Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Jan 29, 2004
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That was the week that was!

A very uncertain week for all, for sure. Gold rose back up to $414.85 having touched, at worst, $402, for a brief moment, then fell back again to find support at around $406, then battled to climb back to $410. Now, after the last retreat below $405, it seems to be headed back higher, even stronger than the Euro, against which it has not only resumed its stability, but has risen to Euros 328.31 on its way back towards resistance yet again, both in $ and Euros.

In Euros the fall has been from a recent high of Euros 332 to a low of 323 a fall of 3.01%. So the tight link to the Euro was damaged, but only slightly.

• Seems to us that the Euro price of gold is a far 'cleaner' price than the $ price. Are Traders in gold, using it as a $ play? The direct Euro trade would seem a better vehicle. We hope Norway got paid in Euros?

• Or is the price in $ merely a "translated" price? The dealers outside the fixing [twice a day in London] move their dealing prices often on the smallest volume, to duck being caught in a position that doesn't suit their book. Right now most of the volume of gold buying/selling is traded at the fix, where all deals are done at the one price of the fix. Looks to be the place where value meets price better than on the floor of Comex, for the moment.

To add to the uncertainty, long liquidation continued from "Large Scale Speculators" [see below]. Where are we going and what's a reliable price for the metal?

Some spoke of the "tail-end" of the Bull market, some of a gear change up for the better and the next upward phase of this "Bull" market in gold. The clouds of confusion that surround the gold price make this consolidation quite different from those we have seen over the last couple of years. To see where gold is going you have to be able to see where the currencies that price it are themselves going.

And for those who still think of gold simply as a commodity, these conditions must be impossible to handle. After all, what part of the gold market is the commodity part? Other metals, like platinum, are consumed, or used in various products, as would copper or zinc, etc, be. Gold has very limited use industrially, yes, in teeth, but that is fading as look-alike enamel takes over, yes, in computers etc, but the volumes involved are but a small percentage of the market and one that has hardly any effect on the market. This metal is about holding value, so we have to get way past the commodity aspect, if want to understand it in this market. The market showed this to be the case, so clearly, last week and this.

At the time of writing gold stood at $414.85, and the Euro at $1.2636, not far off our last issues levels.

What is the price of the $?

The difficulty is that, if you have been thinking of gold in $ for thirty years, it's very difficult to switch to pricing it in Euros. It just doesn't feel right. But when the currency of the price is itself is capricious, volatile and headed South, what do you do? The market won't strip out the $ price for quite some time, but if this instability keeps up, there will eventually have to be an accommodation of both the $ price and a Euro price in most global gold markets. The London market publishes the prices of the fix in $s and Euros [plus of course, Sterling], already. The slow battle of attrition between the two currencies, which superficially has little to do with gold [yet the $ chart on gold is so different to the Euro one], seems set to continue for the foreseeable future. If the $ does continue to decay, will we have to measure it in the number of $ to a gramme of gold? Once you damage confidence in the pricing of an item, the items value itself seems to become questionable, despite no real change in its value. This is where we are at the moment in the gold market. This is one of the key reasons why gold will remain in a rising market for the foreseeable future.

What we can be absolutely sure of, is that gold's monetary role will only finish once currency stability and solid growth supports the major economies of the world, accompanied by nations working together to establish a global monetary system, which they place ahead of their own local interests. Considering all factors carefully and projecting our conclusion on the back of the realities we face, we expect this will be around the time that pigs fly.

The revision of Reserves starts in Japan!

The Japanese Finance Minister, Sadakazu Tanigaki, stated that his ministry will "carefully consider whether it will change the composition of its U.S. $673 Billion foreign reserves, including its weighting in gold". At the end of December Japan's gold reserves totalled just 24.6Moz (765t), equivalent to just 1.5% of total reserves. This is the lowest of any industrialized nation, with the exception of Canada and soon Norway. Canada with Norway following, has run full pelt to get rid of its reserves of gold. Long may the U.S. $ look after them.

This is a dramatic move, not because they will re-look at the reserves of gold, but that the $'s behaviour has precipitated some action from, at last, those dependant on the U.S. $ for their economic health. No doubt, this consideration of reserves composition will then appear on the agendas of many other nations, including, no doubt, those other nations who are dependant on the U.S. [unlikely to include Saudi Arabia, whose government depends on the U.S. for its very survival, but may well include other oil exporting nations] for their economic health.

This alone, has to increase currency instability. Should such consideration produce actions to adjust reserves, from Japan alone, currency turmoil may well result. Should others follow them we may well see foreign exchange conditions reminiscent of the late sixties and early seventies.

Should a decision be made to increase Japanese gold reserves, the consequences for the gold market will be dynamic. We look at these in the issue of "Gold - Authentic Money" about to be released. Should you wish to gain this important insight, please subscribe online [ www.authenticmoney.com ].

Norweigan Central Bank sells gold

In contrast to the positive developments on "Official" gold, Norway's central bank said, on Wednesday last, that it had sold 16 tonnes of gold bars in January and is planning to sell the rest of its bullion holdings. Their total gold holding at the end of 2003 of 37 tonnes, included 3.5 tonnes of coins. It said it would not sell its coin.

This leaves another 17.5 tonnes still to sell. It was stated that it bought foreign exchange with the gold. Did they buy Euros or the U.S. $? They didn't say, but at a time when the markets are in such an unstable state, one can only hope that they, like the U.K. and other countries will in the future, prefer not to talk about their gold sales, sold at prices well below the cussrent prices.

What is extraordinary is that these amounts were sold at a time when fund long position liquidation was 93 tonnes, making a total of almost 110 tonnes,or more, sold this month, while the price was only knocked 3% in Euros and nearly 6% in $.

Large Scale Speculation positions drop

The fund long positions liquidation, which ruptured the rise in the gold price and pulled the gold price down from its recent high level of U.S. $430 to just above $400, precipitated the present re-assessing and re-orientation of the gold market, now consolidating around the $405 to $410 levels. The total speculative net long position on Comex fell 93.1 tonnes last week, to 411 tonnes. This has taken the net position back to levels last seen in mid-November. In the middle of December these positions rose to a high of 520 tonnes. Fund long position liquidation accounted for all of this drop.

For the consequences of the Speculators actions on the gold price, which could be dramatic in the short term, please subscribe to "G-AM".

Physical buying continues in India and Import Duty scrapping.

Friends from London told us that physical buying out of India continues at high levels, although not through the main banks because they managed to retain the 2% interest arbitrage, giving a cushion for the big buyers of gold to fall back on.

Then on Wednesday last week, came the news from India, saying it would allow the free import of gold into the country, the world's largest consumer of the precious metal. We watch to see if this has an impact on the levels of imports of gold to India?

More on the Bundesbank statements on Gold

It has become clear just why the Bundesbank made the announcement it did and why. We delved into this carefully. In our latest issue of "Gold-Authentic Money" we discuss this in detail. After discussions with extremely reliable sources it seems likely that we are very right on this. Should you wish to gain this very important insight, please subscribe online [ www.authenticmoney.com ].

The $ and the Euro where are they going now?

We have now become certain, that the U.S. authorities are happy to see a fall in the $ and will NOT intervene in its fall. We have been reassured by the E.C.B. officials that they do not see the rise in the Euro as excessive. Oh yes, they did speak out against "brutal" rises, but this was against volatility, not the rises in the Euro.

France and Germany led the call for European intervention to weaken the Euro, to protect their national recoveries and exports. Since then many of the European Finance Ministers have indicated that they requested the E.C.B. to act to soften the currency. For the E.C.B. the very integrity and credibility of the Euro is at stake. How so? - We discuss this in the next issue of G-AM too.

• We maintain our forecast that gold would break its shadowing link to the Euro, as the pressure and uncertainty builds up in the coming months. Gold will come to be seen as having a greater value than the values of either the Euro and the $, simply because of its inherent qualities.

• The Euro will continue its rise without intervention from the E.C.B. at specific levels.

• The $ will continue to fall unimpeded.

• The Chinese Yuan will continue to be held down.

The London Gold Fix

Gold Fix 28th January a.m. $410.70    E 325.952

p.m. $411.00    E 326.450

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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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