Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Thu, Nov 25, 2004
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This is an overview only, of the week's activities in the gold market. To get the full picture of future price moves with dates of gold & related markets, or to get the full fundamental picture with insight / perspective, have a look at our publications below and on our website: -

That was the week that was!

That was a week, wasn't it! Anybody need more confirmation as gold strode, undaunted, through $450. The hesitance has been remarkable. So many appeared unwilling to be convinced and here we are half way to $500 already!

Trading has been relatively thin this week ahead of the Thanksgiving holiday, which started today. The bulk of dealers and professional eyes are constantly on the $/Euro exchange rate. Gold is moving to centre stage following the alarm signals on many fronts, as they watch the $'s value lurch lower, with the direct encouragement of the U.S. leaders in finance. Even Chinese and Russian Central Bankers are wagging their fingers at the States. Japan has begun to intervene to protect its Yen/$ rate, now headed towards 100Yen to the $1. And $ reserves climb still more and more and more! The $ looks to be a white hot financial topic for the rest if the year, as well. Oh, there is still talk of selling Central Banks reserves of gold for the $. [They must be squirming with embarrassment]

The currency rate moves and in seconds, you see the adjustment follow through on the gold price. This should be the set pattern in the gold market for the next few years, not because gold is tied to the Euro, no, but because gold is a currency, not a commodity, per se. It moved out of that role at the end of last year and has been taking back the currency mantle, it once held, firmly, throughout this year.

The $ fractured $1.30 on the Euro the other day and hit $1.32+ as we wrote this. It is becoming clearer by the day that the U.S. is happy to see a falling $ and intends to do absolutely nothing to halt it. Pity the nations who have accumulated $ in good faith with confidence in the almighty $. Ahead of the holiday, Traders appeared to favour long positions for the weekend, against expected liquidation of long position. It could be a tense Thanksgiving, for the currency markets and anyone 'short' gold.

[We wish all our U.S readers an enjoyable holiday over this weekend!]

But the real measure of the gold market is the gold price in Euros. The London morning and afternoon fix is the dominant price maker out there, still. Even there, there are signs, growing daily, of gold rising not only in Euros, but in all but the strongest of Producers currencies, such as the Rand. But it is yet to confirm the needed strength is there, in Euros, but we are so close now! Such a move is now justified as the realisation of what could lie ahead penetrates 'comfort zones' and overwhelms any reassuring statements from inactive officials.

Global market prices:
Euro: (Euro 1 : $1.3225) Gold tried hard to break through resistance at Euros 343, but struggled. Turned back from that level it retreated to Euros 341, before attacking again. At the time of writing it still sits at Euros 342. But this is where we will see gold responding to either lower supplies to the market or rising investment demand, as opposed to simply a falling $. Keep your eyes on this price! The fundamentals are becoming more and more apparent, as concerns are being voiced in high places about the $'s performance and that of the administration responsible for it.

U.S. $: Mr Greenspan knew exactly what he was doing when he talked about a 'diminishing appetite for the $'. He knew he would help its breakdown. To see his statement as simply a cautionary warning to the Bush Administration would be naïve. He helped the $ begin to tumble, he wanted the process to begin and we are sure the Administration would thank him for saying these words. With no assistance from the U.S. to stem the tide, expect retaliatory action to protect the local currencies of foreign governments. But like the tide of cheap Chinese goods flooding the globe, so the tumbling $ is overwhelming confidence in the $. As gold broke through $450, the attention moved from the concept of a rising gold price, to a falling $, whose price is now reflected in the gold price.

Rupees: ($1: Rupees 45.02) The Rupee is being riveted to the $, by the Indian authorities, at 45.02, despite the tumbling buck. So they are watching the rising gold price leap upwards. Consider if you will how many holders of the 15,000 tonnes of the metal in India must feel good as they see their holdings rise in value. The World Gold Council tells us that retail Jewellery demand rose 16% last quarter in that country. We are of the belief that though many potential gold buyers will continue to be deterred, many will appreciate that these prices are here to This is an overview only, of the week's activities in the gold market. To get the full picture of future price moves with dates of gold & related markets, or to get the full fundamental picture with insight / perspective, have a look at our publications below and on our website: - stay and as the World Gold Council tells us, are prepared for even higher prices. This should see demand begin to pick up, if it is correct.

South African Rand.($1 : R5.8600) The Rand rose another 2.82% since our last issue and now sits at R5.86 to the $. The government officials, including the Reserve Bank Governor continue to talk about the Rand in public. The Governor informed all, that there would be no intervention in the level of the Rand, as they build foreign currency reserves, without aggression or affecting the Rand's price. And every one percentage rise in the Rand is another nail in the coffin of export industries. The assault on local manufacturing industries continues unabated with the cheapening prices of even cheaper Chinese imports, destroying first the shoe industry, now the textile industry, alongside the exporters and mining industry. The only hope these have is for a drop in interest rates, but I'm afraid that will have to wait for the Reserve Bank's next official meeting on the subject next month.

For the gold Producers, the 'silence of horror' is creeping up on them, as they continue to cut back on jobs and on the mines length of life. The gold price rise of the last week should have taken the gold price to $454.98, for the Rand gold price to have been unchanged. [last week the gold price per ounce was R2,665.56, today it is R2,648.72]

At the time of writing, gold stood at $451.25 or $10.00 higher then this time last week and in Euros 341.27 around Euro 1 lower than last week. The Euro is worth $1.32215. But gold has not succeeded in breaking through the Euro 343 level, yet.

StreetTRACKS Gold Trust
Dealing began on Thursday the 18th of November. Pretty soon wholesalers has taken up 8.40 tonnes of gold, the same amount as Switzerland sells each week, at the moment.

Last heard they have just about 90 tonnes in the bag, bought since the 18th November. This alone not only confirms the success of the issue, but absorbs any gold stock lying around. At this rate along side low supplies of gold to the market and producer dehedging continuing apace, the gold price looks strong! Now it is the brave man who expresses the doubts that were so credible two weeks ago.

As it is such a new animal in the U.S. it seems appropriate that we should outline some strategies useful in dealing in these shares, that highlight what place these shares should have in a local U.S portfolio and in an international/global portfolio, in the next issue of "Gold - Authentic Money". We will be also add concepts of how to bring in a global perspective to your portfolio.

Widening interest in Gold
Last week saw the interest in gold spread abroad to new people, taking it further and wider than has been seen for decades. Not the least of this interest has been shown in the dealings in the Exchange Traded Fund, StreetTRACKS - Gold Trust, which arrived last week and is devouring gold at the rate of knots. But the interest goes beyond this new class of interest, it is generally catching the eye of Investors worldwide. So many Investors over the last 20 years have seen gold belittled to a simple commodity, that it held no credibility as currency. Now that its performance is proving itself first a currency and, as times get worse, proving itself a real 'safe - haven', demand for it should begin to rise. Demand rises as the price rises, because it acts as protection in difficult days. We expect the widening of interest to continue and speed up.

Gold has not only broken through its 16 year highs, but has convincingly asserted itself as a sound investment medium in uncertain days and brought forth its real value as a 'safe place' to sit, whilst structural decay sets in. The markets have shown us this is not just about a falling $, but about systemic confrontations. When a chassis cracks on the car you're driving in, its not just about fixing the problem, but the sinking feelings in your gut, as to what might happen, before the car stops. This car, the $, cannot stop and fix the problem and we are all along for the ride. What a ride it looks like being!

A remarkable feature of gold has always been and is about to show itself again, in the rising demand alongside rising prices. Quite the opposite of a pure commodity.

GFMS, in its latest report implied that consumer demand rose in most countries around the world, resulting in an overall 5.7% tonnage increase in total demand (defined as jewellery, retail investment, industrial and dental offtake). The increase over the first nine months of the year is of 6.5% over the equivalent period of 2003. In $ terms, total demand in the third quarter was almost 17% higher than in the third quarter of 2003. Supply contracted sharply, dropping by 22.4% to 828t, against 1066t in the third quarter of last year. The implications of this are dramatic and confirm our own conclusions that supply would drop and demand rise. We believe that that trend, will continue!

Bank of France to sell gold.
The Banque de France is pressing ahead with the sale of 500 to 600 tons of gold over the next five years. No start date has been given. All we have seen was this statement issued jointly by the bank and Finance Ministry: "Extra revenues for the state resulting from this action will be dedicated, as committed, to the reduction of public deficits and to the financing of longterm employment, particularly in the area of research." Deutsche Bank reported that:" Bank of France governor, Christian Noyer, has said proceeds of any gold sales would be invested in interestbearing instruments and only the profits would be used for the state budget."

That it was a joint statement of the Bank and the Finance Ministry, to us indicates that this was a purely political decision and certainly not a French financial decision. We will be issuing an article on the internet on this subject in the next few days [send for your own copy]. We are sure that the concept of selling gold even for Euros, is a decision that was not willingly taken by Noyer, if indeed it was taken by him.

Russia to consider adjusting its reserves makeup. The Russian Central Bank is considering adjusting its reserves makeup, away from such an intense concentration of $s. We can only say that this is a danger signal. It is a signal of global future currency instability, one that will be extremely difficult to quantify or control. It could herald a level of currency uncertainty not seen since 1970, but expected during the years since then, as inevitable!

With these statements being made, expect other surplus nations to object in the same way. Whilst it is hardly feasible on the political side, the oil Producers, must look longingly at pricing their oil in Euros, to take the focus off the $ oil price. This leapt over $50 again, as you know.

China objects to the Deficit and the falling $.
China's central bank Deputy Governor Li Ruogu said in an interview on Monday the United States' trade deficit is unsustainable and Washington must tackle the weak dollar. "We don't want to run into the U.S. situation of having a trade deficit of 6% of GDP (gross domestic product), that is not sustainable. The appreciation of the RMB (yuan) will not solve the problems of unemployment in the U.S. because the cost of labour in China is only 3% that of U.S. labour. They should give up textiles, shoemaking and even agriculture, probably. They should concentrate on sectors like aerospace and then sell those things to us and we would spend billions on this. We could easily balance the trade." Sounds like he wants to get rid of his $, but for good value? You can forget a revaluation of the Yuan in the near future. And what advantages would they gain, by doing so?

But don't think that this is a containable problem. What he says is deeply significant for the future of manufacturing, textiles, shoes and even perhaps agriculture and certainly the $. This is expanded in this issue of "Gold - Authentic Money."

Silver $7.64
Silver still stands in the same place as last week, only 10 cents higher and is trying to track gold and still fighting overhead resistance. The funds will get disappointed if this continues, as the price is nearly falling with the $ now. Where next, will it be a shorting opportunity or a long one? The funds remain in control. Be careful!

Platinum $863
Johnson Mathey's forecast of last week seems to have stalled the price and it is not performing. And why should it with the demand/supply picture moving from shortage to surplus in the next few months? Tony Henfrey expects the Platinum price to underperform the Gold price dramatically. Which way will they both go? Will it be a roaring gold price or a falling Platinum price?

The London Gold Fix
25th November a.m. $451.70   E 342.327
24th November p.m. $448.60   E 340.726

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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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