Gold - The Weekly Perspective
That was the week that was!
Gold broke upwards and out of its tight trading range and has vaulted to $390 level, the break we expected, being upwards. With large speculative positions around 342 tonnes, down from 466 tonnes previously and physical buying entering the market in the mid to upper $370s, the market looked relatively right for a push by the funds to make the price break through resistance to the $390's.
They are fighting hard to get the volumes as the physical buyers are back in the market on price dips. With the 29th next week, the Indian buyers are now having to buy. Their buying could sink back on a drop in demand, but the large speculators are hoping that they will continue to provide a cushion on a fall.
The market is getting pretty hot and sweaty right now and will want to consolidate shortly, but at what price?
With the Euro climbing up against the $ above 1.18 and the gold market 'currency conscious', as well as 'festival conscious', the price rise had to happen.
Gold, at the time of writing was trading at $390, up $17 on last week, $25 up from its recent low.
Gold Sale announcements from Switzerland, Holland and Germany
The purpose of the "Washington Agreement" was to give "Transparency" to the Central Bank signatory's gold dealings. They went to great lengths to inform the market 'en masse', what they would be doing for the next five years. They hoped to bring stability to the market, tortured for years by fears of huge imminent Central Banks sales of gold. As part of their original agreement, they stated that they would sell no more gold than the already arranged sales of gold, which had been made prior to the signing of the Agreement.
We were warned by the Dutch Central Bank officials that there would be no departure from the principles established by the Washington Agreement. What does this mean for the future Central Bank Gold Agreement? Why are they making individual statements and not seeming to act in concert, or are they? What are they really telling us about their future actions?
We explain just what they are doing and what they mean in eye-opening comments, to be read in the current issue of our publication "Gold-Authentic Money". We will continue to track the progress towards the next agreement, through this journal. We recommend you subscribe now, to "Gold-Authentic Money" should you wish to understand the full importance of these statements, in terms of the gold price! [Details of where to subscribe are below.]
The next Central Bank Gold Agreement is pivotal to the future gold price, so it impels us to keep our eyes focussed on each nuance, of each statement, these bodies make. So much speculation and conjecture clouds the picture at the moment that you can draw any conclusion you want, but with a sharp 'scalpel', like this journal, one can accurately discern what lies ahead for the gold price.
Indian Market ahead of Diwali - 29th October
Despite the rush for gold even at these high $380 gold prices, with Indian physical buyers buying on the dips, recent reports came in that Indian demand was depressed by rising prices. Apparently the rise in gold prices over the last week blunted the sharp increase in demand even in the face of the this and next week's Diwali festivals. Traders were saying that gold demand was very strong last week, with gold prices below USD370/oz, but has weakened visibly following the rally above USD380/oz. One Indian analyst estimated that demand for gold this Diwali, will be 25-30% down on last year's level, with the off-take this week particularly disappointing. One bullion trader in Bombay estimated that daily imports into Bombay had fallen from the normal 400-500kg/day to 100kg/day, while an Ahmedabad based importer said imports into the city had declined to around 50kg/day from 200kg/day when prices were below $380/kg earlier this week. But today they seem to have been forced back into the market, fearing that they will not be able to deliver to their own customers should they wait any longer.
Meanwhile the president of the Bombay Bullion Association, pointed out that a lot of demand for gold has been in the form of gold coins. This confirms our belief that investment demand quickly replaces jewellery demand in rising markets. Of course, gold coins are easier to trade then rough jewellery and have a more definable quality of gold in them.
Large Speculators / Investors position
The last time that gold traded above U.S.$380 the net long speculative position was over 466 tonnes, compared with the current level of around 342 tonnes. If they are simply large 'speculators', then they are an overhang above the market, with physical support cushioning the market at the $374 - $385 level. If they include large numbers of Investors, who intend to take physical delivery, then this gold will not reappear and the gold price, after the rise, will hold.
Japanese Demand drops in 2003-10-23
Japanese demand for gold bullion is down significantly this year, as reflected by import figures with bullion imports in the first half of the year just 20.4t, down 63% from the same period last year.
Bearing in mind that demand last year was distorted by the huge level of imports ahead of the change to ban deposit guarantee legislation in April, it is still evident that demand has been depressed for some time.
1995 bullion imports into Japan totalled 260t. This dropped dramatically to just 39.8t in 2001 before rising to just over 80t last year. It was as far back as 1980 that Japan imported just 31.8t of gold.
Other Precious Metals
Platinum is still crowing on the back of opportune speculative demand at new highs near to $740. The move by the S.A. Reserve Bank to lower interest rates by 1.50% [not the 1% we said - our apologies], hoping to see a falling Rand, had, but a short term impact. The Rand is now in the high R6.9 :$ area, having strengthened from R7.20 : $, the low it hit last week. Unless a fall to around R8 : $ or more is seen, on a relatively long term basis, Anglo Platinum will not be able to go ahead with expansion plans, a move which will justify these higher Platinum prices. The state of profits, even in the gold sector in South Africa is now moving to a sorry state, as revenues in Rands are only slightly higher than cost of producing the metal. The demands of the unions claiming above inflation rate wage increases and rising State run utility costs, have hammered the profits of mining enterprises.
Short Term Prospects for Gold
• Currencies are again leading the way in amongst the market players and should continue to do so for some time to come.
• Physical demand is visible on any pullback even in the high $380's in the face of the climax of the festival of Diwali on the 29th of October. Ramadan is upon us and the wedding season set to go on through the year end, and the gold price is roaring, but will it go to $400?. Will it gather have sufficient strength? .
• Significant moves are taking place in the relationship between Gold and Silver. Here is the chart on the:
Gold / Silver relationship:
We see an exciting development in the performance of these two metals.
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Gold Fix 24th October a.m. $384.60 E 326.430
Gold Fix 24th October p.m. $388.25 E 328.385