Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Fri, Mar 5, 2004
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That was the week that was!

Whilst the market has continued in its most testing time of late, it is still holding above its long term trend line, just. The fund selling continues to be the main feature. Will it continue to fall down through the 255 tonne level? The market has seen a big pick-up in the level of physical demand, which has absorbed most of the gold on offer, since the gold price fell through $400. Physical buyers have been waiting in the wings long enough, for the prices to be right. But sellers of gold should note that these physical buyers do not include Indian buyers, who are virtually absent from the market. This is due to an unnatural market situation there, which should end soon [see below].

The decision before us all now is, will gold keep sitting on support or will it drop still lower? Bear in mind, it is looking good in Euros, poor in $ [see below]. Certainly the selling has come out of the States not Europe. If it is on support, it has to be an excellent buy now. If it has broken support, could it be an excellent sell? If so, then so would the Euro?

The market is waiting for the U.S. payroll figures which should produce few surprises.

At the time of writing gold stood at $393.60, or Euros 322.10 with the Euro itself worth $1.2202.

India and its pent up demand, soon to be released!

But the special situation in India has resulted in the gold stocks of wholesalers run down to zero. To get the full and important story, please subscribe to "Gold-Authentic Money" through our website and the subscription page.

Demand for gold in 2003 in India is up on 2002, to 586 tonnes from 547 tonnes but it was nowhere near as high as many expected. Bear in mind that the peak level of demand was 855 tonnes, these figure are not that impressive. The higher gold prices have had an effect on demand, because the Indian market is very shy of volatility, but not so much of price. Their price sensitivity is primarily related to the excess funds available to the gold buying public, which is largely dependent on their income form the last harvest. This year it has been good, so we would have expected higher demand. Remember they pay in Rupees, not $ and they have had all sorts of duties removed together with other obstacles. But the market has been volatile, in their eyes and they have held back. When they return to the market, shortly, it should be vigorously.

HSBC follows the trend to the East.

With the movement of manufacturing to the Far East comes a severe weakening of the U.S. European manufacturing base. Now this trend has moved up the ladder to the white collar worker. This will become a significant tide.

HSBC holdings PLC, the worlds second-largest bank by market value, said it plans to move 6,000 jobs to support centres in India, China and Malaysia by the end of 2004, as it moves work to lower-cost sites in Asia. At the end of 2003, the lender employed 8,000 people at such centres. The bank has spread across the globe. The fact that its original name was the Hong Kong and Shanghai Banking Corporation is purely coincidental.

This process is set to spread across many other sectors, with the process made far easier in this computerised world. This trend is an undermining factor to the recovery of the U.S. economy and as such another reason why the Fed will be in no hurry to raise interest rates.

The 2004 Central Bank Gold Agreement

The subject of the next Central Bank Gold Agreement is rising to the surface again. Some feel it is due to be announced after the E.C.B. meeting, some feel it should be announced in April. The market has speculated across a broad front that Central Bank Sales will be increased to 500 tonnes a year. We have been looking around for credible evidence of this possibility for over a year now and still cannot find any. The silence form the Central Banks has been deafening, with the exception of Herr Welteke of the Bundesbank.

Why is this event significant? Because: -

 • If they supply 500 tonnes per annum, the gold market will probably hold gold prices around these levels for some time to come.

 • If they agree to supply say 300 tonnes per annum, then prices will trend higher for some time to come.

 • If they decide to let the present programme of sales run their course, with no more new sales arranged then gold prices are going to climb.

 • Will they make any contingency plans to maintain an orderly market?

 • Other of the worlds Central Banks are most likely to be influenced by these decisions.

 • As are Investors in general. Indeed, their decisions will have significant ripple effects throughout the entire gold world.

As it will be such a significant event for the gold market in terms of future supply, "Gold-Authentic Money" is publishing an article examining the evidence, not the speculation of what is the likely shape the agreement will take, so today would be an opportune time to subscribe - please do so through our website, at the top on the page.

In our last issue we published an article that illustrated how: -

 • A U.S. Investor.

 • A Canadian Investor,

 • An Australian Investor,

 • As well as, a South African Investor

can harness both gold and currencies [on the rise and on the fall] for profit in the present gold markets.

Large Scale Speculative position

The total speculative long position in the gold market rose has fallen, somewhat savagely, to around 257 tonnes, right now. Tomorrows figures will clarify this. The selling of the last couple of weeks, since gold was at $423 has been mainly fund selling, in particular momentum driven funds. The residue of long term Investors remain, but for how long? Should gold recover, we are sure that many of these momentum driven funds will return to gold and accelerate any price rise. With physical buyers taking the bulk of the sales and the price still holding above $390, we are waiting to see if further fund selling topple the trend? But we are also aware that the fundamentals of the gold market have not changed.

Silver & Platinum

Silver has outperformed gold remarkably, as we expected. It continues to do so, as does platinum. But neither of these two are as currency sensitive as gold, as gold attracts differently motivated interest. We do believe that although Platinum can surge well into the $900’s, the foundation for the price rises is more solid in Silver, which remains our preference.

The $ / Euro exchange rate.

This has been the week for the $. The $ / Euro rate has gone Europe’s way, by making European goods cheaper than last week by up to 4%, to the delight of the Chancellor and Mercedes and BMW. American goods on the other hand are now more expensive outside the States, by 4% over last week’s level, a fact that goes against the hope of the States that the $ will fall. But this reflected in the gold price this way: -

 • the gold price rose to Euros just under 324 and looks like it is climbing.

 • In $, gold dropped to $390 before recovering to $394.

Which way now and how far, for how long? ["Changing Tack - Gold and Precious Metals" and "Changing Tack" will tell you - to subscribe go to our website www.authenticmoney.com]

Placing more pressure on the markets for a stronger Euro, European Central Bank President Jean-Claude Trichet said euro zone monetary policy remains appropriate, after Euro interest rates were not cut. He said that he expects to see Europe's exports rebound in 2004 and 2005. His statements implied that a strong euro is not a problem. Trichet further said that most indicators point to strengthening recovery in the euro zone, with recent growth data confirming gradual second-half recovery.

Friction continued t mount between the U.S. and Europe with the E.U. imposing sanctions on U.S. goods destined for Europe, as a result of tax incentives being given to U.S. exporters like Microsoft, etc. In addition the currency markets prepared for further instability with: -

 • Russia has prepared itself to battle against a weakening $ too, with funds set aside to tackle any unwelcome rise in the Rouble.

 • Oil prices continue to climb also undermining any advantage claimed by a weakening $, with Brent crude over $33.

 • In general the competitive devaluations of currencies are winning the day [Japanese Yen at 110 and the Yuan still pegged to the $].

Will the Euro be able to compete with the $, over time? Yes, it will if you consider just how its use is growing. For example in May the number of people in the Common Market by midyear will grow to around 450 million. The E.U. is already an established, well developed and now an integrated economy. In the States the population is less than 300 million. Its very presence and size will challenge the dominance of the $. Each year from now on we expect a substantial drop in the % of world trade the $ is used for and an increase in the use of the Euro. The progress of the Euro probably to the No. 1 reserve currency is now relentless.

Its role as a store of value will grow in line with its performance as an investment. It would reinforce this role if interest rates were to remain stable at current levels. This, in turn, is vital to its preference as a currency in which to hold national savings. The changes in global capital flows will reflect this performance, so making the use of currencies, for individual national gain in global trade, competitive.

How is this relevant to gold, you may well ask? Currencies, competing with each other means that respect for their stability is no longer a top priority. Inevitably, in this current climate, their debilitation will follow. Irrespective of their exchange rate, they will cheapen in value. This will be called inflation. Once a currency is dominated by national interests, by Politicians, their ability to measure value is suspect. Investors, as was shown, graphically in the seventies, will turn to gold as an item that will not reflect such a cheapening.

The London Gold Fix

Gold Fix 4th March a.m. $394.15   E 323.587

4th March p.m. $392.00   E 322.156

- Two different pictures, with the $ picture dominating the Euro & Gold!

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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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