Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Jul 29, 2004
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That was the week that was!

If it won't go up let's make it go down, seemed to be that attitude of the large scale speculator. Having been wrong footed when they jumped in to increase the long position on Comex by 134 tonnes, they turned around sold and went short. We will know by how much next Monday, but it was aggressively done so as to knock the price of gold through Technical support at $390, sending it down to $381 in a couple of days. The market is now bruised and morale is low. Europe and Asia saw physical demand pick the price up and onto its feet, taking it back up to $389 / $390. The funds came back in to push it down again. Then came soft durable goods data, which stalled the $ rise. The funds on Comex are rattling the gold price, but could well have exhausted their downward thrust and may even find themselves caught short! True to form, if they are short and no other factors push gold down, they will reverse their thrust and take it back up, if only to cover their exposure. So the big question is, will it hold in the $380's or drop more still? A major influence on the Euro / $ exchange rate is the interest rate differential. Currently, 10 year U.S. Treasury bonds yield 4.58%, whilst German 10 year bonds yield 4.27% . Whilst the Euro is more stable than the $, the interest rate differential favours $ strength, so attracting the 'carry trade' [who trade on the difference].

Before you look at gold in this light, note that the gold price in Euros has been steady at around Euros 323, most of the week. So should one focus on the Euro or the gold price? Be careful out there!

The market is still becalmed in the Doldrums, so why should it resist these fund pressures. Could the thin market be deceiving the players? What really is going on in this market? The funds have been calling the shots whenever they come to the market. The true gold market makers won't resist the funds, but will play either a waiting game and let the funds do what they want, or pick up stock when the funds drop it. The funds will make all the waves, going the way of least resistance. [The strong forces in gold usually lead from behind.] Cast your mind back to the last few moves of the funds. If they overshoot either way, they are not shy about turning the other way, so if they have overshot watch them catapult back. If they break the gold price down, then.....

Guys, if making money was easy, we'd all be rich.

It is now time to stand back and refocus. You'd be surprised at what you see when we gain 20/20 vision and lose the myopia of the daily moves and being face-on to the pressures.

Yes, 'frantic Friday' is tomorrow with the month end position squaring. We know that and we expect it to fall further, but will it then recover? The Euro is still leading the way, and falling to the $1.20 level, taking gold down with it. For sure, the Technicals have more importance now than is usually the case. Through our two short term Technical services, "Changing Tack" and "Changing Tack - Gold & Precious Metal Shares" we can help you. Check the details below to subscribe.

Short term prospects for the price:

No doubt about it, the Gold price is poised in a critical position still. Still in its low season, it's waiting for what we expect to be a strong final quarter to this year, in terms of demand, but not supply. Despite the markets low morale at present, we feel we could be on the brink of perhaps the best gold price opportunities seen since gold was at its low in 1999. Why?

Here is part of the opening to an article we are producing now: - We are close to the time when perhaps, we are seeing the bottom of the decline. If this is true, it presents solid opportunities that may well become a happy memory for those who act soon and a point of deep regret for those who sit on their hands! There are a whole spectrum of reasons why we take this view, some of which we mention below. These are solid, structural reasons why the opportunities being presented in this gold market are to be taken now. We will send the full story to those who subscribe to our approximately twice monthly newsletter, "Gold - Authentic Money" now [visit our website]. Today, the competent Investor or Trader, should stand back from the market to refocus on what really is happening, standing away from the immediate picture, so full of emotions and pressure, and reassess. In the gold market, the driving factors are not only independent of each other, but impact at different times of the year, allowing one factor or another to dominate for a while before the next one pushes its way in. As we highlight below, the price of gold itself, produces a change in the fundamentals, leading us to a picture that is volatile and sometimes confusing. In addition, gold is the only metal that is driven primarily by factors outside its commodity aspects.

At the time of writing gold stood at $390.35, and Euros 323.19. The Euro itself is worth $1.2078.

Confidence versus Reality.

On Tuesday consumer confidence data recorded new highs, encouraging the $ to surge stronger. Then Wednesday saw disappointing U.S. durable goods data, halting the climb. The Commerce Department announced that orders for durable goods were up 0.7 percent in June, much weaker than market expectations for a rise of about 1.5 percent and suggesting that optimism for a stronger-than-expected US recovery in the may be premature. Is the 'soft patch' turning into something bigger? Uncertainty never seems to be far off these days and that is pro gold. We think that interest rate differentials are more significant now than the state of the U.S. economy on the price of the $, but confidence will have a direct impact too.

Wise Words from a Mining Mogul in Mongolia

• "The Chinese have just taken their foot off the accelerator. They haven't even tapped the brakes."
• "China's economic and resources boom would drive the global economy for decades."
• "I wanted to send a letter to Mr Bush that said that if your children don't learn Chinese, we will definitely be doing their laundry in 40 or 50 years."

More details of the Mining Industry tragedy in South Africa.

Goldfields, the largest gold mining company in South Africa, is a year into a five year strategic plan to achieve a balance between South African and offshore gold output by boosting offshore old production by around 1.5 million ounces per annum. In particular, the company is targeting U.S. dollar linked countries, such as China for expansion. Will the South African government adjust its attitude to this wanton destruction of the goose that lays the golden eggs? To understand why not, one has to wander into the politically incorrect area of saying, yes, the apartheid years were bad, but the policies being used to right these wrongs, is destroying jobs for those who were wrongly treated then and now. Because of the present attitude, they will find themselves wrongly treated now, through the loss of their jobs. The policy of Gold Fields is also the policy of Harmony and Durban Deep, being forced away from the country to other more profitable ventures, to ensure their survival. This will make these shares good investments in the future, whilst leaving South Africa's golden goose in a terminal condition.

• A deep level mine has failed, despite Black Empowerment efforts to keep it going. The East Rand Proprietary Mines (ERPM) in Boksburg, east of Johannesburg, has begun releasing workers from the mine beginning with 800 workers, Wednesday, as part of the mine's plan to scale down its underground operation ahead of its closure. More than 1,500 others also face the axe. The liquidated ERPM takeover by Paseka Ncholo's Khumo Bathong four years ago was hailed as a breakthrough for black economic empowerment (BEE) in the mining industry. That victory is, nonetheless, now in shambles, as the mine faces imminent closure. Management blames the strong rand and the weak Rand gold price.

• South Africa's Gold Fields Ltd reported a 17% year-on-year drop in fourth quarter operating profit. The drop in operating profit is exclusively due to a 6% reduction in the Rand gold price.

Indian and its views on Gold and Banking.

The news was announced in India, that a banking institution, called the "Global Trust", has closed its doors for three months, but the R.B.I. would ensure depositors funds are covered. Meanwhile no depositor may even touch their funds for this three months. Banks in India have for many years tried to win the confidence of the people and 'advance' the country's banking system forward. In this land where gold has been considered the ideal way to preserve wealth, such banking incidents reinforce the view that gold is free from human failings. They also highlight the fact that 'in gold you can trust', even in extreme situations.


We see terrible violence in Iraq, we are warned of impending attacks in the U.S. and Europe from Terrorists, but we hope they will go away. To reinforce the threat from Terrorists, 23 million pamphlets were distributed, guiding U.K. citizens on what to do in the event of a Terrorists attack. This in itself puts us on edge and helps us to understand that Terror has moved to a point where it affects our perception of global security, and in turn, now, the gold price.

Silver $6.35.

The total speculative position in Silver stands at 315 million ounces, up from last weeks 289 million ounces. Silver now looks a little toppy with poorer fundamentals than either Gold or Platinum. But Silver's price is still shadowing the Euro. It is perhaps the poor relation of the three metals, right now!

Platinum $822

Platinum's fundamentals are becoming more attractive by the day. Whilst it looks as though expansion is being curtailed by the strong Rand, there are potential signs that the top in the Rand which was targeted at around R5.60, may have been reached at R5.95. Irrespective of this target it looks as though the top is within reach, unlike the top in the expected Platinum price. The demand for Platinum is likely to be solid for the foreseeable future, so long as emission controls favour Platinum. This is, no doubt, well known in the Platinum Mining industry in South Africa. Weighing up the odds, Platinum looks very attractive, so do the shares! Note, the large scale speculative position on Comex moved again from a + 1,000 position, to +37,000!

The London Gold Fix Gold Fix
22nd July a.m. $386.20   E 321.485
22nd July p.m. $387.30 E 322.052

Gold steady in Euros, falling in the $!

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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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