Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Jun 3, 2004
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That was the week that was!

The market since our last issue has been nudging upwards, threatening $400. At one point, the drama on the oil front increased market tensions and $ weakness saw gold reach up to $398.70. This was spurred on by the return of Fund buying. The market is being led by the U.S. gold markets and is very sensitive to positive U.S. economic data, as it showed when the good news on the Manufacturing front sent the gold price down to $395 and below. As a result we have now seen light fund selling hoping that gold will have a fall after the employment numbers just after this issue is published. With the market expecting 225,000 more jobs, watch the reaction if it is higher or lower than that, for the short term move.

With the market thin and trades light the market is giving no direction at the moment. But below the surface there are foundations being built for a massive change in tempo. It may take a couple of month to get there, but eyes will open wide when it does.

In Euro terms gold is suddenly moving both ways on the oil story. It has to break up, well into the Euros 330 to be convincing. The oil story is promising to be with us for a lot longer, and could be the trigger to a volatile world and inflation, should it persist - see below.

At the time of writing gold stood at $388.10, and Euros 327.50 down from Euros 325 earlier this week. The Euro itself is worth $1.2224.

What new in "Gold - Authentic Money" this week?

"Gold Authentic Money" in its next issue, has the second part of the article "What's driving the gold price?". This is not just a summation of the facts of the gold price, but a clarification of just how these facts interweave with each other to make today's gold price. What the use in having the parts if you don't know how they fit together? We are still making money on Gold and Silver even in these markets! To find out what we are doing now subscribe!

• 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!

Change in the nature of hedging.

In line with this year's earlier forecasts of dehedging between 320 and 400 tonnes G.F.M.S. 's first quarter figures on hedging showed that dehedging had increased by another 83.98 tonnes. What big dehedging commitments are on the cards now in the market, "G - AM" has the story. The summer doldrums may just be the time to do this in earnest, in a thin but anaemic market. Should the gold price remain at these levels during this summer, you can be sure that the dehedgers are at work.

Speculative Long Liquidations

Yet another fall in the speculative long positions to 152 tonnes. Convinced that interest rates are going to rise, the "carry trade" is shy of the costs of the more expensive speculative positions, such as gold. This trend is being seen right across the commodity boards. The failure of these speculators to jump into gold, when the oil market took off is explained by these costs and the disbelief [rightly] in the short term link between the gold market and oil prices. The short positions appear to be Technical positions and are being held so far gold is struggling to reach the $400 level again. They will turn on a dime for sure, but if interest rates don't rise watch the action and smell burning fingers.

If it is buying we see from them, watch the catapult effect on the price, before the fall.

Chinese Individuals owning gold and why chinese demand has not taken off yet!

The China Merchant Bank has begun marketing gold to individuals it was recently announced. Individuals will now be permitted to buy and sell gold through them in Beijing and Shenzen but still not in Shanghai. This marks the continued, speedy, but cautious, liberalisation of gold in China.

Why are gold sales so slow in taking off there? We were and are, still of the impression that a growing and large demand will still emanate form China, over time.

However, what has become clear is the failure of the Chinese to develop a countrywide distribution network in the country. The buyers are there, but where to buy? It will still take some time for this to develop and will have to develop into a much more accessible item, to the public, in both cities and the main towns. But with gold now available to the individual, the pace of development should pick up. But it will be a long process lasting some years still. What would speed matters up would be an effective marketing campaign telling the Chinese individual where he can buy. Meanwhile as in the developed world, a Cell phone, a car and the other trappings of 'cool' are taking first place. Nevertheless, the sleeping giant is awakening and don't we feel it? Gold is not forgotten and we would suggest to the gold industry there that they spread the word and the outlets!

The threatening Oil price and Gold

The world has focussed on oil this week but the gold price didn't go with it. Of course it didn't. The market is always so keen to have a definite link between gold and the Euro, gold and oil and it just isn't there. Yes, they do move in the same direction at times and sometimes for the same reasons, but the pace of this move is dictated by their different markets and the different ways the factors affect that market. Again in "GAM" we examine the oil market in detail and describe just how it will affect the gold market and when.

The comments of the E,C,B, President were a definitive point for all these markets, including European interest rates which were held steady at 2%, for the meantime. What will drive them up and when? This is what needs to be digested by the gold market too.

Have no doubts, this is not a short term spike in the oil price! The position of O.P.E.C., despite their raising quotas to the level they are already producing [With Qatar and Saudi Arabia adding another 2.4 million barrels with another 500,000 available to be added if that is not enough] will grow in strength over the medium to longer term. But that is only a small part of this story!

Silver

Good physical buying countered the speculative selloff of Silver in a thin market. The story of Silver is far from over! The size of each move could well outrun that of gold?

Platinum

Again the fundamentals remain sound. The resilience of Platinum in holding these level is reassuring. The fundamentals for this metal remain extremely strong over the long as well as the short and medium term. With the $ still looking lower and producer currencies still strengthening, expansion is being choked off still. Commodities such as these will continue to do well in the burgeoning Chinese economy and in the Car markets!

The London Gold Fix

Gold Fix 3rd June a.m. $391.40   E 320.033
           3rd June p.m. $390.35   E 319.20

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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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