Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, May 27, 2004
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That was the week that was!

The week blossomed, as gold recovered its dignity, rising, at the time of writing, to $395+. And the market had a veneer of normality about it. Only on the surface, so it turns out. Most of the large scale long positions were financed by the "carry trade" [the speculators who used cheap money to take positions from which to earn profits, via price movements]. With the prospect of interest rates rising, the risks to profits rose with them, hence the alacrity with which these positions have been closed. But the genuine Speculators have gone one step further and opened a 100 tonne "short" position as part of the selling process. Gold dropped to $372 at its worst, alongside falling, then drifting, equity and bond markets. When speculators have the fear of dropping prices in their nostrils, dropping prices spur them on and spurred on they were until they had unloaded 435 tonnes of gold including the 100 tonnes of 'short' positions. Add to this the 35 tonnes sold by Portugal in keeping with the "Washington Agreement" limitations. To relate just how huge this amount is recall just how much the "Washington Agreement" Central Banks agreed to limit their sales to per annum, yes, 400 tonnes! Speculators, so they are portrayed, unloaded nearly 20% more then that in six weeks.

The canny physical buyers came into buy, yes, but with no intention of holding prices up. They bought and sometimes robustly, but only on weakness. With the doldrums of the northern hemisphere expected from the end of May, there's no hurry. As the week closed the gold prices alongside other markets recovered to some extent, taking the gold price over $380 again, and after drifting in that region for another week, continued to rise over $395, as we write. As the week draws to a close and "frantic Friday" leaps on us, look out for some fireworks!

The Euro is showing new strength taking gold with it, as the economic data is not as vigorous as hoped, despite a 4.5% G.D.P. growth rate to date [annualised]. The confidence drop in the U.S. economic recovery, in the face of the biting oil price, and waning economic data, sent the dollar on the decline, again.

Interesting that gold fell against the Euro on the fall and rose sharper than the Euro on the rise, trading around Euros 321.47 currently, up from a Euro 316 low.

At the time of writing gold stood at $394.35, and Euros 321.47 with the Euro itself worth $1.2267.

Whither do "Gold - Authentic Money" and its sister publications go now? We got it right by going where the market told us to!

It seems as though the market is turning upwards from now on, at least for a while? "Experts" say it's had it's day, then other "experts" say it is about to take off. Because we are in the business of making money, we don't hold a position for its own sake, we will go where the market tells us to go. What are we doing now? Our next issue of "Changing Tack - Gold & Precious Metal Shares" and "Gold Authentic Money" is issued today. Why don't you subscribe, to be sure yourself? After all we did make $2.00 an ounce in the last few weeks from the fall in Silver [25% gain!].

What are we doing on gold?

• We do recommend strategies to protect your profits in the moves?

• We do give you approximate timings of these moves in the future?

The need for Technical guidance grows stronger every day!

Speculative Long Liquidations: - Investors hiding behind the Indian / Asian Jewellery trade?

Having dumped 331 tonnes of long positions and gone short on a further 100 tonnes the 'net' position is now 180 tonnes. But something happened in this market that is beyond the superficial market reports of day- to-day trading. The temptation, to be distracted by the familiar and only focus on the immediate action, is great, such as "the gold price driven primarily by the Euro/$ moves and a heightened awareness of technical levels of support and resistance levels in the gold price". But this huge tonnage was so neatly unloaded onto the market and taken off the market in a $40 [10%] price move, that one could have thought that there was cooperation between buyer and seller? We reported the massive demand from India, having waited in the wings for the speculators to let go, taking every bar available until there was a shortage, but this does not explain this sheer size of the tonnage. India, at best can take 850+ tonnes from the market a year, but 450 tonnes, just before the wedding season closes and the summer doldrums set in, is not trade buying!

In this secretive market, where Investors take as low a profile as possible and institutions/dealers treat their client relationship, like a Catholic priest with a confession, nothing came to the surface, but all pointed to the Jewellery and Indian / Asian investment buyers. Even the dealers were outside the "know" on this, pointing to the usual buyers. When we reflect on this, a strange but clear picture emerges to give us a great deal of confidence in this market. We write about it fully, in this latest issue of "Gold - Authentic Money"

Further to our question on interest rates not moving up in last week's issue of this letter, we ask, what will happen if there is no raising of interest rates in June, to the posture of the large scale speculators. Methinks that the 'shorts' will react with the "longs" like a stone from a catapult as Greenspan let's fly. Get ready!

The pernicious Oil price.

Over $40 a barrel, worse than a $50 billion tax imposition. Worse still the price is here to stay as China joins the guzzlers. Great if you're Russian, where the economy is set to double in the next decade on the back of oil income. Great if you're an OPEC member, but the demand is just too great! It was the roaring of the oil price in the early 1970's that went with the roaring of the gold price then and the taking off of inflation then, too! Globally, the only way to counter such a drain of liquidity and undermining of growth, is to pump the printing presses. Will this happen again? The globe can't afford the pressure right now. This supports a holding of rates down, just as the waiting for employment to be as high as it was before the recession, should. Take the two together and we would be surprised if rates rose in June.

Real returns

It was felt we should be clearer on defining real returns for our readers. This is how we define it: - purchase price + revenue + trading profits during the investment period -selling price = real return. This is why we have taken $200+ out of the gold market in the last 15 months for our Subscribers.

Portuguese Central Bank Sales

The sale of 35 tonnes of Portuguese gold reserves, announced last week, was handled in the same manner as the sale of 90 tonnes last year. Within the "Washington Agreement" limits is was not announced to the public until completed. Last year it was thought to be old options being "called". This year, the bank stated delivery was May, from selling conducted over the previous few months. This could not have been options called out, but new sales, previously planned.

So, could Portugal have planned significant sales over the life of the new agreement? Possibly so. They now have 482 tonnes of gold in their reserves. The President of the Portuguese Central Bank indicated last year he would welcome the opportunity to sell more of Portugal's gold under the new C.B.G. Agreement. If they wish to bring their gold reserves down to the level of the European Central Bank's level of 15% of reserves, we previously estimated that this would permit further sales of 369 tonnes, now 334 tonnes. Will they sell this much? Will they sell it as soon as possible? Or will they sell it over the five years of the agreement? We would favour the last option to stay in line with their fellow signatories, France and Germany. It would also seem likely that they would continue with the present sales pattern of selling in the early part of the year too, despite the fact that it is in the second half of the year that prices rise their most. This would mean they would sell 67 tonnes a year, starting the early part of 2005. This takes us up to potential sales of 297 tonnes a year, to date, if it is going to happen.

Dutch Central Bank Sales.

It was announced this week that the Dutch Central Bank would sell 100 tonnes over the next 5 years from September onwards. This represents 20 tonnes a year, adding to the publicly proposed figures, to date, of 220 tonnes, making 240 tonnes per annum, or with Portugal 307 tonnes. Still another 193 tonnes to go, if the Portuguese do sell as much [which we doubt!] and 260 tonnes if they don't!


A nice pick-up indeed breaking back over the $6.00 level. Oh, we went long again in a special way!

At the time of writing Silver was trading at $6.07.


Again a nice recovery springing back to $844 so far! It should keep going now.

The London Gold Fix

Gold Fix 27th May a.m. $391.45   E 322.022
            27th May p.m. $393.60   E 321.6740

Up $12 and up Euros 6 on the lows so far. Gold moving more freely against the Euro!


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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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