Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Fri, May 21, 2004
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That was the week that was!

Not much of a week that was, you may say, with the gold price trading at in relatively tranquil range between $375 and $383. This is in the face of steady, but enormous fund liquidation [see below] and continued steady huge, strong physical buying. With these volumes having such a small impact on the price we can only stare in amazement. Just what tonnage are we talking now that has been sold in the market? With the 35 tonnes from the Portuguese Central Bank and the speculative long liquidation of tonnes, the total is now ... This should not be seen as ordinary sales but sales on top of normal supply! The implications of this are intriguing to say the least, because this market has not simply absorbed this extra few hundred tonnes, but has also absorbed its "usual" supply and some Central Bank selling from Portugal [35] tonnes. To understand this, imagine of this 440 tonnes had not hit the market what would the price have done. Please bear in mind that physical demand keeps going on and on, whereas Speculative long positions are finite. Times and seasons are all important in this interaction and throw up weighty questions. With the likelihood of these sales now drying up, will the summer "doldrums" remove the physical buying too? With the width of the price movements of late narrowing are we moving to our usual Friday evening gallop and if so, which way? We saw the funds returning to the market as buyers today so - Brace yourselves!

The ever-excited media points to a variety of news items which are not major influences, but their stories do affect dealers who adjust gold prices. The media stories can trigger a move in the price that would have happened but were waiting for an acceptable trigger, but the gold market's underlying forces always push through on the medium term tide. These factors we have just mentioned are not merely tidal but so strong as to be currents. The power of the physical demand has far reaching ramifications, which will take a while to move the price. So we would like to highlight the need to avoid focussing on one or two aspects of the market, but keep the big picture in mind at all times. This allows one to proportion the correct emphasis to each influence. The major underlying factors will swamp the day to day wave action of these immediate stories. Despite all the distracting rhetoric of late, of Israel, Iraq etc, it is clear that the less dramatic stories, such as the extent of physical demand and supply factors look like taking over the reins of the market at some time in the near future.

At the time of writing gold stood at $379.60, and Euros 318.296 with the Euro itself worth $1.1926.

"Changing Tack/Gold Authentic Money" goes where the market tells it to and gets it right!

The temptation to take a crusading posture in the Gold and Silver market is always tempting, as the influences on the gold price involve the folly of man and his decisions, whereas gold has, at critical points in history, shown itself to resolve such financial follies.

But we are in the business of making money, not fighting crusades. Consequently, 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 and went short!

Our Subscribers followed us all the way from our start point at $8.00 in Silver down to $6.00, but we still told Traders that there could be more in the fall. We were short of gold as well profiting around $40. Have we closed this position? Are we going back in? Do we recommend strategies to protect your profits in the moves? Do we give you approximate timings of these moves in the future?

We suggest you subscribe to our service, to find out where we are and what we are doing now in these continuing volatile markets of Gold & Silver! The need for Technical guidance grows stronger every day.

Speculative Long Liquidations.

Last Friday's figures from the CFTC Commitments of traders data saw a further drop in the net long speculative on Comex of 62 tonnes in the week. It would appear that we now see around this volume of short positions in their hands - brave men, or are they hoping to profit from the unloading of their peers 'carry' positions as interest rates rise? With the Portuguese Central Banks sales of 35 tonnes, we have seen fund and bank selling of at least, 430 tonnes of gold in addition to normal supplies. We have to be pretty close to the drying up of these sales now. Today has seen the funds returning as buyers of gold!

What will happen if, in a clever management of the market, the Fed does not raise interest rates, even the 25 basis points now forecast? Methinks, the risk/reward ratio favours a different stance?

The deteriorating Oil and Mid-East stability.

Volatility seems to be the nature of the world financial markets, with some ascribing this to the oil price hitting new highs over $40 a barrel and looking like staying there and instability in the middle east, which certainly looks like staying there. Whilst this is a de-stabilising facet of the global scene, we are already seeing our sensitivity on these issues waning. We're getting so used to the Israel/Palestine violence and the war in Iraq, their short term impact on the markets is diminishing, but their medium term impact increasing, as they themselves move from short term shocks to medium term structural problems. A sad fact of life is that we are desensitised by repeated horror. We can only say that as these situations become structural, so they become breeding grounds for worse to come!

We do expect market to see heightened volatility in the days to come, on a more permanent basis, with equity markets favouring the downside, in days when, so theory has it, cash should be a favoured position of fund managers. In more de-stabilised days, gold is included alongside cash too, so past history shows. Why? For the sake of real, real returns. We are horrified to hear from 'experts' to the French Finance Ministers that such thinking is being ignored. The concept of real returns was why fund managers should be employed in the first place. This concept is not merely the addition of capital appreciation added to revenue, it is much, much more!

The French Finance Minister - Revenue or Real returns?

When one hears the French Finance Minister ask whether an investment that does not earn revenue is acceptable, then we understand why Central Bankers were tasked with the job of caring for national finances and not Finance Ministers. When we see Central Bankers accede to political demands on the national finances then our eyes open wide in amazement. So a few points on real, real returns and revenue.

"Gold - Authentic Money", "Changing Tack - Gold & Precious Metal Shares" follows this policy [which is why we have taken $200+ out of the gold market in the last 15 months for our Subscribers]: - Simply put, we search for a 'final' sum which is greater than just revenue [dividends, interest] and greater than just the capital value, at the end of the investment period, plus revenue. As each investment is subject to normal market fluctuations we would hope to see a fund manager or advisor guide one to take advantage of the fluctuations, as well as gain a final high capital value, plus revenue. Perhaps you should subscribe?

Gold adds another important facet to real returns with its ability to provide a rising value in a climate when paper investments are falling, particularly in extreme monetary conditions, such as high inflation and war. As a sort of insurance in these extreme times gold transcends all other values simply because its value lies in the hands of the possessor not in those of the issuer. In a hostile world this means that paper is always in danger of losing international value, because of the dependence on the issuer to maintain that value. With gold such control is not possible, as its value is intrinsic and its availability limited. This is why it is an essential reserve asset. This is also why 34,000 tones of it lie in the vaults of nations today. If paper values fall, gold values tend to rise, giving a measure of balance in all seasons if properly assimilated by the nations.

So, a Central Banker tells you that the return on a Euro or U.S Treasury bill is sufficient to warrant a selling he ignores such basics as capital appreciation or diminution and this valuable contrary nature of gold, which is why nations hold it in the first place. So we ask, has the world become such a financially secure one that there is no more need for gold and we are going to live happily ever after? So we ask, are these moves by the French Finance Minister a politically myopic move, or a clever disguise of some other agenda. We suspect the former and hope that by September the situation facing France does not precipitate such moves to the embarrassment of the French. What do we mean? Well look at the British sales of gold at around $270. Only a bombastic Chancellor could fail to be embarrassed by those, today.

This prompts us to look at the prospects for the Official sales under the new Central Bank Gold Agreement. Very little fits together in the future prospects for this agreement: -

Inflation and interest rates.

We have heard many commentators warn of the rising inflation in both the States and China. In China with growth running at 9%+ there is room for inflation-inspiring increases in the money supply to provide new money for the growing economy, to ensure sufficient liquidity for the Chinese system. In the States where growth is considerably lower, such inflation levels translate into excessive money supply, too quickly, which is the danger facing the U.S. with its consumer led growth. A raising of interest rates hurts excessive borrowers whereas, as we mentioned last week, it benefits the money saving Chinese, by boosting their income. Hence we should not compare the two. Inflation in the U.S., should it precipitate excessive rate rises, will burst bubbles in the economy, quickly, as we are already seeing in the drop off in mortgages, of late.

Inflation in China has to rise considerably before similar dangers exist there. Likewise a drop off in growth rates in China will do little harm, whereas in the U.S great harm could be inflicted on the prospects for that and their dependant economies.


Silver seems to be shadowing Gold at the moment and seems to be attracting fund buying as it recovers a little.

At the time of writing Silver was trading at $5.82.


Platinum also appears to be consolidating having moved back above $800. This week and next should continue to see the consolidation!

At the time of writing Platinum was trading at $805.

The London Gold Fix

Gold Fix 20th May a.m. $380.45   E 318.848
          20th May p.m. $379.50   E 317.730


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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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