Purpose of "Gold" - The Weekly Perspective

By: Julian D. W. Phillips | Tue, Nov 4, 2003
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Our purpose in these pages is to give you general insight and perspective on features of the market, so as to give a general overview of how key factors influence the price of gold on a weekly basis. It is not our intention to give you specific guidance, or advice as to what moves to make in the market in this letter.

We go specific and advise you on the moves to make, in our three market publications, Ultra-short term and short term Indices and trading opportunities in "Changing Tack". We then give you the same, plus relative share performance of the best gold and precious metal shares in "Changing Tack - Gold & Precious Metal Shares" and in our bigger and more informative newsletter, we give you detailed insight and perspective, together with an informative main article and Medium and Long term Technical [chart] advice in "Gold-Authentic Money".

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That was the week that was! Gold ran up towards $390, then looked at $400 and sat back to think about it. Running between $380 and $387, the usual battle continued over the price. But an interesting change in perception occurred. The market was looking at $400. Just about all said 'not yet', not wanting to be caught holding the baby at $400 or just below there. All players need to believe that if it breaks above $400 it will stay there. There was just not enough strength and momentum to take it there? Like the sea shore everything moves both ways, so the funds decided that if it wasn't going up, it was going down, so they piled in and took it to $376. But no sudden loss of confidence occurred. And the price is recovering at $380.

At these and below these levels there is support from the physical market. Any move upwards needs to be able to see what the downside risk will be. At $400 it looks quite large, at $380 - $390, it seems slight. So what is going to give it the kick over $400?

Many thought the news of a rise in the quarterly GDP of 7.2% would knock it down, but it did not react to this immediately. Then outsiders views on the U.S. began to be expressed through purchases of the $, which has moved up from $1.17 + to the Euro to $1.14 to the $ then recovering to $1.15 that we see right now.

Indeed the market is being driven by currency movements more than anything else. Why? [See below]

But beware of thinking that gold is locked onto any specific factor, except for the short term. Overall it will reflect the big picture of instability and oncoming instability!

Gold, at the time of writing was trading at $380, down $10 from its recent high but still $15 up from its recent low.

Gold as a Currency!

Perhaps the biggest event the market has seen for a considerable period of time and one we want to focus on in this issue, is the treatment of Gold as a currency. Never! - we hear some shouting, but it is undeniable that gold has been shadowing the Euro for some time, closely. This is what we mean by it acting as a currency. In the current issue of "Gold-Authentic Money" we look at the developments in the foreign exchanges which threaten an instability not seen since the very early 1970's.

This is a development of our previous comments in these pages on the Euro. But what is standing proud, as an insurmountable obstacle, is the clash of objectives of the U.S. Administration regarding the $. The internal objectives of the Administration and the ones on which they were elected demand a strong U.S. economy, which we are now seeing even, if it is based on temporary measures. But a healthy U.S economy has a propensity to develop huge Trade imbalances, namely current account deficits, which inevitably weaken the $. A weak $ not only devalues the reserves of nations invested in the $, it discourages further investment. Overall instability is now entrenched in foreign exchange markets! This is good for gold!

Sure, you will have days when the perception of the $ in the short term is positive as growth moves in, then the Trade imbalance will assert itself to weaken the $, with day to day movements going up then down, but the trend will continue to be a weakening $!

The very fact that gold is moving with the currencies as the main influence, is indicative of the returning to the monetary perception of gold.

 •  This is how gold used to be understood. The $ was measured in gold, not gold measured in $s.

 •  This is how it was understood by Central Bankers, when they originally bought gold for their reserves. They were convinced then, seeing as they bought well over 32,000 tonnes of gold!

 •  And importantly, other investments earned more than gold did then too! Why didn't the lack of earnings on gold holdings disturb them then?

Analysts that did well in previous years treating gold simply as a commodity, have to expand their knowledge and horizons to incorporate an understanding of the monetary aspects of gold, if they are to be of value in gold's future.

Total speculative position on Nymex/Comex
2ndSept 2003 509.49 11.07 10.855
9th Sept 2003 491.14 12.72 10.79
16thSept 2003 460.34 12.41 9.61
23rd Sept 2003 468.12 12.16 9.11
30th Sept 2003 426.13 11.22 9.24
7th Oct 2003 360.81 7.71 10.42
14th Oct 2003 352.10 6.81 9.95
21st Oct 2003 369.52 7.28 9.98
28TH Oct 2003 397.82 8.09 9.92

CFTC Note: total speculative position = net large non-commercial position + net non-reportables We have expressed all figures in Tonnes to give a comparative idea of the volumes in the different markets.

Other Precious metals

Platinum is still sitting at levels not seen in the market for some time, but the weight of buying remains speculative, so vulnerable to a fall, should a change of sentiment occur.

The Rand remains resilient and seemingly determined to go stronger. It now appears that the South African President does not accept the cries from business for a weaker Rand and the basis on which these are made. It is possible then that the Rand will remain strong until the government actually sees the damage to mining companies in particular.

The bulk of South Africa's trade is transacted in Euros so weakening the mining companies hands, who receive their income in U.S. $'s.


The Silver price is still not demonstrating its full potential. We have a particular point of view on Silver, which may be of interest to Subscribers.

Short Term Prospects for Gold

 •  Currencies are still leading the way in amongst the market players and should continue to do so, with this facet becoming dominant for the foreseeable future.

 •  Physical demand is visible from China as well as from India now.

Gold Fix 4th November a.m. $378.50 E 330.105

Gold Fix 4th November p.m. $377.90 E 328.752

The gold price has barely changed in Euros, since our last issue!

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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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