Gold - The Weekly Perspective

By: Julian D. W. Phillips | Sat, Oct 4, 2003
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That was the week that was!

Well, this week was also quite a week, with the week seeing Investors calling the shots all the way. The "surf" of the market has settled tremendously, leaving the gold price wallowing in the mid $380's. But there is no sign of this tide ebbing, far from it, the fundamental news was dramatic, albeit not immediately impacting on the gold price [see below].

This week saw the hesitation of the market faced with the prospect of new price levels, the sidelining of the speculators, holding firm, but not making waves, and the physical market, who were expecting a speculative sell-off and lower prices. Will this come?

At the same time the rise in gold interest rates in the long end showed professionals covering their short positions. One particular bank has been borrowing 3 / 5 year to cover an existing position. Will they be right and the market see higher prices? There is no new hedging in the market place either!

The Euro rose further to reach $1.17, but is now at $1.1618, with a market impression that it will go stronger [and the $ weaker until the hearts of the U.S. Administration are gladdened?].

The price of Gold, at the time of writing, was at $383.00, just slightly more than last week.

Russia buys just under 43 tonnes for reserves. After the announcement by the Russian Central Bank that it would be acquiring up to 10% of its reserves in gold, were it not for certain monetary restraints, the bank issued this statement, reported by the Russian News Agency Tass: - "On September 19-26, Russia's gold reserves have grown by 500 million dollars, Prime - Tass reported on Thursday with reference to the public relations department of Russia' Central Bank. Now, the gold and hard currency reserves are 31 percent up against the reserves estimated at 47.8 billion dollars by January 1, 2003." - The English is theirs and so we have to guess exactly what this means. Our understanding is that Russia, probably by buying locally produced gold, acquired just below 44 tonnes of gold for its reserves, an increase in these reserves of 10% taking the total to just over 431 tonnes. Such an off-market purchase is the usual method and leaves the gold price unaffected. This amount still leaves a substantial amount of gold to be purchased to Russia's target of 10% of its reserves held in gold. As has been occurring in other facets of the market, the supply of gold to the market is falling, not the demand, at this stage. Indeed, the dropping supply feature has been one of the main driving forces behind the price.

Of greater significance is the continued acquisition of gold by Russia! That Central Banks are purchasers of gold as well as sellers may well encourage some Central Banks to keep the gold they already have, if not acquire more gold for themselves. With the $ performing as it is, gold clearly becoming more attractive in the monetary world and should continue to do so.

China
An important survey in China reports on the potential market for gold amongst Chinese individuals could extend to up to 30% of their savings. Seen against the background of a primitive banking system in China and the traditional favouring of gold as a means of saving, this survey could well be accurate. However, there is a distinct reality 'gap' between this survey and the gold available in today's markets. To achieve the quantity desired, at present prices, would lead to purchases of over 2000 tonnes. As there would have to be a meeting of demand and supply, the weighty question would be, at what price? At this juncture, it is enough for the market to realise that the day the Chinese government give Chinese citizens the nod to buy gold for themselves, the price at which such demand will have been satisfied will be considerably higher than the current price!

India
Business has been good from India for the last 4 months, as we reported previously, but stopped once gold broke above $365. The current demand is only 20% of normal. Of this 10% [half] is coming from Scrap sales and the balance through a new route.

We were informed that the major international banks are only seeing tiny amounts of demand from India. Prices of as much as $3.5 to $6 less than international market prices are being paid for gold in India. Why? Because g overnment owned corporations such as M.M.T.C. can raise U.S.$ through L/Cs. at a discount. Why? An interest rate differential between London and India, has allowed a measure of 'arbitrage' [dealing between two markets to benefit from a price differential] to take place resulting in a major shift of just who gets the business. Rather than pay cash for gold, it is cheaper to buy on [100% margin] Letters of Credit, by almost 1.5 to 2%. Gold users / Importers have switched around 25% of their business to these State owned Institutions who can offer this facility.

But the demand for gold has by no means dissipated, as we mentioned last week, rather it is waiting for stability in the Gold price, whilst selling off gold stock bought at lower levels, meanwhile. But this can last only so long before demand overwhelms stocks and accepts higher prices. So while we still expect good physical demand from India this year, it may be slower in coming, than expected.

Hedging policy according to Barrick. "Gold-Authentic Money" - Is featuring an article on the policy of taking advantage of the volatility of the gold price and the activity of the "Commercials" in the market. It is not so easy as it sounds and could come with its own pitfalls! Could Barrick be taking a chance on its hedge book?

This is important reading if you want to understand the market.

World Gold Council gold companies.
Now U.S. Citizens will be able to deal in a share, backed by gold, representing one tenth of an ounce of gold, per share and mirroring the gold price, precisely. Dealing costs are expected to be so low that it will be cheaper to deal in gold this way than in the metal itself, with far less difficulty, plus no owners cost for Insurance and Storage. Almost the same difference between the old mainframe computers and the personal computer? The Trust follows the successful launch in Australia of Gold Bullion Limited, that we discussed last week. We have no doubt that these funds will become significant features of the gold market.

"Equity Gold Trust" has issued its listing statement, which precedes its arrival on New York Stock Exchange. There is no date available as to when dealing will commence, as the Official procedures still have to be completed, but all hope it will be before the end of this year. Gold Bullion Limited is doing well, with nearly 9 tonnes now held for shareholders. The CEO of Gold Bullion Limited says he expects international demand to be a multiple of Australian demand. With the prospect of the same type of company being listed in London and other main stock exchanges, we have no doubt that this will increase demand, even when prices rise substantially.

The broadening of the gold market. First Australian citizens could buy shares representing 1/10 ounce of gold, next the U.S. citizens will, followed by the British, the South African, et al, or so the plan goes. Add to that the rural Indian [he takes 70% of the gold imported into India] and the Chinese individuals and you have gold ownership moving down the ranks. Should this indeed happen and that appears to be the plan, it will be preceded by the perspicacious institutional acquisition of gold, so accelerating the demand for gold. With such demand the holding of gold by Central Banks will, once again be seen as desirable. The conclusions speak for themselves.

Short Term Prospects for Gold

• The market now appears to be gathering strength again. The capricious holders are, currently, less of an influence on the gold price, as we have seen this last week and more. Many are holding their breath, still, for a speculative sell-off. If it does not come the reverse is likely, as the irresistible demand picks up. The speculators will do all they can to encourage volatility, but the solid buyers will wait in the wings for the pullbacks.

• More fundamental positives appeared for gold, confirming that this "bull" market is in its early stages.

• Through "Changing Tack - Gold & Precious Metal Shares" and "Changing Tack" services, where we give the precise price levels we expect to see. We would like to assist you in your decisions, so recommend you subscribe to one of these, as well as to "Gold-Authentic Money" to give you an effective handle on the precious metal markets.

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Gold Fix 3rd October a.m. $383.95 E 327.966

Gold Fix 3rd October p.m. $384.25 E 329.687

The $ price of gold is almost the same as last week - the consolidation continues in a very narrow range.


 

Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.
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