Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Fri, Feb 6, 2004
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That was the week that was!

A week of twiddling thumbs, wondering which way to turn, waiting for higher powers to speak again, which they should do tomorrow or at the weekend. Selling and buying seem to have stopped for now, on one of the quietest days of the year, ahead of tomorrow's G7 meeting. No doubt about it, gold is going like a currency. But careful, gold is down $16 & 9 Euros down on the week, having tried to hold tenuously, onto $400 for most of the week. Yes, still moving alongside the Euro, but with a weaker bias. This, we believe, is because of all the talking Herr Welteke, the Bundesbank President has been doing.

What we can tell you to give clarity, is a repeat of what we said earlier, that the US. Officials are almost completely unconcerned at the $ behaviour. They have more important things to consider! Likewise in Europe, they are unconcerned at the rise in the Euro, benefiting more from the growth of the global economy than suffering from the fall of the $. So it looks like things must just move on until somebody shouts in pain. Will tomorrow bring any action? We doubt it. Certainly not on the currency front. Next week will likely see a resumption of the latest trends, so be ready.

Physical buying is strong below $400 and proving a good support. Large Scale Speculators long position liquidations, have dwindled to a trickle, standing at a net position of 395 tonnes, we guess, pending tomorrows figures, well down from January's peak of 515 tonnes and off 16 tonnes on the week. Certainly a good shakeout, leaving the present holders with a very tight grip on their positions.

For your own peace of mind, you might find this a good time to write down what you think is "gold price positive" news and "gold price negative" news. You might get a very firm grip on your positions too, or switch to those you can grip tightly?

At the time of writing gold stood at $399.40, or Euros 317 with the Euro itself worth $1.2616, a fall for gold, in both currencies, of $15 and Euros 9!

Feels different to see gold fall in $, doesn't it? We have said the link to the Euro would change and it should do so, for gold is not fixed in Euros, nor does it have the same qualities. But by the same token the Euro does not have the same qualities as gold, does it?

Was it a smoke screen?

In the latest "G-AM" we discussed the recent Bundesbank President' public statements at length and came to some dramatic conclusions. We would like to tell you here, but that would not be fair on those who subscribed would it, but if you subscribe, do we would be happy to divulge these conclusions to you. Let it be enough to say that everything that Herr Welteke has said, fits a pattern leading to an outcome for the next Central Bank Gold Agreement. The latest statement from Chancellor Schroeder, supporting the request of Herr Welteke, gives us certainty that the change in Germany's law to allow for such sales and for the Bundesbank's handling of the proceeds, has moved from possible to probable, and we are happy to see it. Why, because it will be beneficial to the gold market. How so, you may well ask - so keep asking or subscribe. However, it does seem that in this multitude of words a great deal of smoke screening is going on! It could be that we will hear sooner rather than later! Brace yourselves!

Central Bank Gold Agreement

It seems things are warming up nicely! The action in the media and in the market place tells us that the talking is fast and furious. Welteke, it seems is using the public platform to test, experiment, to cajole and who knows, maybe to facilitate a new agreement.

A point for you to consider though is this: I don't know if you know any Frenchmen, but my experience is that they are more than keen to speak for themselves, forcefully and with a passion and enthusiasm, not seen in many other nations. As to allowing a German to represent them in disclosing, ahead of time, their intentions of selling their most loved and possessed metal, gold, I would think that their continued silence has the same characteristics as a pressure cooker about to explode. Likewise, the Italians are almost never caught at a loss for words, so I would sincerely doubt that his talk is representative of either of these two nations, two of the largest holders of gold in the proposed agreement.

Their silence speaks volumes! Get ready for some surprises.

Transparency in Official Dealings, make it part of the CBGA of 2004!

An extraordinary distortion persists in the gold market and has done so since 1980. Central Banks feel entirely right to sell their gold in the open market. However, it would make financial sense for them not to do this, but to contact a likely Central Bank buyer such as China, or maybe even Japan and strike a deal at a market related price, but transact "off market" so as not to disturb the market.

This is done in most other markets, by the big dealers in, shares, bonds, commodities, et al, and in the nations own markets, when they buy gold from local producers. But in the open gold markets "Official" buyers are nervous and usually silent. Sellers, however, are noisy and public.

It would dignify their own positions if they were act in the same manner, whether buyers or sellers. Then the appearance of interference, or manipulation would dissipate. But their public posturing, when sellers, implies such manipulation.

We would advocate such considerations be part of the next Central Bank Gold Agreement, to give true transparency to "Official" dealings, a purported aim of the original "Washington Agreement"!

Japan & China Gold demand.

The market turnover of gold is around 4,000 tonnes per annum. The market forces are currently allowing the stable rise in the price of gold. Now, as we have pointed out last year, if Central Banks were to become buyers, this would be their dilemma:

• If Japan raised its reserves to the E.C.B.'s target level of 15% of reserves, it would need to buy 6352 tonnes of gold. This is against the present levels of reserves, which are rising constantly.

• If China were to increase gold reserves to the E.C.B.'s target level of reserves, it would need to buy another 4569 tonnes. This is against the present level of reserves, which, in fact, are burgeoning.

It is nigh on impossible for them to achieve these levels, under present market conditions. But it would not be such a major step forward for them to appoint one of the world's bullion banks to represent them in the market place and slowly, steadily buy available stocks, as well as all available local production [in China's case].

Global demand for gold, if released fully, would absorb all the available gold for many, many years and take the gold price up much, much higher than it is right now. In time this release could be seen. The release of the details of the next C.B.G.A. could well precipitate some changes in "Official" attitudes towards gold.

Anglogold and hedging

Once the takeover of Ashanti is complete, we expect to see an amount of around 60 tonnes of de-hedging demand appear in the market to sort out Ashanti's book to lower it to 30% of the next five years production. They announced this would be done "as promptly as possible".

Overall, de-hedging is not over by a long shot!

The London Gold Fix

Gold Fix 5th February a.m. $399.30    E 317.383

4th February p.m. $399.40    E 318.992

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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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