: DXB, ICAO code: OMDB), construction of the Mega Cargo Terminal is part of an expansion plan for Dubai Cargo Village and will be completed in four stages. In 2006, Dubai Cargo Village handled 1.3 million tons of cargo with steady growth of 15 percent per annum that is expected to go up even further after the inauguration of the brand new Mega Cargo Terminal. The Mega Cargo Terminal is currently under construction and is expected to open in different phases from 2007 onwards. The final phase of the Mega Terminal, which is estimated to be complete by 2018, will be built at a total cost of $200 million and will be able to offer a throughput capacity of 2.7 million tons of cargo per year.

Dubai Cargo Village contributes significantly to the UAE's economy because of the high amount of trade it brings in. Without such a facility Dubai would not be on the world trade map. The location next to the airport is very convenient. With world-class transport, communication and infrastructure, Dubai now handles redistribution activities within the region and worldwide. The cargo and freight forwarding industry has grown hand-in-hand with the city becoming a recognised hub and gateway, be it container throughput at any of its seaports or airfreight lifts at the Dubai Cargo Village. Dubai Cargo Village can turn around a fully laden Boeing 747 in 90 minutes and can complete sea-air handling in four hours. Dubai Cargo Village also works in tandem with other cargo-related institutions such as customs, Dnata, Emirates SkyCargo and the Dubai Ports Authority, which ensure that all processes run smoothly for timely and cost-effective movement of cargo. Dnata Cargo is the handling agent at Dubai Cargo Village, and because of the growth of Dnata Cargo and Emirates SkyCargo, Dubai Cargo Village is also slated to grow rapidly.

The latest built cargo facility, Dubai Logistics City in Jebel Ali has the potential of becoming the logistical centre of the UAE and is slated to handle 12 million tons of cargo per annum. Dubai Logistics City will be located near the Al Maktoum International Airport and adjacent to the Jebel Ali Port Free Zone. When completed, Al Maktoum International Airport will have the capacity to handle more cargo than Chicago's O'Hare Airport and London's Heathrow airport, while the Jebel Ali Port is already one of the world's largest container handlers. Dubai Logistics City, as part of Dubai World Central, will be an important landmark in the UAE and will further strengthen Dubai's position to become the premier logistical and cargo centre of the region.

Dubai World Central
Dubai World Central (DWC) is a 140 square kilometer planned residential, commercial and logistics infrastructure plan and will entice the world's first truly integrated logistics platform with all available transport modes, logistics and value added services. The project will also contain manufacturing, maintenance and assembly sites lifting DWC to a fully capable 'one-stop-shop' Maintenance, Repair and Overhaul (MRO) services facility for carriers across the globe, in a single bonded free zone environment. DWC is made up of the airport city components (Dubai Logistics City, Al Maktoum International Airport, Aviation City and the adjacent Jebel Ali Port and Free Zone) through a customs-bonded road corridor. Originally labelled 'Jebel Ali International Airport' and 'Jebel Ali Airport City', the official name for the estimated $80 to $90 billion project is 'Al Maktoum International Airport' (IATA code: DWC, ICAO code: OMJA). Al Maktoum International Airport will be the main project of Dubai World Central.

Designed for the future, Al Maktoum International Airport will handle all next-generation aircraft. The project master plan is fully dedicated in receiving and handling the largest passenger jet ever, the Airbus A380-800 super-jumbo. Up to four aircraft will be able to land simultaneously, 24 hours a day, minimizing local air congestion and queuing.

Al Maktoum International Airport will include:

• 6 parallel runways, 4.5 kilometers in length, each separated by a distance of 800 meters
  
• Three passenger terminals including two luxury facilities; one dedicated to airlines of the Emirates Group, the second to other carriers, and the third dedicated to low cost carriers
  
• 6 concourses with a 91 meter high control tower that will be an aviation landmark in the Middle East
  
• 16 cargo terminals with a 12 million ton capacity
  
• Executive and Royal jet centers
  
• Hotels and shopping malls
  
• Support and maintenance facilities (the region's only hub for A, B, and C-checks on all aircraft up to A380 specifications)
  
• Over 100.000 parking spaces for airport staff and passengers
  

Dubai's expectations of an exponential rise in passenger traffic over its skies is built on the presumption that it would become the ideal air hub for transiting travelers from the Asia-Pacific Region, South Asia, Greater Middle-east, Africa, Europe, and Australia (Kangaroo route). When fully built, Al Maktoum International Airport will be capable of handling 120 million passengers and 12 million tons of cargo annually. Its large runways and the distance between would allow simultaneous take-offs and landings. The airport shall initially service cargo airlines and will be used by foreign carriers only. Emirates Airlines operations (both passenger and cargo) will remain at Dubai International Airport (IATA code: DXB, ICAO code: OMDB), some 40km away.
Al Maktoum International Airport is surrounded by a large logistics hub (16 cargo terminals), an ultra-luxurious golf resort (with suburban housing interwoven between greens and fairways), an expansive trade and exhibition facility (3 million square meters of exhibition space), a massive commercial district and a spacious residential district. The trade and exhibition facility would become the world's largest single exhibition destination.

Dubai World Central creates a new benchmark in urban planning and destination living designed to support Dubai's aviation, tourism, commercial and logistics requirements until 2050 and represents one of the most important developments in the history of the United Arab Emirates. Eventually home to 900.000 people, DWC will be a true 'city-within-a-city' with all the amenities that make up a world-class residential destination. Next to Al Maktoum International Airport, the Dubai World Central project master plan comprises five other specialized clustered zones:

• DWC Aviation City - will be the region's premier centre of excellence for aviation manufacturing, MRO, aviation support services and consultancy, research and development, training, aviation products and parts and high tech industries. It is unique concept to establish in one place a complete aviation cluster to cater to the growing aviation demand in the region. It is strategically located to provide clients access to emerging market as well as servicing the fast progressing market of Middle East
• Dubai Logistics City (DLC) - will be part of the world's first truly integrated multi-modal logistics platform in a single-bonded free zone environment made up of DLC, Al Maktoum International Airport and Jebel Ali Port. It is designed as the region's unchallenged logistics hub catering to some two billion people throughout the Middle East, Indian Sub-continent, Africa and the CIS, all within three to four hours flying time from Dubai
• DWC Commercial City - will be the business and finance hub featuring more than 850 towers, ranging from 1 to 45 storey's in height. The city, expected to employ 130.000 people, will also boast 25 hotels ranging from deluxe, through to five-star, four-star and three-star properties
• DWC Residential City - will include a mix of five-ten storey mid-cost apartment blocks. Up to 250,000 people are expected to live in this 'city'. A special staff village will house blue-collar workers within high-quality accommodation
• DWC Golf City - will feature two 18-hole golf courses, extensive practice facilities, driving ranges, putting greens, a luxury clubhouse with restaurants and a pro-shop. Over 5.000 freehold homes will surround the courses. The resort will also feature a high-end boutique hotel

When completed, Dubai's Al Maktoum International will be the biggest airport in the world. It will have an annual cargo capacity three times the size of today's largest cargo hub (Memphis), and a passenger capacity of almost double the world's busiest passenger airport (Hartsfield-Jackson Atlanta International Airport).

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Dubai’s Economic Slump

What started as a subprime crisis in the US, evolved into a credit crisis and has now transformed into a worldwide financial crisis of epic proportions, affecting trade nations across the globe. The current financial slowdown will see the worlds GDP contract by a forecasted 0.5 percent in 2009. With the United States in possession of the dollar fiat currency, hence controlling the printing presses of the world (most currencies are pegged or indirectly benchmarked against the dollar), it stands to inflate its way out of debt liabilities with massive government stimulus efforts to boost US economic activity. US GDP is forecasted to contract 1.6 percent in 2009 showing it to be the least affected compared to Europe.
Europe (est. 2.0 percent decline in 2009) is facing an additional crisis as the economic block does not have a single powered government where stimulus efforts are being managed. Each individual country manages its own deficits and stimulus efforts. The misalignment of political support for a structured approach to this crisis may one day lead to a collapse of the Euro currency. Milton Friedman once said that the Euro shall collapse in about ten years time. The EU second lustrum tea party is not quite cheered upon with so much problems ahead.
The Gulf region is taking its share of economic downturn with declining foreign investments and project developers postponing larger new developments plus the imminent lay-offs that follow. Economic activity in Dubai, in some ways referred to as Monaco of the Middle East, is facing the worst of problems. Sheikh Mohammed Bin Rashid Al Maktoum's emirate was in the news lately for its $10 billion bridge loan from Abu Dhabi to cover Dubai's maturing debt liabilities on the brink of default. More on this later on.

Unemployment
The Dutch dredger company Van Oord, responsible for creating Palm Jumeirah, Dubai World and their latest awarded project Palm Deira, is feeling the crunch also. The $3.2 billion Palm Deira project is the largest project ever in the company's portfolio. Van Oord already commissioned a large part of the project, but the remaining work is being delayed by government due to lack of funding. The fourth quarter of 2008 was showing steep declines in some projects continuity according to voices from the involved Dutch expat community. Van Oord had to lay-off numerous skilled local employees that had become redundant lately.

The Dutch expat community (in relation to your writer's home interest) is not facing panic yet. Approximately 6000 to 7000 Dutchmen work in Dubai and its surrounding emirates. Due to the nature of the jobs (most jobs involve highly specialized labor), the intensity of work is decreasing and workers are therefore being sent to other Gulf region states or neighboring emirates like Abu Dhabi. Abu Dhabi's growth seems more stable at the moment as it is simply able to manage the financial storm due to its vast foreign currency reserves from its large dependence on oil exports.

So far, tens of thousands of workers are laid off and 'deported' back to their home countries as the Dubai government does not allow workers to remain on its soil without a proper income. Therefore, unemployment in Dubai is of relative meaning. Large groups of an estimated 20.000 mainly Indian and Pakistani construction workers have recently lost their jobs and are sent home in government entity chartered airplanes. Some media reports out there say this controlled departure is due to possible unrest, preventing riots as such.

However, it is not only low skilled workers that are leaving the emirate. Highly skilled employees are reported to leave their possessions behind due to lack of work and frozen bank accounts. In Dubai, employers are obliged to report unemployment to the labor department and local banks. If a worker does not find new work in three months time, his visa will be cancelled and an imminent retreat back home is the only option left. Life in Dubai is hard without work. The result of these government regulations is visible at Dubai's International airport. Luxury cars are left behind, some with an apology tagged behind the windscreen. A new set of visa rules is in the works that limits this type of brain drain. Managers and professionals are able to stay in the future even when they are temporarily out of work. Possession of freehold property already supplies these individuals the legal right to obtain a permanent residence visa.

Smoke curtain
The real status of Dubai's decline is very hard to measure. The government does not appear to be truly open about its issues like for instance; debt liabilities, bankruptcies or unemployment. After increasing international pressure forced upon Dubai's government lately, one government official supposed to have said that Dubai is facing a debt burden of approximately $80 billion in relation to a total asset balance of $1300 billion. Again, without government disclosure the actual numbers are impossible to measure accurately so the real risk of default may well be higher. Over the month December, Dubai-controlled entities have repaid more than $1 billion of debt. And, as a final resort, Abu Dhabi has recently shown its support to Dubai since its ruling Al Nahyan dynasty is tied by blood to Dubai's Al Maktoum family. The earlier mentioned $10 billion credit facility is an official confirmation of this support.

Dubai may yet weather the storm. It remains the most business-friendly enclave in the Gulf for foreigners. Recently the rumors came in the form of Abu Dhabi taking stakes in Dubai's largest companies such as Emirates Airline, Nakheel property developer and even a direct financial bailout. But any rescue would come at a price. It could mean reigning in Dubai's Westernized style and economic openness. The downturn has coincided with dozens of Dubai executives arrested without charge and alleged Australian CEO's money laundering scheme(s) being the latest example. The Washington Post reported that the day-to-day running of the emirate is returning to the sheik's Diwan, or royal court. Previously, Sheik Mohammed had handed over responsibilities to lieutenants outside his family and tribal inner-circle. Any signs of the emirate becoming a less-transparent place to do business may only make it harder to rebuild the Dubai dream.

After the downturn

Dynamic Architecture website

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China’s Gold Diversification

According to a China Business News survey covering 70 Chinese economists, 71.4 percent shares the opinion of more diversification into gold, away from bond paper. This means that two thirds are reportedly bearish on the prospect of China increasing its holdings of US government bonds. The remaining 28.6 percent of those polled believe China should keep current diversification. 32.8 percent thinks that China should unload the bonds, 22.8 percent of whom think of a slight sell-off, while 10 percent believes China should drop US bonds simply from bad habit.

As for gold investments alone, the polled economists have a slightly different mindset; 21.4 percent said that the gold reserve level was fine. But 75.7 percent of the economists asked believe that China should increase its holding of gold with 48.6 percent opting for a slight increase while 27.1 percent think China should stack up at the current $1000 price level.

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