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January 23, 2006

Consistently Inconsistent or A Wolf in Sheeps Clothing?
by Rob Kirby

March 20, 2006 sure is cropping up to be some kind of blockbuster date - and apparently not only on the financial calendar, ehh? Not only is the Iranian Oil Bourse slated to commence trade, the Federal Reserve discontinuance of M3 [money supply] reporting but now it appears that the Iranians are going to "test" Nuclear Weapons on [or by] this date as well:

Tehran plans nuclear weapon test by March:

WASHINGTON, Jan. 19 (UPI) -- Tehran is planning a nuclear weapons test before the Iranian New Year on March 20, 2006 says a group opposed to the regime in Tehran.

The Foundation for Democracy citing sources in the U.S and Iran offered no further information.

The FDI quotes sources in Iran that the high command of the Revolutionary Guards Air Force have issued new orders to Shahab-3 missile units, ordering them to move mobile missile launchers every 24 hours in view of a potential pre-emptive strike by the U.S. or Israel. The order was issued Tuesday, Jan. 16.

The group says the launchers move only at night, and have been instructed to change their positions "in a radius of 30 to 35 kilometers." Prior to the new orders the Shahab-3 units changed position on a weekly basis. Advance Shahab-3 units have been positioned in Kermanshah and Hamadan province, within striking distance of Israel. Reserve mobile launchers have been moved to Esfahan and Fars province.

Now, let's consider this Reuter's piece from Friday, Jan. 20/06:

Iran says begins transferring foreign holdings:

TEHRAN, Jan 20 (Reuters ) - Iran, which could face U.N. economic sanctions over its atomic programme, has started to transfer assets held in foreign accounts, the central bank governor was quoted as saying on Friday.

"We transfer foreign reserves to wherever we see as expedient. On this issue, we have started transferring. We are doing that," Ebrahim Sheibani told the ISNA students' news agency when asked about the need to move Iran's holdings.

ISNA specifically asked whether the money was being moved to Asian accounts but Sheibani's answer sidestepped whether the assets would head east.

Sheibani told reporters earlier this week that Iran stood ready to repatriate the money it held abroad should this prove necessary.

Iran has bitter memories of its U.S. assets being frozen shortly after the 1979 Islamic revolution....

-END

From a Fundamental Macroeconomic perspective of the world we live in today, if there could ever be two "big picture" developments one could imagine - IN THE WHOLE WORLD - that anyone with one ounce of economic understanding or intelligence would be hard pressed NOT TO AGREE are over the top gold bullish - it's the two news-items listed above.

But Wait.....

Let's take a look at what GFMS had to say on Friday, Jan. 20, 2006 - shall we:

Gold price losing shine:

From: Agence France-Presse
From correspondents in London
January 20, 2006

GOLD prices could slump below $US500 in the first half of 2006 after a recent strong run, owing to falling jewellery demand, metals consultancy GFMS forecast overnight.

The precious metal could fall as low as $US490 dollars an ounce during the next six months, and would average $US521 over the period, London-based GFMS said in an update of its annual gold survey.

GFMS said the prediction was based on "a pause in the recent investment boom and a dramatic slump in jewellery demand".

The price of gold raced to a fresh 25-year high here on Tuesday, striking $US564.30 - the best level since January 1981. Gold had gained some 18.0 per cent in value during 2005. High price levels would prompt a 25-percent slump in global demand from the jewellery sector during the first half, particularly from India, the study predicted.

In recent months, gold has benefited from its safe-haven status, with investors ploughing funds into the market to safeguard their money against inflation and rising geo-political tensions over issues such as Iran . Philip Klapwijk, president of the GFMS, said: "Many would see the market's ability to sustain prices comfortably above 500 dollars as something of an achievement.

GFMS added that a "fresh impetus was needed for a major hike in the inflow of funds" into the gold market, such as surging energy prices or higher investment demand".

-END-

Now, right from a link on the GFMS homepage, we learn this:

Background Information:
GFMS is the world's foremost precious metals consultancy, specializing in research into the global gold, silver, platinum and palladium markets.

GFMS is based in London, UK, but has representation in Australia, India, China, Germany, Spain and Russia, and a vast range of contacts and associates across the world.

Our research team of fifteen full-time analysts comprises qualified and experienced economists and geologists; while two consultants contribute insights on important regional markets.

Executive Chairman Philip Klapwijk and CEO Paul Walker appear regularly at international conferences and seminars, and their articles have been widely published. All analysts travel regularly and extensively to stay in touch with GFMS' unrivalled network of contacts and sources of information around the world. [RK emphasis]

Now I will admit that there's only one of me, but I'm scratching my head wondering how "fifteen full-time analysts comprised of experienced economists and geologists - along with two [making a total of 17, no?] contributing consultants could proffer a serious research paper - highlighting jewelry demand only - without nary a mention of the underlying fundamentals at hand?

In fact, the talk of the economic world - for the past several months - has had a large focus on the prospect of countries such as China diversifying their U.S. reserves. Heck, the Federal Reserve has gone so far as to speculate in published documents what the effects might be if countries such as South Korea do the same. Maybe GFMS doesn't believe information that the Fed Reserve publishes? Perhaps GFMS only conducts research in the jewelry industry? Who really knows?

Now, far be it from me to point out why the Fed docs referenced above make no mention of Gold as a possible recipient of such a diversification. But, as an advocate for the gold community - GFMS would be more than aware that every Central Bank in the World carries gold "on its books" as an official reserve asset - wouldn't they?

No, GFMS - self purported to be the [world's foremost] gold industry advocate - apparently they did not.

Shame.

Rob Kirby
Kirby Analytics