Gold - The Weekly Perspective

By: Julian D. W. Phillips | Wed, Dec 3, 2003
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That was the week that was!

This is still the week that is happening now and when we look back we will say that was a special week, the week gold held its ground above $400!

What is so important to us, as we highlighted last week, was to see the way the market behaved on this new ground. The first run over $400 was chased back, the second was not chased back. Considering the work everyone thought had to be done above $400, this was remarkable. With the Speculative overhang, many thought there would be a large scale dumping of positions and a major retreat in the price. It didn't happen. What did gain visibility was the short covering. The long speculators showed their hands, not only by their firm grip on their present positions but by raising them, substantially. They clearly believe the big figure is here to stay, just as are they! And the tide keeps on coming in, the tide is flowing and the underlying current seems to be very strong. All eyes were locked onto the Euro/$ price and the $ fell below $1.20 level, a major psychological barrier. It look like, at least for the meantime, the Euro must keep holding gold's hand, but the story really is the declining $. As you see below the gold price actually dropped one Euro since last week.

The longer the gold price stays over $400, the longer the gold price will stay over $400!

Gold, at the time of writing was trading at $402.35.

The GFMS quarterly report.

So many features of the gold market have been highlighted in this report. - Its significance goes far beyond what it appears to be. It has confirmed new currents in the market so important for you to appreciate. The full story on this report is in the present issue of "G-AM".

The Euro

She is strong and attacking new highs!. In the face of good manufacturing numbers from the States, which many say confirms the recovery is being accompanied by growth now. So how come the Dow, the U.S. economy and gold are rising at the same time? - Full story is available to Subscribers of G-AM.

At the time of writing it was standing at $1.2105 going higher. In view of the consensus of market action, we re-phrase this and say "At the time of writing the $ was going lower and standing at $1.2105 to the Euro".

Exchange Traded Funds - coming to the market.

It has been confirmed, trading in E. T. F.'s in London at least, begins on the 9th of December! The share is called, " London Bullion Securities".

In New York, that litigious land, more court fights go on and delay its twins entrance there. Singapore, Tokyo and Johannesburg will follow.

Low transaction costs, ease of dealing and in small quantities [1/ 10 of an ounce at a time] it could do to physical gold, what the P.C. did to the computer industry?

In London, big buyers buy through the Bullion Banks, one of which is HSBC. They are also the bank holding the E.T.F. gold. Do not be surprised if, not a few, institutions buying direct, switch to buying through this avenue. Cost wise it's logical. This could give the appearance of massive small buying, but will be current demand finding a new cheaper route into the market?

For sure though, it is a way for investors in gold to buy and sell gold on the London Stock Exchange, a brand new concept and channel.

The U.S. Recovery

The Institute of Supply Management said its overall index of manufacturing activity climbed to the highest level since December 1983. The buoyant conditions came through in 18 of the 20 sectors of manufacturing surveyed by the institute. The optimism ranged from producers of computers and office equipment to manufacturers of building materials, chemicals and machine tools. This is excellent and the first step to a solid recovery. The second will be that this growth is maintained thereafter. Any faltering of this progress will disillusion many. Why, because activity is picking up from such an incredibly low level, and this sector is going to continue to be very cautious about adding employees. After all, hiring in manufacturing companies is not a casual commitment. If you retrench one man, it will take the hiring of two men to re-build confidence to the same level as before. Factories have shed jobs for 39 straight months, bringing the number of workers they employ in the U.S. in October to 14.5 million in October, the lowest since 1958.

If President Bush announces the end of special tariffs against imported steel, and he is facing arguments from his own supporters, he will reduce the tension with Europe and the prospects of a Trade War, something that no one wants. However, the fact that moves have been made along those lines let all of us know the road we will walk, once the going gets tough.

The real issue remains the international value of the $, which will weaken alongside U.S. growth and a booming economy, a described in G-AM.

The complete about turn. - Barrick intends reducing its hedge book to zero!

What a bruising they must have taken to do such a complete about turn in the last fortnight. The CEO Greg Wilkins essentially repeated his statement of a while back, no doubt in the light of the recent story regarding Peter Munk, saying, "the company was adopting a "no hedge" policy, in response to shareholder pressure. "As the stock market ascribes a discount to hedging and in light of Barrick's overriding commitment to shareholder value, it will not enter into additional hedging commitments and has adopted a no-hedge policy." Later he added, "even if the gold price goes to $500 an ounce".

Whilst this is encouraging, it is clear that the Barrick hedge overhang is looking dreadful, still at around 500 tonnes, which although it can be delivered over 13 years, will continue to drag Barrick down, in relation to its performance against other shares. If the gold rice continues in this bull trend they will have little hope of delivering at the spot price, or higher than the spot price.

An idea now being put forward, is that it take all its hedges and puts them into a "sacrificial goat" company, whose only purpose will be to deliver the gold into those hedges, separate from Barrick, and leave Barrick to pay, once-off, for its potential losses. This will then allow it to go forward to bigger and better things. Will this be the route it will follow? Should this happen, Barrick may then be a share to look to catch up with the rest?

What of the other hedgers, you may well ask. At $400 and no de-hedging in the third quarter of 2003, there remains 2,227 tonnes of hedged gold to be delivered to the market still at prices around $355. That's 11% below the market price so far. As with Barrick, shareholder pressure will hit them from behind and high prices from in front! What are they going to do?

The future of hedging will be covered in the next issue of G-AM - subscribe now

Other Precious metals


Holding up, but not in the same league as Silver, and not standing on the same strong fundamentals. However, there is no prospect yet of any decline in the price, which will arise, because of factors unrelated to Platinum.


Confirming our views, Silver has done well to touch $5.50 We still recommend you stay close to the Technicals which we monitor in all our services, but particularly in "One-on-One".

Gold Fix 3rd December a.m.$403.30  E 333.444

Gold Fix 3rd December p.m.$401.80  E 332.341

Gold has dropped slightly in price in Euros, on the a.m. fix!

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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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