Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Jan 22, 2004
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That was the week that was!

A wincing week for traders and dealers. The market sits confused at the moment, with dealers sensitive, nervous and chewing a nail or two, moving prices on small volumes, overreacting to statements from Central Bankers, suddenly turned verbal. Such verbosity needs to be examined carefully, because it serves a purpose for those making the statements. A close examination of these statements, shows the impression being taken from these words is vastly different from what the words are actually saying. The market may well be cautious in the face of these, but not for long!

For the first time in a long time, this week gold fell 7 Euros from its usual level of 330 to the present level of Euro 322.40. It is still sitting in the narrowing channel between resistance at Euros 350 and its rising base below Euros 320. In $'s, it fell to $406 and has recovered to $411, before weakening again with the Euro to $409, where it is at time of writing.

The Euro is now recovering from its low and at the time of writing stands at $1.2686.

In the long liquidation of lat week, it would seem that investment adjustment selling of gold, on the back of a weaker Euro, led to the selling of 24 tonnes of gold, whereas it appears that an additional 4 tonnes of the selling was of a purely speculative nature. We will be following this pattern in future.

Gold looks vulnerable at the moment!

The Euro and the $

The rise in the Euro to $1.30 started it, with France and Germany calling for statement from the E.C.B. to say something to talk the Euro down, to protect their exports. The E.C.B. said something that made the market cool down, but only said it did not like "brutal" movements of the Euro/$. So the Gold and Euro market ran for shelter, expecting intervention, which never came! This takes some digestion! Then came statements from the E.C.B. saying they were not disturbed by the rise, so it has started to strengthen, gingerly. The U.S. monetary authorities continue to have their backs turned away from the subject, riveted to their economy, at least until elections.

We expect the market to remain nervous until clear Euro action begins again. The Euro seems now to have embarked on its strengthening path in line with its trend. Over recent days, several European ministers had voiced concerns over the damaging impact that the euro's rise had had on growth prospects, prompting fears that there could be intervention to cap the rally.

Intervention is now unlikely to occur 'in the foreseeable' future, when one considers the comments from the Irish Finance Minister Charlie McCreevy that "the Eurozone's finance ministers had no view on contingency plans for combating renewed Euro strength" and other Eurozone spokesmen saying the Euro's rise was not excessive.

The market is in a huge learning curve, now that the commodity aspect of gold has given way to the investments aspects of the metal. Until the ramifications of currency statements are understood and until the reasoning behind the Central Bank Gold Agreement is absorbed, the market will act like a learner driver on a motorway. [Do you understand these aspects? - "Gold - Authentic Money" specialises in these and will continue to give in-depth insight into these facets of gold on a continuous basis. In the latest issue of the publication, we have presented an article on "The Euro, the $ and Gold - where are they headed?" - subscribe]

Bundesbank statements on Gold

This week's statement from Udo Fleischer, a spokesman for the Bundesbank is a textbook classic. His exact words were, "The Bundesbank wants the option to sell 600 tons of gold over the next five years as part of a new agreement on divestments of the metal by central banks", so the reports said. He then added this extraordinary comment, which destroyed his credibility, in one fell swoop, "The decision is not to be taken now whether, and to what extent, use will be made of this option." So the request, purported to have been put in front of the prospective signatories to the future Central Bank Gold Agreement, is not to sell 600 tonnes of gold but to simply have that as an available option? Is this a move by Welteke on his own? Why do we ask that? Because last Monday saw a report from Der Spiegel, the German journal saying, "The Bundesbank's board opposes a plan by President Ernst Welteke to use proceeds from gold sale to fund research in Europe's largest economy".

As has been highlighted some time ago by "G-AM" any such proposal to sell gold and invest the proceeds in interest-bearing securities to fund education and research, or indeed for any purpose whatsoever, would require a change in the current German law governing Bundesbank profits, which are normally transferred to the government and used to pay down public debt. It is not for a Central Banker to change that decision, it is their role to request that the government of the day institute a new law permitting it. It is clear, therefore, that this is not only a decision affecting Germany's gold, but a request for extended powers to be given to the Bundesbank and taken away from Government, a huge change! The reaction to date? - According to the German magazine Der Spiegel, the idea of selling gold to create a special education fund had hit opposition from the Finance Ministry as well as the Bundesbank board, where five out of eight members were against it.

These are no small obstacles, as Switzerland has experienced, as the debate on what to do with the proceeds of the sales of Swiss gold is still going on and inflamed the country, who in a national referendum rejected the government proposals for the spending of such proceeds.

So will the potential signatories to the new Central Bank Gold Agreement take Welteke seriously and change the basic underlying principles of the Agreement to accommodate the Option? Is it as straightforward a decision as the media implies? With the Agreement purportedly being discussed in the spring, there remains two months before a conclusive position can be reached, a bit late for Welteke to begin the law changing process? Why has he waited so long or has he even requested initiation of the process? In the latest issue of "G-AM" we discussed the governing principles behind the Central Bank Gold Agreement. The proposal supposedly being put to the potential signatories directly clashes with those, so the debate amongst them is not about amounts [The small amount of120 tonnes a year from Germany, on top of the residue of sales still ongoing, will have no restraining affect on the market, whatsoever!] but about the governing principles of the Agreement! This is the most important aspect of the Bundesbank statements, as it is not a proposal to sell gold yet!

Meanwhile both Italian and French monetary Officials remain silent on their gold.


Silver appears to be following gold and the Euro in its price patterns.


Platinum is behaving more like a commodity than either Silver or gold and has held its levels during the down turn of the Euro, Gold and Silver. The strong fundamentals and the continuing high levels of the Rand, despite the recent weakening to just above R7, will continue to hold the supply in check whilst demands burgeons.

The London Gold Fix

Gold Fix 22nd January a.m. $412.00     E 323.366

p.m. $409.25     E 322.067

This was a long fixing , p.m. the 22nd, so the gold price is being driven out of London at the moment!

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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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