Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Nov 4, 2004
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That was the week that was!

Well this certainly is the week for fireworks! To many the week made a mockery of many of the Technicals. The Analysts were calling it both ways. The Technicals appear now to have broken out of the corrective phase, or has it? This question has cost the Technical Traders dear,so far this week.

First, gold could not top the $430 level again, despite a valiant effort.
- Then it fell back to the mid $420's, as the Euro fell.
- Then with the Technicals prompting Traders to short the market, gold fell in both $s and Euros, taking it down to $417 at its worst.
- Then the Euro gold price bounced off support at Euros 332.
- But then wholesale physical buying, having patiently stood back, saw its opening, as the funds, who had pushed the price up turned and sold the price down. At $419+ in they came to buy solidly. With the control back in physical hands, the market steadied. With eyes well away from the Technicals and the Presidential election and firmly on the festival of Diwali, they continued this year of record volumes of gold buying. But the West was riveted to their T.V. screens and largely off the gold market, watching and waiting for the result of the election, unwilling to take any serious positions, which in their eyes would have been too risky. It appears that their perceptions were for more control and corrections of the deficits and the $, under Kerry and more of the same and some, we've had for the last four years under Bush. On the result, gold found itself back at $426 and feeling good. Then as the $ began to fall the "Bull" began to rut.
- Then at the time of writing this, the gold price had punctured the $430 level and was sitting looking at new territory above $430, on $432. But you've got to ask yourself, has it really broken all resistance and is headed higher, or will its hormone levels drop again, as the $ hits support? Click on the banner below to find out or go to our website and subscribe.

Global market prices:

Euro: Not a good week for gold. It tried to push above the Euro 336 level but faltered and fell back to support at Euros 332. Having broken all the way up to Euros 340 last week, it did not show nearly the strength we would have liked to have seen, in a purely gold market, irrespective of its currency role. In Euros presently it is at an anaemic Euros 334.26 at the time of writing. Where to now?

U.S. $: The funds thought that a pre-election opportunity existed to push the market through Technical support Levels. In their inimitable style, they rocked the boat and shocked many Technical players, but only for a short while. After the election when the players turned back to the market with the result in hand, the $ dropped like a stone, letting gold sweep aside all that resistance in the $420 - $430 level, to sit atop the $430. Does it have more work to do still? Next week should see this period of resolution completed, perhaps?

Rupees: The news from India continues to be good for gold. With Diwali approaching fast, the retail buyers appetite for gold remains unsatisfied. And why not, they had a good season this year and are positive about this season's crops. The wholesale buyers of physical gold are certain of their selling potential and know that they won't be stuck with swollen inventories. With the $8 discount on L/C's and the Rupee edging stronger, these prices have held much steadier than the $ price.

Rand: Ouch, the pain of a strong Rand continues to erode the profits of the S.A. miners, who are already working 24/7. With the Rand down to R6.10 to the $ and looking to go stronger still, the gold bull is being beaten back by the rampant Rand. With no respite in view and the S.A. Reserve bank focussed on the bank balance and not on the business, the future is dimming there. Or will they come to their senses and cut interest rates?

The market players.
• The Physical buyers proved stronger than the funds in determining prices in the London and New York markets, remaining buyers disregarding current affairs.
• Despite the 510 tonnes net long speculative position, held last week, only 100 tonnes off its peak, the funds were not as strong an influence as many feared. They appear to be in three categories now. They are; the Arbitrageur, the Investor and finally the capricious Speculators. The capricious speculator number is difficult to gauge, but of late appears to own around 100 tonnes for active trading with the other two holding the rest.
• Investors [including those holding futures positions] have a firmer footprint now, knowing what lies ahead and who has been commissioned to handle the future. These Investors and are being joined by new gold bullion Investors in South Africa, adding to the new feature of the global gold demand through gold Debentures and exchange traded funds. [see below]
• Technical Analysis versus Fundamentals:
Again the confusion between the strong fundamental picture and the seemingly negative Technical picture on gold still in its corrective phase. Whish is the dominant one? Can one ignore the fundamentals and only look at the Technicals? Some Technical Analysts pointed to the quadruple top in the gold price.

We point out that the Technical picture is based on the markets of yesterday and do not take into account the new structural influences over the gold price. These have broadened the market substantially, making gold market history inadequate as a base for future prices. Yes, the $ / Euro play remains the dictator of the short term gold price, but not to the exclusion of these other influences. The price pattern of the last few months indicated a good fall in the price, but this never came. Why not? To understand this one has to assimilate the fundamental picture and the forces at work there. These factors of themselves are not sufficient. They have to be put in proportion, then synthesized to give meaning to past, present and future gold price moves. Without this input, one is "shooting in the dark", albeit with an educated guess. But this is not enough surely, not when you are putting your money on it? In our newsletter, "Gold - Authentic Money" we try to bring some light into this darkness with a presentation of the fundamentals, alongside the important Technical picture. We have seen a rise in the demand for this service of late and understandably so, so why not let some light shine on the subject for you? - go to our website to subscribe online, or to get details of where to send your checks.

At the time of writing, gold stood at $432.05 or $5 higher then this time last week and at Euros 334.26 or 0.560 Euros higher than last week. The Euro is worth $1.2867 up $0.110 on last week. This highlights just how gold is acting as a currency now.

The 'new' President Bush

Just made it again, but a bit more convincingly this time. What does this mean for gold? That's a big story, so we shall try to give you a taste of what lies ahead. Certainly we can expect "more of the same, but in larger doses, because the U.S. voter has, after all, endorsed his policies by electing him? This time round, his last, he will seek a place in history. His precipitous nature will certainly see more aggression added to his policies, which will, inevitably be good for gold. But irrespective of the man, we are sure that what he has to face will of itself place him in the history books. The last four years will pale into insignificance when weighed against the potential global dramas and shifts in the world's "Balance of Power" that lie in wait for him.

Chinese interest rates up.
The Chinese interest rate rise turned out to be a storm in a teacup. With the Chinese financial system so different from the West the move was seen as insignificant in terms of any market.

The South African Rand's strength
Presently the Rand is just above R6.00 on the weak side. Most observers expect a strengthening to R5 something or around another 10% stronger. That 10% does not seem so much does it. But remember Mr Macawber in David Copperfield? He wisely told us that "Happiness is earning twenty pounds a year and spending nineteen pounds and sixpence. Misery is earning twenty pounds a year and spending twenty pounds and sixpence." That's how South African exporters feel as the R6.00 level is crossed.

NEW GOLD - Paper gold spreads further across the globe.
This is worth another mention because of the potentially greater impact it will have in South Africa, compared to similar 'paper gold' instruments in London and Australia. Previously, serious South African gold investors were limited to the mining shares, being blocked from investing overseas or in gold itself, with the exception of Krugerrands, by twenty years of Exchange Controls, still in place.

Just as gold Investors like to get away from the risks inherent in gold shares, so the same may be true in South Africa. With this opportunity to ride the gold price, even though it is still in Rands, those who own gold shares may favour a switch into 'paper gold, through New Gold, the debenture where each share is worth R26 [$4.10], around the cost of a hamburger and chips. Add to this the low dealing costs, the flexibility and the speed of dealing, without the burdens of owning gold itself. Trade the benefits against the pitfalls and we expect to see a steadily rising level of interest in this gold animal.

Please note that the tonnage of gold held by Gold Bullion Securities, in Australia and Britain in HSBC's vaults rose by 25% to 58 tonnes in the last two months. This is attributed to the market getting used to this type of share. We are still awaiting the listing of the gold ETF in the U.S.A., which, if rumour is to be believed is imminent!. The equivalent demand in the U.S.A. would be several hundred tonnes demand, not tens of tonnes. Bear in mind this would be new Investors into gold, so enlarging the base of gold Investors and swelling demand accordingly.

Silver $7.40
As with gold, they price moves have been entirely $ value driven. Perhaps the values put on precious metals across the board are deeming them a value measure in themselves? We do expect this pattern to continue next week too.

Platinum $850
Likewise with Platinum, its price is currency driven and likely to remain so next week. Even with the huge demand for Platinum in China for Jewellery waning, the industrial demand for the metal is expected to continue to grow.

The London Gold Fix
4th November a.m. $426.30   E 332.009
4th November p.m. $430.50   E 334.60

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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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