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Research Report

November 10th, 2011

Issue: Eurozone Contagion Part II

Author: Khalid Natto Chief Market Strategist The KIN Consortium Jeddah, Saudi Arabia Email: Mobile: +9665 686 100 43 Perspectives: 1. ECB Perspective The French are in trouble, so they are trying to build a story where the ECB is going to start an ARTIFICIAL DEMAND Scenario. The ECB will mimic the US Fed by starting to buy all the bad or questionable Sovereign Debt. This is totally against the principles of Laissez et Fairre Capitalism because they are putting the govt in the position of CENTRALLY CONTROLLING PRICES. Coincidentally this is happening around the anniversary of the fall of the Berlin Wall. The lines have been blurred in 2011 between the principles of free markets and centrally controlled markets. Its the sheer addiction to revolving credit that has driven the markets on to the brink of total HYPOCRICY. In any case the purchase of bad debts by the ECB, will lead to a downward spiral for the Euro. Furthermore the individual European Countries will probably continue to borrow more from the capital markets, so that should compound the situation even further. 2. US Perspective The Dollar is a big question mark because it depends on if the FED is going to carry the Municipalities in Alabama for a few rounds? The question of risk is focused on the future as we wonder are there any other municipalities on the brink of bankruptcy? Is MBIA going to declare bankruptcy as we forecasted last year when we discussed AMBAC? What will be the impact of the sheer Contagion of the European issues on both the consumption of US made goods and the import of European made goods? 3. Market Perspective The Market sold off as the yield of the Italian debt rose through the 7% mark. The French naturally are holding a great deal of Italian debt; therefore they are on the brink of collapse by default (No Pun intended). The rest of Europe and their various investments are also at risk. We reiterate our earlier position that the lack of investor confidence in sovereign debts will lead to the rise of GOLD Prices.

4. Our Forecasts

5. Probability and Timing

The probability of Gold being the chosen underlying asset is rather high, since we have seen that trend on a historical basis. In fact it has gone from 1705 in our last report on November 1st, 2011 to close to 1800 on November 8th, 2011. Today Gold is at 1746.50 The pull back from 1800 was attributed to the sale of gold to cover NEW MARGIN REQUIREMENTS ON ITALIAN BONDS. There was also a change in the political ranks in Europe in both Italy and Greece.

In terms of when we will see the money flow towards Gold again, that depends upon the programmers of the leveraged computers traders. The Quants have to reprogram the computers with buy orders that are oriented towards buying the safest commodity on earth.

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