Gold - The Weekly Perspective

By: Julian D. W. Phillips | Fri, Dec 19, 2003
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That was the week that was!

The important news of the week for gold was not the capture of Saddam Hussein. The important news for gold this week was that the market has accepted $400 as a price for gold. Trenches are being dug on this newly gained ground, as physical buying on the dips is seen, very clearly. As the new front line level is consolidated, so the positive investors are looking higher into the higher $400 and setting new targets. The tone of the market is not should we hold gold, but should we hold the $, [after all sell gold and you buy $s]. So ask yourself, would you rather hold rising gold or a falling $?

Interesting market features have been strong Japanese buying even up to $407. With gold beginning to look more and more comfortable at above $400 +, the market seems to be compounding its consolidation, making $400 its support. To reinforce this thought, we cannot help but feel that the implication of defeat is always the impression one has when one sees short covering, but when it comes from Bullion banks, as has been the case of late, it is seen as a signal to expect further rises.

Gold, at the time of writing was trading at $408.55.

The demise of the $ and the rise of the Euro.

But let's get the proper focus on this picture. We should have started this issue by saying: -

"Gold continues to fall slightly, having fallen almost 3 Euros since last weeks issue."

We have pointed out that gold has not moved in terms of the Euro for some time now. Look at all the precious metals against the Euro and you see a quiet market with almost no movement. Precious metals have moved almost exactly in line with the Euro. It has become established practice to adjust $ prices to the price in Euros! We watched the price of the Euro and gold move on the market for a while and saw how the movements almost paralleled one another.

Stay with this thought a bit longer and you find that the fuss and bother over commodities and the Euro is really a market statement that the $ has lost its credibility, as was highlighted by the massive drop in re-investment levels into the $, by the surplus achieving countries in the last month. We use this concept in the next issue of G-AM to look forward into next year. - Subscribe now! U.S. Treasury Secretary John Snow holds this view, for sure, when he mentioned the "orderly fall" of the $. So much for the strong $ policy! Let's be frank, the U.S. is doing nothing regarding the $ in the forex markets. Snow's attempt to give the impression that they are, is simply confirmation that nothing will be done.

ECB sources have been quoted as saying that the central bank would not intervene until the $ fell to $1.35, that they would not intervene alone and had seen no sign that the U.S. was interested in participating in intervention. The ECB also released CPI figures which were above their targets, up 2.2% in November [year on year]. We feel that the Euro's strength will be sustained, so the ECB might be able to keep rates at these levels, until 2005.

We are certain it has not escaped your notice but the European Central Bank has a policy objective that 15% of its reserves continue to be held in gold. In the light of the infectious instability of currencies, monetary authorities, world-wide, will retain gold as a key reserve asset, as they do now, and increasingly so in the future.

[G-AM presented an article which describes Greenspan's 'gradual displacement theory' describing just why the $/Euro situation is so dangerous, which is free to those who have subscribed to it - subscribe now to get your copy!]

The Euro was trading at $1.2377 at the time of writing.

Central Bank Gold Agreement

A comment was made by "a Group of seven official", who was involved in initial gold talks, "who did not wish to be identified" that "now that the gold price was over $400, there would be a slow-down in discussions on the new Central Bank Gold Agreement". Assuming that this was true, the main implication of such thinking is that the signatories of this new gold agreement do not want a dropping gold price, but a rising one, a point which we have, in G-AM, persistently made.

The demise of the Japanese Yen as a currency

Japanese buying of gold is being clearly seen in the market confirming that the yen will be made to fall alongside the $ to keep the exports to the U.S. intact. The admission that its future as always, is fused to the U.S. economy. It seems that Yen 107.40 is a trigger for intervention by the Japanese government. Not that this is a help, because increased Pension fund contributions could well set the Japanese GDP back a full 1%, shortly. The Japanese public are turning to gold as an acceptable currency and a safe-haven.

The result is that it is clear to all that the Japanese authorities rate the integrity of the Yen, well below the well-being of their economy, a path emulated by most nations, including the U.S. As to Europe, will it place the integrity of the Euro above Europe's economic well-being? Only so long as it suits their interests to do so, is our conclusion. At some stage, probably sooner rather than later, the untouchable integrity of gold will stand up against the Euro, as well and the gold price will begin to rise in Euros as well.

The Capture of Hussein

When the Iraqi war was "won" the gold price dropped $70. With the capture of Hussein the gold price dropped $7. What does that tell us, no don't look at politics, look at the gold market. It took all on offer and held its ground above $400. A fair conclusion would be that the capricious speculators had a far reduced impact or, they were swamped by Investors looking at the bigger picture. Dealers may well adjust the bid and offer price of gold to catch the emotional and fickle, but it soon adjusted back to a professional market, rising by more than the $7.

Large Speculators

The market continues dominated by the Large "Speculators", who dropped their net holdings to 331.9 tonnes down 18 tonnes on the week. At this level we would not say that the drop was significant at all. Views are beginning to be taken on what positions to hold over the year end. We foresee the Investors continuing to hold, or increase their gold holdings for the foreseeable future.

Exchange Traded Funds

An somewhat over enthusiastic report in the media led us all to believe that 25 tonnes was bought on the first day of trading in Gold Bullion Securities! Adjust this to 27.7tonnes bought, to date, by the two funds [Australia and the U.K.] and 19.5 tonnes bought in the first week of trading in London. Nevertheless, an excellent start, opening up, not only access to physical gold to the small man, at a low cost, but opening up an entirely new way for Portfolio Managers to deal in gold. Previously gold shares were all they allowed on their horizons, now they can hold the share that in effect behaves exactly like gold. Not doubt with the success of this concept you will see the same path being followed by other metals, and even Oil?

There are funds out there that preceded the WGC "gold bullion securities. Funds like the Millennium Bullion Fund [designed for Canadians, qualifying for R.R.S.P., R E.S.P. and R.R.I.F. and L.I.F. there - an open ended mutual fund holding gold silver and platinum] The Gold Trust [just gold] part of the Central Fund of Canada, [gold and silver] albeit not so low cost [costing up to 5%, as opposed to GBS 0.5%], which began back in 1983, so precedents were set and will be set along these lines for the future.

We are more interested in the continuing daily flow into Gold Bullion Securities and the advent of the U.S. equivalent, still plodding through the obstacles and bureaucracies of New York, to see if this type of investment will prove as popular as we suspect?

[The full story of the benefits of holding gold in this form will be explored in coming issues of G-AM - subscribe.]

The London Gold Fix

Gold Fix 18th December a.m. $410.75   E 330.451

Gold Fix 18th December p.m. $407.50   E 329.293

Gold dropped almost 3 Euros since last week's level p.m. fix!

Other Precious metals

Platinum

Despite news of carbon silk, a product that lessens the use of platinum in catalysts, platinum continued upwards!

After retreating to $825 from a high at $844, it seems certain to stay at these levels or spike upwards. But alongside gold, the Platinum price is actually not rising. Just look at the price in Euros! It is as though some one were arbitraging most precious metal prices against the Euro!

Silver

Again mirroring the Euro price against the $ now reaching $5.63 having touched $5.69. We continue to expect rising $ prices, as we do on all precious metals.

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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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