Gold - The Weekly Perspective

By: Julian D. W. Phillips | Fri, Oct 17, 2003
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Gold has traded in a tightening band, again seemingly forming a pennant' shape in its trading patterns, leading us to think that it is again about to spring one way or the other, putting market players in a higher risk position than earlier. Speculative positions continue to drop, but all sales from this quarter have been absorbed without causing a fall in the gold price.

Physical buyers have been seen in the market on price dips, but above the $370 level. The lack of volatility is clearly leading physical buyers to believe this price is sustainable and stable.

The eyes of the market have been on the currencies and their movements, which have not been particularly significant. Next week could prove equally quiet, with players sitting nervously waiting for the first vigorous move to be made.

With Japan 'printing' money at the rate of 21% a year, and the Yuan locked to a fixed rate to the $, currencies will continue to attract the attention of the gold market for the foreseeable future.

Gold, at the time of writing was trading at $373, the same as last weeks level.

Other Precious metals

Platinum is still strong hitting $730+ this week. The South African Reserve bank has dropped the Prime rate by 1%. However, this is still unlikely to weaken the Rand, which is still around R7 to the $, too high a level for the expansion project to go forward, according to the company. The call for a weaker Rand, is coming not just from Miners, but from all exporters and the Unions, in the hope of maintaining job levels. This pressure may prove too much n the authorities, who have intervened in the foreign exchange market but at a low hormone level.

Silver is withstanding the lowering of speculative position and holding above $4.80, but for how long in the short term. Longer term, we still see a sparkle.

The "Stronger" Euro Policy

The Euro was undermined slightly, by comments from Wim Duisenberg, and it fell to just below $1.17.

It is important to remind ourselves that the policy is a "Stronger" Euro policy, not a "Strong" Euro policy. By being a little stronger it is a more attractive Investment. But if it is just a little stronger, the trade competitiveness of Europe is only slightly tarnished.

The principal gold price determinant!

In "Gold-Authentic Money", the next issue, we look at how the pricing of Russian oil in Euros would impact on the gold price, in particular. We examine the gold price and factors not only determining it, but how they synthesise to establish it in the short medium to long term.

Instability, is the major factor influencing a rising price, but instability need not be solely a result of economic decay of whatever sort. Sometimes a factor comes along that creates such a sea change that it establishes a totally new current of instability, rupturing the old stability. We have spoken on the surface here, about the potential for the Euro. It seems that its entrance onto the world stage as a real challenger to the role of the $, as sole credible reserve currency, is imminent.

We read that Russia intends to price its oil in Euros! Of itself, it allows Russia to diversify its reserves into Euros, without stress, whilst taking a huge chunk of capital flows away from the $. This has a considerably greater impact than at first seems apparent and will increase the likelihood of instability in currency markets, at some stage. If this does happen, it will mark the first major recognition of the Euro as a major reserve currency! The Central Bank of Russia, it is reported, has been treating the Euro as a reserve currency for the last two years. Its reserves stand at $65 billion, with Euros moving from 10% of the reserves to 25% of the reserves, according to the Finance Ministry. This is a major adjustment in the balance of power placing Europe and Russia in an effective position to reduce the role of the U.S. $ in the global economy. The ripple effect of this change will be enormous, if it comes to fruition. Already the I.M.F. reports that the U.S. $ has slipped from making up 76% of the world's reserves to 68%compared to the rising percentage of Euros to 13% of global reserves.

Mr Putin acknowledged that Russia was exploring the change to Euros, whilst German Officials reported that Chancellor Schroder has secured an agreement for the change in oil pricing this week. Such a change would bring to the fore a power bloc that would be strong enough to resist any but the strongest measures from the States. The European bloc combined with Russia, would call the U.S. deficits to account, giving an alternative place into which to invest surpluses.

If other nations follow suit the destabilising impact of these changes would highlight the value of gold. We recommend you subscribe to "Gold-Authentic Money" should you wish to understand the full importance of this new departure, in terms of the gold price! Details of where to subscribe are above.

German sales of 400 to 600 tonnes of gold???

My English / Scottish, north country mother once said to me that "Journalists were like 'ladies of the night', all power and no responsibility". I believe she still holds that view. Bad news sells but good news does not, hence the propensity for the media to 'encourage' the belief that huge Central Bank gold sales are still on the cards.

When I read the news item, stating that Germany was going to sell between 400 and 600 tonnes of gold, in the new Central Bank Gold Agreement, I could not help but reflect on the statements made recently by the Finance Minister of Germany, as well as past statement made by the German Bundesbank, clarifying their stance on German gold sales. To now read a report that essentially contradicts what these, we assume, responsible men have said, quoting "informed financial circles", has us asking just who we should listen to. For ourselves we have no problem in deciding who would be more informed. To reinforce our views that continue to be that only "Homeopathic" quantities of gold will be sold [as per the German finance Minister] in any new agreement, the requirement that a change in the law of Germany would be required to allow the Bundesbank to use the money for investments, would be an obstacle that the government would, seemingly, not want to climb. In turn, the Bundesbank's statement that they would not want to pass the proceeds of any gold sales to the government for any debt repayments would seem to remove their willingness to follow this course, as well? It would therefore appear reasonable for Herr Welteke to refuse to comment on the report, having already made the situation clear and confirming the Dutch statement, that further discussions on the matter will only take place in the New Year.

However, we have to say that the impact of the story was great and caught our attention, emphasising just how important this future agreement will be to the market and the gold price!

Short Term Prospects for Gold

 •  The battle of the reserve currencies is moving towards centre stage. It will set the tone for gold in the medium to long term. The market will not factor this into a short term influence, but it will affect both the currents and tides of the gold market.

 •  The gold price does not have the vigour we expected currently and yet it is not showing any weakness. It seems that its trading range is tightening again, indicating that it will shortly move fairly strongly one way or the other.

 •  The current buyers are not forcing the price either way. Physical demand is visible above $370. However, physical buyers are sharp enough to stand back, if they believe a fall is coming.

 •  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 16th October a.m. $371.20 E 319.175

Gold Fix 16th October p.m. $373.40 E 319.883


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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