Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Sep 23, 2004
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That was the week that was!

Amazingly the "churning" persisted this week until today, when the spot price moved through $410. The narrowing trading range may be plying out. The market was well supported by physical trade reaching up into the $405 area now and funds pushing it up further. Of great significance has been the Euro price of gold, holding just above the Euro 330 level most of this week and even now around Euros 334. The Euro and the $ proved far more temperamental moving up a cent down a cent in less than a day. One can feel the change in mood, change in tempo in the market. And this market, seems determined to stay strong. Ask almost anybody what he would do if the gold price were around $395 or lower and you would find a buyer. With that in mind it seems unlikely to go there at present or in the near future. Having said that it doesn't pay to be too clever. Best to leave something for the next guy so he buys or sells from or to you.

The market moving news, was the oil price reacting to rapidly falling inventories and other bad oil news. Again it rose strongly, despite the increase in quotas from O.P.E.C., with Crude IPE trading at $44.90 presently.

Gold appears to be "Going Global", from being solely reactive to the U.S.$ to being driven by several major influences. We think this is an extremely dramatic development with major consequences for the gold market. Please read our next paragraph carefully!

Short term prospects for the price: IMPORTANT STATEMENT!
We try to stay neutral in terms of giving price prospects. However, now we break that pattern because we are on the brink of major structural changes overwhelming the Technical picture and dictating the upward rise in the gold price. The changes are a mix of global factors, coming together to the same point, at approximately the same time. In our 35 years of experience in gold, we have watched the gold market through the entire seventies, through the antigold years, until now. In the early seventies we saw a true reflection of the prospects for the currency system, as the games that governments played came home to roost and the gold price hit $850+. In watching the present major market factors develop and gold move into a global context alongside the world's economies, we believe, we are now on the very brink of, not just a "break out" in the gold price, but a very powerful change in the entire future for gold. These factors are so strong that the previous means of capping the gold price will not succeed, nor be agreed to by the major gold holders in the world. Quite the reverse, we believe that the major gold holders of whatever gold they have left, are on the brink of informing the world that they believe that gold remains a vital reserve asset, to be retained. In addition, we are witnessing the other key, gold market elements combine together in synthesis, to accelerate the return of gold to a position of a vital element in institutional portfolios, globally. The days we are in now, are providing superb opportunities for gold bulls, which the gold market will probably not see again.

Whilst we cannot say with any accuracy when the rises will begin, and we feel it is very, very close, so it is vital to stay close to the Fundamentals as well as the Technicals. We repeat that we are now close to the time when the trigger is pulled for gold to rise.

We have been informing our Subscribers of the situation for some months now, so they are fully forewarned and forearmed. We strongly suggest you subscribe, NOW, to put yourself in the same qualified position. To subscribe, please go to and go to the subscribe page.

At the time of writing gold stood at $411.10 and Euros 334.23. The Euro itself is worth $1.2300.

Large Scale Speculators.
The large scale speculative long position fell only 15.6 tonnes last week to 292.38 tonnes. Since then we have seen the funds jump back in a little to have a position in the face of an improved Technical position. But we note already that they are having to pay up for these positions as the gold price goes through $410. But the positions are not yet that significant as to dramatically affect the gold price if they were discarded, thereafter. We get the feeling that they are largely sitting on the sidelines waiting for a clear direction. Like so many in the market, they see the risks still inherent in the present Technical picture, but also the enormous underlying strength just below the surface of the market. They may well prove accelerators to the gold price in the days to come. Our hope is that they keep their enthusiasm in check so as not to destabilise the market either way. The forces that are beginning to drive the market are the sort who buy when ready and will stand back if the price is pushed up by speculators. The Speculator will, most likely, encourage larger trading ranges on the gold price in the future, with their volatile behaviour.

The U.S. recovery not what it seems and now gets a boost!
With the U.S. consumer leveraged to the hilt something amazing has happened. Both political parties have now endorsed more of the "live now, pay later" policy, by extending the $145 billion worth of tax incentives for another five years, with absolutely no plan to pay for them. The restimulation of the U.S. economy is at the expense of the Federal Budget deficit, which is set to take off to new heights, without any control on where its going! The nonpartisan Congressional Budget Office has estimated that the debt will climb by $2.3 trillion over the next 10 years, and that making all Mr. Bush's tax cuts permanent would cost an additional $1.9 trillion by the end of 2014. So why should there be this stimulation if the recovery is 'on track'? It seems the 'traction' it has gained is not sufficient to keep it on track, in Bush's opinion? We have no doubt that Greenspan was aware of this when he raised the Fed Funds rate another ¼ %.

The Bond market told us in clearly defined terms, via yields, that global growth was slowing, that inflation was a temporary phenomena and falling, and interest rates were topping. The vigour of the world economy was tiring. One aspect of this was that the grip monetary authorities had on their economies was loose. The renewed stimuli changes that, it is hoped. Is more of the same consumer induced spending on more borrowings the way to go? The monetary ground is now getting slippery, and the price to be paid may well be very, very heavy, when the consequences of profligacy impact.

It seems that the oil price is a more pernicious animal than at first thought and may well pose a threat to future growth. If inflation is low and falling still, then the deflationary nature of the oil price is real. If no price increases occur, then a high oil price has the same effect as a tax. Higher prices, without inflation, must lower growth. The low level of global Treasury Bonds, etc is a global market feature, so high oil prices are lowering growth, globally. This will prove to be more gold positive than before. Why, because further leveraging an overborrowed citizen is asking for trouble.

Gold as a Hedge against currency fluctuations
The World Gold Council has today released research by three of the United Kingdom's leading economists that confirms the long held view that gold offers consistently good protection against exchange rate fluctuations, and in particular against fluctuations in the value of the US dollar against other leading currencies. the World Gold Council, said: "Today's research results confirm the view that gold protects against exchange rate fluctuations, particularly in the value of the dollar against other leading currencies. The markets have long stated this. Most central bankers have long understood and recognised this". But nevertheless, they have seen fit to dispose of their gold holdings to some extent, unwisely it seems?

Only recently Axel Weber, the new head of the Bundesbank, explicitly made this point, describing gold as a 'safeguard against fluctuations in the central bank's holdings of dollars'. The WGC believes that all central banks and other financial institutions will be encouraged by this formal and independent confirmation. We more than agree, we believe that at the I.M.F. conference this will be reiterated as a generally held view amongst the leading gold owners. With the potential, globally for foreign exchange volatility in the future, no doubt gold will increase in popularity, amongst Investors in general as a long term feature of portfolios. As this reality sinks in long term Investor support for gold will grow, substantially.

Grand Ayatollah Ali alHusseini alSistani, Iraq's most powerful Shiite leader, has threatened to withdraw his support for the elections unless changes are made to increase the representation of Shiites, according to one Iraqi source close to him. This is significant for Iraq, for Iran and for oil, therefore, for gold. If Iraq does not achieve a Shi'ite majority rule in the next elections, the religious majority, who see themselves as dominating government, as is the case in Iran, will great a revolution on the country. With a Shi'ite majority, the alliance with Iran will be natural. This will make both the East and the North of the Persian Gulf under the rule of Shi'ites, clearly unhappy with both Democracy and the States and allies. This bloc will have a massive say in O.P.E.C. and therefore over the oil price, which is headed upwards, long term. But this is next years news As markets do such news will be factored in beforehand. It is progold news.

Silver $6.42
Gold is defeating many, headed as it was to lower levels, but bounced off support close to $6.1. It's is experiencing a good rally, but is it more than that. It has the potential to fall substantially and to rise substantially, but which way will it finally go? With the potential for greater volatility than gold, it may be the preferred metal by risktakers. With the funds speculative position having fallen 110 million ounces since the 24th August, to 237 million ounces, much of the 'froth' has been cleared out of the market. The price reflects that, so the rally may continue?

Platinum $850
Steady as she goes. Showing marginal volatility at present and a strong future, this metal remains a solid investment. The speculative position in Platinum has dropped back to where it was on the 10th August, so likewise looks ready to advance.

The London Gold Fix
16th September a.m. $408.05   E 331.532
16th September p.m. $405.35   E 331.087

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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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