Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Mar 11, 2004
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That was the week that was!

A most interesting week that was! Gold is higher than this time last week, but largely on the cessation of fund selling by large scale speculators, whose long positions, haven now dropped below the 300 tonne level, from 335 tonnes down to 290 tonnes. Friday's figures should see a little rise in this position. The Euro / $ battle is on again with gold shadowing the Euro. The move up in Euro terms by gold was no a break from it, yet.

Physical buyers are the main buying force still, in the market despite the continuing absence of Indian Importers of gold. The explanation for this and the timing of their return, was given to Subscribers of "Gold Authentic Money" in our last issue. When they return, there should be a swift pickup in physical demand.

The mood of the market right now is uncertain, even in the minds of the short term Traders, of whom only the brave [or foolish] are darting in and out. Until the market gives a clearer direction, uncertainty will continue.

The gold price is sitting on support right now, but where next?

At the time of writing gold stood at $400.75, or Euros 325.28 with the Euro itself worth $1.2320.

The 2004 Central Bank Gold Agreement

The announcement of the terms of the 2004 Central Bank Gold Agreement were made earlier this week. Seen at first, as a definition of the volume of sales to be seen in the next five years from the 15 of the biggest holders of gold in the world, now the picture, so neatly arranged, seems about to fall apart. "Gold-Authentic Money" published an article on the agreement on Tuesday in which it highlighted who the likely sellers would be. Since then a large shadow of doubt has been hung over the market. With the statement by the German Banking committee, that they were against the sale of 20% of Germany's gold reserves, because of the use of the purpose Welteke had intended for the proceeds, the question of whether any gold will be sold by Germany at all, is now one of the questions sitting in the gold market, as well as in German minds. Bundesbank President Herr Welteke virtually dismissed the objections by this Parliamentary Committee, saying he expected such opposition and that he felt he had the support of the German government on the issue. The situation, seems to be far more complex than that and even more complex than the gold sale itself. There is no doubt now, whatsoever, that this agreement and the subsequent action that follows it is perhaps the most important issue facing the gold price. It appears certain, that, if one does not understand the issues involved you will not understand the gold price.

In a continuation of the series on the "2004 Central Bank Gold Agreement", we will be examining these issues and all the other issues surrounding the future of "Official gold sales, very closely. Many felt certain that the German sales would be followed by French and Italian sales alongside the residue of previously announced sales intentions, after September 2004. But now, after the French Ministers 'fishing trip' on Tuesday and this opposition to German sales, the picture is not only confused but moving towards dubious. Why? The full story will be tracked in future issues of our [Subscribers only], "Gold-Authentic Money" newsletter. Will the Bundesbank cease trying to sell the gold, as Welteke has seemingly threatened? The silence of the French and Italian Central Banks continues to be deafening. Who actually decides there? After all, de Gaulle didn't go to all that trouble in the late '60's to get U.S. gold, only to get back the $, he so wanted to get rid of then, with the $ in the same state as the sixties!

To emphasise the importance of this issue, please note that the 2004 Central Bank Gold Agreement to place a ceiling of 2,500 tonnes of gold sales to be spread evenly over the next five years, was not a decision to sell that much, but a decision to sell no more than that! There remains the possibility that there will be no more than the planned sales already announced. If no more than the residue of previously announced sales can be sold, what happens to the gold price?

The U.S. Trade Deficit

A record Trade deficit of 43 billion $, last month? To understand that story is to understand why the $ is stronger. Theory has it that the $ should be weakening, But those funds come back to the States as investments in T-Bills etc, when foreign surplus countries feel they can. If they can get their currencies lower than the $ their investments looks good, as does their trade competitiveness. However, the J-curve is not working so well, largely due to the pegging of the Yuan to the $, thus removing it from the scene and the fact that as the $ falls, oil prices rise, but not causing a reduction in the imported quantities of oil, for obvious reasons. The result is the States is penalising itself with a weak $, turning to a strengthening one.

Chinese imports to the States are growing and will continue to grow dramatically. The $ surpluses the Chinese are acquiring grow alongside these. The deficit with Europe is falling. Why then is the market reading the $ stronger? Could it be that the recovery is running out of steam, that the sucking in of imports that was consistent with growth, is now happening by way of replacement of U.S. goods, even in a waning economy? The revolution of the global economy is having a greater and greater impact on the U.S. economy, by the month. It has ceased to be a self contained nation. You need to understand this facet of the $ too, if you are to get gold right. The pattern is becoming clearer and clearer too. The process allows record profits and weak U.S. employment figures at the same time. How does this work? It certainly plays out in the currency markets. We forecast that the U.S. economy would weaken in the Spring, but what thereafter? Economics may seem theoretical to you, but unless you understand these processes too, you may find your hopes going one way and your wealth going the other.

With the Euro and the $ relationship guiding gold so much, we at "G-AM" follow these stories, regularly giving the insights and perspectives needed and so allowing you to understand, how to have hope and wealth head the same way.

To point you in the right direction, we believe that this year will prove a foundation [and perhaps a watershed] for the next few years. We also believe that the future holds far more volatility than the recent past. It does not look tranquil for the States, nor the foreign exchange markets, at all.

With the States growing their deficit so enormously, one question seems to be overlooked by all. Who's going to call their debt and enforce the "judgement". That's why it can continue on this path and why Greenspan is not so concerned. "G-AM", if you allow us to, will do all in our power to help you keep on top of these complex issues.

Silver

Presently driven by speculative funds who see a "Bear squeeze" within their grasp, the Silver price is reaching new highs, but could weaken, should the speculators release their grip. One should be closely following the Technicals [of "Changing Tack" ] to know when to close, or go in, again.

This is a market for the Trader, with myopia, but one with more action than gold in the very short run?.

Platinum

Platinum is on solid ground despite the pressures being brought to bear by the Speculators again. The fundamentals are very sound and a market we like, still, although the percentage rise possible, is diminishing by the day.

The Impact of Terror on the gold price.

In the past quite a number of media reports attribute movements in the gold price to terror incidents. With the horrendous murder of so many people in Madrid this week, no movement of note has been seen in the gold price, as a result yet, despite the fact that E.T.A. have denied involvement. More and more of the media are attributing the three blasts at Madrid railway stations at peak time, to the work of Islamic extremists. We mention this not only to voice our own horror, but to highlight the fact that such incidents are not a mover of gold prices.

The London Gold Fix

Gold Fix 11th March a.m. $397.40   E 325.397
            11th March p.m. $398.45   E 324.788

- The $ picture still dominating the Euro & Gold, but gold looking better in Euros slightly but importantly!

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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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