Gold - The Weekly Global Perspective

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

We got our breath back this week as we watched the consolidation of the gold price. Not strong enough to break the old support, now resistance, in the higher $390's so we expect the consolidation to continue still more. At the moment it is showing a weaker bias. What we find astonishing is the ability of this small market to handle these massive volumes of gold, in such a short period of time and still hold the "stable" price that it has!

To give us a sense of proportion, look at the different volumes of selling and compare the price % drops: -

 • In April, the long position in Silver dropped 19.5%, but the Silver price fell from $8.00 to below $6.00 a fall of 26.25%.

 • The long position on Gold dropped 48% and the price fell only 10%.

This tells us that there is huge strength in the market. A drop of 300 tonnes in two and a half weeks! To give us more proportion, 300 tonnes is 80 tonnes more than the proposed total annual sales of Official gold [proposed to date], for the next 5 years after 2005. De-hedging is expected to account for only 340 - 400 tonnes for the whole of 2004. With the gold market having a reputation for illiquidity, this volume was enlightening! We don't expect to see Funds jumping back in, unless they are Investors, who buy on 'weakness'.

The physical demand that jumped in took everything on offer and could have taken more, had the refineries not chosen that moment to raise refining prices 10 U.S. cents an ounce. This irked the Indian buyers, who hate these premiums anyway. So there is still some unsatisfied physical demand. But we expect them to become more price sensitive, now that they have stocked up again, to a large extent.

Investors who had hoped for lower prices were disappointed with the resilience in the price, but still hope for lower prices.

A feature of the market, for the next while at least, should be the lack of selling, but with demand waiting patiently in the wings hoping for weaker prices. Will they see them?

At the time of writing gold stood at $387.85, and Euros 321.133 with the Euro itself worth $1.2070.

"Changing Tack" gets it right!

We repeat the item on our short term technical service, because the need for Technical guidance has grown even stronger since last week. "At a time when the bulk of the market was looking upwards, we were going short. We will go where the market tells us to go, not where our emotions tell us to go. That is why we got it right. We told our readers last week in these columns that we were short of Silver and hope you followed us, to your benefit. Our Subscribers followed us all the way from our start point at $8.00. We closed our position at $6.00. We were short of gold as well.

We suggest you subscribe to this service, in what is definitely going to continue to be a volatile market!

Conflicting views..

Many prominent gold market observers have aired their views on the future gold price. They seem roughly split down the middle, with one side forecasting a negative future for gold, based on what is primarily a "cyclical" view and others, who see it continuing to rise for the foreseeable future, with still some way to go, based on the "structural" or "secular" view.

Both views appear to be examining the self same facts and coming to different conclusions, because of the emphasis they place on the different factors. This is proving insufficient because there is a vital need to go deeper than the symptomatic facts and examine the structural forces at work. We ask, why are these symptoms appearing. Why have the Central Banks agreed to limit sales of gold and why have producers all but terminated hedging. The superficial reasons given to the market do not explain why.

Commentators have to bring to bear a recognition of the reason why gold is a haven from the different paper money markets, in the first place. They should also explain why Central Banks continue to treat gold as a reserve asset. These forces, as they mature, will explain just why investment in gold should grow in the future. A recognition of the pernicious forces undermining the credibility of paper currencies will, also, go some way to explain why gold is being purchased by Investors, as well as the usual buyers.

Some of these forces are emotive, unquantifiable and un-measurable, but they are the forces driving the gold price. They have mercurial qualities, reflecting our desire for stability and calm measurement, punctuated by volatility, over-reaction and occasionally, downright panic. They are rarely defined by the symptoms they produce. The task of defining these forces goes beyond the straightforward process of measurement of facts. It requires insight and perspective, which is what we do our best to provide in the pages of "Gold - Authentic Money". In our present issue, we are examining whether we are in a "structural" or "cyclical" gold "Bull" market. With the emotions pressing and different views being thrown into the arena, we felt it important to have a factually based assessment, of where the market is really going in the short, medium and long term.

De-Hedging in the Market.

With the gold price moving into the region of the middle part of the $300's, the buying back of hedge positions becomes more attractive, as losses to be incurred reduce, or disappear. With the lower prices the 'book' losses reduce, it is true, but the elimination of the positions exposes the mines to spot prices, a position they have nearly all chosen to take. Could it be that the de-hedging picks up and grows beyond forecast levels?

Interest Rate prospects and the Gold Price.

The excitement over the prospect of interest rate hikes has led the media to suggest, or even state that this will be bad for gold. We do not agree at all. What has happened, of significance, has been the realisation in the markets that equity and bond prices should fall to compensate for such rises. This is being factored into prices right now. In the normal cycle, this is the time to be holding cash and, would you believe, gold and commodities, so as to be ready to go back into paper markets at lower levels. As to it making the $ more attractive to Investors, it could do so, until other nations adjust their own interest rates to compensate.

It is no wonder that Alan Greenspan et al, should suggest a 'measured' rise in rates. The vulnerability, no the fragility, of the consumer will not allow any 'brutal' rises in rates. Indeed, the very recovery itself could be ruptured by the slightest miscalculation on that front. For sure, this is no ordinary 'cyclical' feature of the markets, it is a 'structural fault', suggesting that a mistake on the interest rate front, could prove more than just a rupture!

French Sales of Gold

The French Minister of Finance, Sarkozy has made it quite clear that he will be selling the State's assets to fill the gap made by his nation's deficit. His latest comments confirm his acceptance that these sales will include 500 tonnes of gold to be sold over the next five years, commencing September this year. The interest to be earned on the proceeds, not the proceeds themselves, will be handed to the French government. The Central Bank Governor has also managed to keep his job in the process.


Silver was a lot happier this week with the fall behind it. Many were expecting a rebound to higher levels, but we think the market needs to reassess its prospects, carefully, because of the impact of the large speculators who whilst dropping 25% of the long positions onto the market saw an equivalent drop in the silver price, itself, making it the most volatile of the precious metals, currently.

At the time of writing Silver was trading at $5.90.


The funds dumped 62% of their long positions, which fell from 248,000 oz in early April, to 85,000 oz. And yet the Platinum price fell from $914 to $800, only, a 12% drop. Further, the news that Umicore, now has the ability to produce catalysts from Palladium, for Diesel cars, as well as petrol driven cars, could have inflicted serious damage on the price, but did not.

It seems that only a turning away from Platinum jewellery to white gold jewellery, en masse, could damage the price and that is unlikely. It appears that the resilience of the price will be retained!

In our next issue of "Gold - Authentic Money", we will be examining the prospects for Platinum.

At the time of writing Platinum was trading at $797.

The London Gold Fix

Gold Fix 6th May a.m. $392.00   E 322.820
            6th May p.m. $387.50   E 321.150


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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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