Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Fri, Jun 25, 2004
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That was the week that was!

The market price of gold narrowed and narrowed into a tighter and tighter range, looking like it wanted to go higher, but banged its head, just below $400. Then, it broke out on the opening of Comex, above $400. Then Durable good data arrived and showed that factory orders were faltering with a decline of 1.6% for May after a revised 2.6% drop in April. This questioned the sustainability of the recovery again as well as brought back that dash of uncertainty, alongside a spate of countrywide bombings in Iraq. Clearly Terrorism is increasing on a broad and national front. It is not simply the result of actions by a tiny group of isolated individuals anymore. Gold responded with a rise above $400 and held to the gain at the time of writing.

But the market's attention through currency action has been the next pronouncement from the Fed on interest rates. The market seems to agree that 25 basis points is accepted as a foregone conclusion. More than that and the brakes go on. Less than that and its foot on the gas, time.

The gold market, alongside other metals is still shadowing the Euro, with a stronger than the Euro bias having taken the price to Euro 330, from its low of Euro 316. Is this a breakout on the Euro price? The market was dealer dominated and prices being made on both sides of the Atlantic. These still waters hide many developing currents which will spring to life with the market, when it takes the lead. But these waters are a lot deeper than most commentators realise.

So where, you may well ask, is the buying coming from in this the season of the summer doldrums? Our earlier comments on what would keep the price up is proving correct. Those buyers who like to be supportive of the price but try not to lead it are guilty. The de-hedging is going on strongly, it seems, emanating from the Antipodes. And why not buy in a quiet or falling market ensures a sound price. With the Producers like Anglos happily grinning and saying that it's a good time to be in commodities, they are putting their money where their mouth is. There might not be much room to follow this line when the Trade winds blow again.

At the time of writing gold stood at $401.75, and Euros 330.16. The Euro itself is worth $1.2170.

The Fed and next weeks announcements.

It seems the entire market and market media will be riveted to every word coming from the mouth of a agile 78 year old with a vice like grip on the world's monetary system. His every word will be weighed, measured and digested with a thoroughness, rarely seen. In his words lie the triggers to a broad spectrum of markets around the world. With a face reflecting devoid of emotion he will pull this trigger by announcing whether the Federal Funds rate will stay as it is, or rise 25 basis points or rise a more aggressive 50 points. Will the Durable goods figures weigh on his mind, or will it be rising inflation now over 3%. Fortunes will be made or lost on which one of the three it will be. We have delayed the issue of "Changing Tack" and "Changing Tack - Gold & Precious Metal Shares", due out now, until as soon before that day as is wise. We aim to give you good direction in a conservative way. We invite you to subscribe now, so you can prepare yourself for next weeks announcements from Greenspan. - see subscription details below., so you can make money on the rise, or the fall.

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The U.S. Trade Deficit

Take a look at these numbers below. Alarmed? It seems that the U.S. is not, or they would be doing something about it, wouldn't they? Or would they? I know that if I owed my bank that amount of money they would call in the debt. In Africa they were in a similar position, but realised that if they called Africa's debt in they would highlight Africa's inability to repay. If that was shown to be the case then the bulk of the world's leading banks would have needed to be 'liquidated'. Instead, they took 20 years of quietly writing off the debt in manageable portions as bad debt, and re-scheduling the debt to accommodate this process, before writing off was completed, leaving them still in business. But when the debtor is the largest and most developed nation in the world, you can't do that, can you?

No-one is going to call the debt of the U.S., so long as it keeps servicing its debt [with more newly printed notes]. So what's the problem? At what point does someone blow the whistle? No-one for as long as possible, is the answer! So its no wonder that Japan, wants to competitively devalue alongside the $, alongside any nation dependent on the U.S. for Trade. It is also no wonder that China pegs its currency to the $, and objects to the U.S. objecting to them doing so. This game is about trade about growth about a growing global economy and the race to get the biggest share and good looking reserves held in the States about to receive even more interest than before! It will go on and on until, what?

Good morning, Lemmings.

Gold is a 'noble' metal, not a commodity.

Gold is often labelled a commodity. We understand that a commodity has an industrial application and is used. On that definition, less than 15% of gold supplied annually, is 'used' in this way. Even when it comes to Jewellery, there are two types of gold Jewellery: -

 • The first as in the developed countries, where gold is a part, but not necessarily the most expensive part, of a piece of Jewellery. It is almost never bought with the intention of reclaiming the gold content. In this way, it could be defined as being 'used'

 • The second types of Jewellery is where it is bought by weight, as in India. This is for investment and wealth measurement purposes alone.

As a result the gold price is driven by so many different factors than the pure commodity. Take a look at China's development. It is sucking in commodities and will do so for the next decade or two, for use in the development of the country. As demand rises to accommodate these developments, so the supply will be overtaken, and the prices roar. Once the growth ceases so the supplies will overtake demand.

In the case of gold a similar pattern of demand / supply may well emerge, but for different reasons. The price of gold has the power to roar too, but on the back of, a breakdown in confidence in the monetary system, instability as well. Gold can easily face the same supply problems, as the underdeveloped nations find themselves financially empowered and they seek to hold their wealth in gold, as is the case now in both China and India. A slight turn in the level of demand from the developed world for gold as instability and monetary decay sets in, could send the demand supply balance out of kilter and the price soaring. At these times Investors will not turn to lead or copper to hold their wealth, but to gold.

Hence gold is not a commodity in the proper sense of the word, but a 'noble' metal that measures man, not man measuring gold?

As a special offer to new subscribers, or subscribers taking one more of our [annual subscription] services, we will send you the entire three part series on "What drives the Gold price" FREE.

Large Scale Speculation.

Another small drop in the levels of net large scale positions was recorded of around 5 tonnes. It would appear that for the time being at least Large Speculators have lost interest in gold. It could be that they have departed the gold scene. If we are right that the stock held by them went into Investors / physical hands, then we would not expect to see them back in the market, particularly as interest rates begin their upward path. Were there Investors in their midst who felt this was an inexpensive way of holding gold, we believe that they have switched to other ways of holding gold and will probably show their colours more clearly in the days to come. With so much focus on next weeks announcements from the Fed the markets will show sufficient activity to high profile them, ne way or the other.

German Central Bank Sales - On or Off?

THIS IS PERHAPS THE MOST IMPORTANT GOLD STORY OF THE MONTH!

After the apparent certainty of the 500 tonnes of gold to be sold by Germany within the 2004 Central Bank Gold Agreement, comes a strange report. Alex Weber, the new Bundesbank President stated, in a German newspaper that the decision on how much gold the German central bank would sell depended "on the outcome of discussions with 12 other central bankers representing nations using the Euro, on currency reserves". The Bundesbank considers gold a form of "natural hedging against strong swings in the dollar" and is giving it "an important role" in the management of its funds, Weber said, according to Die Zeit. This represents a turnaround on the position Ernst Welteke the former President of the German Bundesbank took [against whom all charges have now been dropped!]. It also throws doubt on the possibility of Germany's gold sales of 500 tonnes. What these discussions on currency reserves are, is uncertain, but with the indication given here by Herr Weber, it seems that gold is recovering lost favour as a reserve asset? This tone could set the gold price on fire, if it proves to be true. Is the rise above $400 at the time of writing caused by this?

We have to ask, is there any real substance that will lead to real action in the Central Bank Gold Agreement? With the Netherlands the only country to have set in stone the amount they are to sell, at 100 tonnes to be sold over the next five years and France still only intending to sell 5 - 600 tonnes in the same period [note not evenly over the period], there remains the bulk of the agreement on policy and the manner of whatever sales there are to be formulated and announced, it seems?

The market has previously discounted the 500 tonnes per annum ceiling on sales, as well as the even selling of 120 tonnes from France and 100 tonnes from Germany. Any variation on these figures will surprise the market and gold price, one way or the other. If the application of the C.B.G.A. is mishandled it could turn out to be a huge source of embarrassment for Europe's Central Bankers and a tremendous spur for the gold price!.

In our series of articles on the "2004 Central Bank Gold Agreement", we go into detail on the possibilities of this agreement, still to be announced to the market. You can have this series by subscribing to our publication "Gold - Authentic Money", details below.

Silver - $6.19

This metal following gold up, but has further to go to show it is really on the way now. A big spike n one shot. Can it maintain it?

Platinum - $811

Platinum behaving like Silver, but from a stronger base! Strikes at Implats may push the price higher? No change in the fundamentals here.

The London Gold Fix

Gold Fix 24th June a.m. $396.75   E 327.460
            24th June p.m. $400.00   E 328.650

Gold acting better than the Euro, is this going to be a breakout?

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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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