How High Will the Gold Price Rise in the Short-Term?

By: Julian D. W. Phillips | Fri, Nov 27, 2009
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This is a snippet from a recent issue of the Gold Forecaster with Subscriber-only parts excluded. We will not disclose our forecasts on the gold price except to Subscribers.

It took a few days for the market to understand the impact of the Indian Reserve Bank's purchase of 200 tonnes of the I.M.F.'s gold sale of 403.3 tonnes, but eventually the market did respond. Since then, one of several announcements has been made, concerning the balance of 200.3 tonnes still being sold. The I.M.F. has promised to inform us that they will tell us how much they were unable to sell and to sell that amount, if any, slowly in the 'open market' without disrupting the price. We will be surprised if there is any left. India has indicated it will buy more if given the chance. So keep your eye open for the next announcement too [Since this was published Sri Lanka has bought 10 tonnes].

Mauritius Buys 2 tonnes

Mauritius bought 2 tonnes, so the I.M.F. informed us. They will probably reap the benefits of this purchase as people rush to find out where the country is.

To help you in this, it is a sub-tropical Island to the North of Madagascar East of South Africa. Populated by fleeing French nobles during the French Revolution, who became sugar planters with a house by the sea and plantations inland, alongside African and subsequently Creole workers, the island was filled with people from the Indian sub-continent from Independence on. Originally a French colony it was handed to the British as a prize after a sea battle, leaving its neighbor Reunion still very French to this day [the writer prefers Reunion for its scenic beauty, black sand beaches and volcanoes - where he had his honeymoon]. A rich country that benefitted from the sanctions imposed on South Africa it is now a very popular holiday island for primarily South Africans who visit this hotel covered island to be pampered for a couple of weeks a year.

So their buying gold is not tainted by any political overtones or restrained by any. Perhaps the Indian influence that favors gold anyway and the Indian purchase of 200 tonnes prompted the buying. We believe it was bought for the same reasons as India bought - prudence in the face of a decaying $.

The influence on the Gold Price of Official Gold Buying
Subscribers only-

...... Indeed most forecasts will be wrong on the lower side. Why?

Because the signals being given on 'Official' fronts are that times are here where global cooperation on the monetary front will dissipate leaving tensions and pressure that will hurt exchange rates and currency values in unpredictable but crisis making ways. Gold will really become the safe-haven it has been in history again. China and U.S. currency tensions are but the start of this.

Repeat of last week's commentary: - President Obama is about to go to China where he will face their leaders. What does he want and expect? He wants China to let its currency rise [this won't happen]. He wants friendly cooperation between the nations. But very much to the point he then says that, "if we don't solve some of these problems, then I think both economically and politically it will put enormous strains on the relationship." They didn't solve those that affect gold!

A look at the two very different national interests shows that there cannot be cooperation on these issues. Political pressure therefore has to rise in the days ahead. Bear in mind that the battlefields are not on land but in the banking and currency worlds, where all economic exchanges happen. So here is where the influences on the gold price will be most keenly felt.

Already the U.S. has seen a decimation of its manufacturing base, a feature that President Obama realizes. In recognizing this he has said, "It is particularly important for us when it comes to Asia as a whole to recognize that in the absence of a more robust export strategy it is going to be hard for us to rebuild our manufacturing base and employment base in this country,"

Take this to a global view, where last year the G-20 expressed a desire to find global cooperation of monetary and economic issues and what do we now see? Central banks and government intentions are now subsiding, and coordinated activity among member states is being replaced by more unilateral, nationalistic decision making by individual countries. As gold is now a 'tacit' currency, gold is benefitting as the prospects for collective action on currencies is included. Now, as we have expressed before, the overriding objective of nearly all members is to maintain some level of currency competitiveness all of which makes a weaker U.S. $ likely and benefits gold. With national interests becoming more selfish as the pressures grow, political tension between East and West must grow. In this way we are moving towards 'extreme times'. This is when gold becomes money and the possessor of that gold is empowered.

Such tensions are as significant as the change from summer to winter. Investors who recognize this first will be the biggest beneficiaries.

More Announcements to come from the I.M.F.

After the buying by Mauritius, there remains 201.3 tonnes to go. China remains the favorite, but who else is anybody's guess. So we wait and see.

One pertinent observation is that it is the emerging East that is most keen to buy gold. This is because in those cultures gold has been and always will be, money. The U.S. $ doesn't strike a chord like gold does. Gold has no government, currencies do.

As each announcement is made, it rings another vote of confidence in the metal as a form of money. If the I.M.F. doesn't want this to happen, it would do well to save the balance of the announcements until all the gold is sold and make one announcement and hope its effect will blow away quickly. Alternatively, as they should be maximizing the proceeds of the sales, they do well to stagger the announcements and sales to raise the price up?

Enjoy the ride!

Overall impact on the gold market and its price
For Subscribers only! We sent out a review of the gold market to Subscribers only, which reveals why the gold price is being held well above $1,000, where it will go next and how the gold market has changed shape due to the changes in overall central bank policies, from selling gold to buying gold.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com.

 


 

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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