Gold - The Weekly Perspective

By: Julian D. W. Phillips | Fri, Nov 21, 2003
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That was the week that was!

The price went over the top of $400, checked out no-mans land was driven back by sellers. Light producers sold, some profit taking was seen and some option holders sold. The price retreated back to the low $390s before swelling back to the higher $390's.

But we tasted the price and it tasted good! The tide is a flowing tide so the upward pressure is seemingly irresistible. This tide seems determined to push up and up, with each successive wave. It needs more time to gather itself, though now, so it is no surprise to see it pull back again to the lower $390's.

Right now, it needs more time to digest the fact that it is on the brink of $400. Bear in mind that the gold price has been sitting in the $300 range for this year to date only and before that had been sitting in the $200's for some years. $400 looks mighty high to many and the concept has to be absorbed well, before it becomes a persistent reality. Many will be satisfied with profit taking at $400 believing it's the peak, others will say, the gold price rise will run forward once we're used to $400. For sure, if this buying tide keeps going it will bring out the sellers, until they are exhausted, leaving a good distance to run?

But physical buyers will stand back far longer, until they too, are familiar with these levels. Right now they are getting used to the $390's.

There is news that supports this price level, not just on one, but on several fronts [see below]. The market is changing its nature somewhat, but so it should, if it is to rise much further, with investment picking up the cudgels where the physical trade drops them. To take this concept further, the supporting fundamentals, independent of each other are pushing the market up. Evidence of this is the irrepressible flow of the price, solidly, steadily, upwards, in the last few months, in the face of highly qualified opinions pointing out why the price should not continue upwards. What is healthy is the steady pace gold price is setting while these fundamentals come together. This rise is completely different from the speculative run the gold price had pre the Iraqi war.

There is a measure of dis-hoarding in India, but with such a good harvest the new gold buyers still predominate. Bear in mind what we said some time back, the Indian market is buying at around $8 lower than the rest of us, even after attempts to curtail this method. This buying route which gets this discount also hampers gauging, accurately, the true level of demand from India. We explain the method and why it hampers the measurement of demand, in our newsletter G-AM. This price discount is expected to continue for some time.

Gold, at the time of writing was trading at $392

The Euro

If gold were priced only in Euros, there would be little fuss about the small moves gold has made in that currency?

The prospects for the Euro, on a simple trade front alone, remain good, with a further potential 20% drop, over time, still expected for the $.

But when we take other fronts into account it could develop into a major currency crisis, because of the dropping demand for U.S. investments by foreign investors. There was a large decrease in the purchases of U.S. stocks and bonds in September. What will the rest of this year and beyond bring? Where will the funding come from to finance the record current account deficits?

[This theme has also been explored thoroughly in the pages of G-AM. Gold is expected to retain its relationship with the Euro with gold performing as a currency, for the foreseeable future.]

China

With the nations reserves burgeoning, Chinese officials are being strongly advised to increase the levels of gold reserves, which stand at less than 2% of total reserves. With the growing trade threat emerging in the form of import quotas on textiles into the U.S. it must be clear to the Chinese that it is wise to diversify their reserves from the U.S. $ focus to a broader spread, including increasing gold reserves. The potential demand from this source will outweigh anything that other Central Banks have previously offered. Indeed, even the largest estimates of the next Central Bank Gold Agreement will not be sufficient to satisfy China's demand if it were to come to the markets outside China. [G-AM specialises in "Official" gold moves as we believe this the most important aspect of the gold market.]

In addition, the news we have been waiting for, for the last few months, was quietly announced this week. Individuals in China will be able to purchase gold, in minimum amounts of 10grammes [about a third of an ounce]. This is perhaps the most dramatic piece of news the gold market could have had. With a nation of over a billion people, an 8% GDP growth rate, where gold has been the traditional means of saving, the potential demand for gold is completely overwhelming. But, it will take time to grow alongside the development of the gold market.

The U.S. initiates "Protectionism"

In addition to the World Trade Organisation's declaring the U.S. imposition of 'Steel Tariffs' to be illegal, we now have the U.S. imposing Quotas on textile imports from China, claiming that they subsidise these products. The inscrutability of the Chinese is now a deep frown alongside their 'strong protests'. It would seem that our comments on "Protectionism" were well founded.

The I.M.F. has countered U.S. claims that China is manipulating it currency, the Renmimbi / Yuan, saying that that it is not undervalued.

One can only say that the darkening clouds of a trade war are thickening. Again such instability is good for gold and bad for so many. Caught between internal and external interests the U.S. Administration, has made its choice and possibly a myopic one at that. [G-AM has explored the ramifications of these moves and their impact on the world monetary system, which are far more dramatic than appear at first!]

Other Precious metals

Platinum

Still up there and threatening $800. And the Rand gets stronger, now at R6.50 to the $. Not too long ago it was at its low of R13.50 to the $. The Rand remains the key factor. Even in Euro terms it is now strengthening, to the dismay of so many in South Africa, except Importers. The report from Anglo Platinum on its revised expansion plans are keenly awaited. With South Africa so prominent in the Platinum market supplying 76% of the world's platinum, the expansion plans could have seen their production go up half as much again. With Anglo Platinum receiving their income in Rands, the strengthening Rand is decimating potential profits. So the demand will keep pressing against an inadequate supply until alternatives are bought, not just planned for.

Silver

Almost fearful of running independently of the other precious metals, including gold, it is still consolidating and will likely find volatility a close companion for some time to come [see "One-on-One" for successful gold / Silver trading]. But this metal is one we intend to give some more attention to in the future. [See our share service for our two favourite Silver shares] The laggard is starting to look better?

Our purpose in "Gold - The Weekly Perspective", is to give you only a general insight and perspective on features of the market. The full story is available to Subscribers of our publications below.

Gold Fix 20th November a.m. $395.75 E 331.866

Gold Fix 20th November p.m. $394.30 E 330.844

Compare this to last weeks fixes: -

Gold Fix 12th November p.m. $389.70 E 334.938

Gold Fix 13th November a.m. $395.50 E 338.381

The gold price has dropped in Euros, as you can see, but risen in $ in the a.m. fix. Keep this in focus when you assess the gold price. Indeed what is the price of a $?

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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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