Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Fri, Dec 3, 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!

With dogged determination, the gold price fought its way to the mid $450's, before slipping at the end of the week to below $450. The level of emotion in this market increased, with the further falling of the $. The market is beginning to become aware that this is not simply a decline in the $ against all other measures of value, but has moved to a systemic or structural decay in the monetary system. Gold prices are reflecting this more than other metals, because of the rise in uncertainty. The need to know what is going on, has risen. Fund activity increased in line with the rising price, but London continued to hold the reins of the gold price. In particular, the London twice daily, fix dominated the price. Some feel that the funds would drop their holding on the sign of a retreat and undoubtedly that will happen to some extent, but be not surprised if the bulk keep hold of their holdings.

The comfortable feeling of an unchanging shape to the globe and the U.S.'s position in it, is slowly giving way to disquiet about the future monetary security. In particular, the acceptance of gold as a currency climbed a notch. However, the performance of gold struggled in Euros.

The $ gold price is looking somewhat out of breath. But it has done well, so far, much better than most thought. Certainly if it consolidated for a while, it would find physical demand returning from India. Presently Indian buyers are standing back, but encouraged by the drop in the Rupee price of gold. As the latest G.F.M.S. figures show, in the first half of this year demand from the subcontinent looked as though it was going to break all records. But suddenly the demand virtually ground to a halt in September.

So we now ask, if it was not driving physical demand that has pushed the gold price to these present levels, what did make it rise? The answer is becoming patently obvious now. Dropping supplies! DeHedging! Steady market demand from other sources. All these are responsible. Nothing dramatic, noting surprising, simply the rising tide of these factors overwhelming reducing supplies.

Global market prices:
Euro: (Euro 1 : $1.3287) This week gold has struggled in Euros. It tried so hard to attack the Euros 343 level, with little success, than pulled back to Euros 338, before slowly moving back to Euros 341. At the time of writing it had slipped back to Euros 338 and did look tired. For most Investors, it is in this currency that gold still has to show that it is going to rise, before they believe we are into a dramatically rising gold price future.

U.S. $: The $ looked weak this weak, so its price fell to 1/$456th of an ounce of gold, at its lowest. With more and more realising that the $ is falling and has fallen in value over the years its role as the global currency, is being called into question. So the $ price of gold is the price of the $, not of gold itself. We have moved a long way down that road since the beginning of the year. Nevertheless, we may see some consolidation of the $ price of gold, as we may see the same in the Euro/ $ exchange rate too.

Rupees: ($1: Rupees 44.14) The Rupee strengthened 2% this week, the equivalent of $9 on the gold price, making the present drop to $449 from $456, more like a fall to $440. No doubt this is bringing a straightening of the back and a twinkle to the eye of the Indian physical market. Unlike many in the Western world where a fall in the price pulls buyers off the market, in India, where gorgeous gold is wanted, a pullback in the price is a buying opportunity! Will the Indian authorities allow a strengthening Rupee? We would be very surprised to see this, so this really could be a good buying opportunity for them?

South African Rand.($1 : R5.8535)
The Rand continues to rise, much to the horror of the gold industry and all other exporters. The long wait to the next Reserve Bank meeting at which interest rates will be reviewed seems interminable. Yet as the Rand appreciates all imports including Chinese imports get cheaper and cheaper in the local currency. As this happens more and more export businesses struggle and head into liquidation. Car sales are roaring up [all imported] and things feel good, so far.

You can be sure of one thing though, whoever wins in the hostile takeover of Goldfields, both Harmony and Goldfields will work more and more to diversify outside the country, so as to get away from not only this Rand but future increases in taxation, with the eventual imposition of a new Royalty tax on the mines, based on turnover, not on profit. [Two weeks ago the gold price per ounce was R2,665.56, today it is R2,628.22 ]

At the time of writing, gold stood at $450.15 or $1.00 higher then this time last week and in Euros 337.95 around Euro 3 lower than last week. The Euro is worth $1.33.

The $'s value to the U.S. citizen and to the foreigner.
To the average American reader, the price of a hotdog has not gone up much in the last few years, where his salary is dependent on his value, not the value of the money itself. In the last year, a person earning $50 to $100, 000 a year has been able to enjoy his greatest year of wealth ever. Financial dreams have come true and he looks and feels good, with more trust in the power of the buck than ever before. He can see it, feel it and taste it.

Now go across to a nation like South Africa, where we find an exporter who earned $50, 000 to $100,000 a year. Two and more years ago he was living high on the hog. Each $ at its best would give him R12, translating into his greatest year of wealth ever. Then the $ started to decline and the Rand started to appreciate. Today, he still earns the same number of $, but instead of getting R600,000 to R1,200,000 he now gets R5.6 for his $, leaving him with R280, 000 to R560, 000, his worst year of wealth since last century. This is the reality of the $ and just why gold should be treated as a currency!

The Global view pushes into the picture.
The reason why currencies and gold are behaving as they are today, are not only a lesson for us all, but a confirmation of how we must look at gold through global eyes, eyes that not only account for the performance of gold in local situations, but how they can affect the overall global picture. In our publications we do our best to give this global view. As events move forward and global tensions begin to rise, alongside the jostling for new positions in the changing world economy, your advisory services should also move away from the local perspective to the global one, with all its different layers. We see it as our task to give you these changing perspectives as they unfold.

To what height could gold climb?
So many forecasters these days are pointing to the gold price reaching a ratio of 1:1 against the Dow, or saying it will reach four figures by the time it peaks, led, as you know, by the head of Newmont Mr Pierre Lassonde. Many equally reject the forecast as over dramatising, so perhaps it is appropriate to take a look a the past?

Prior to the floating of the $ and the Pound sterling, back in the '70s, gold had been fixed at $35 an ounce. In the early '80's it reached $850 an ounce, 24 times it's start point. Its rise was neat and almost mathematically predictable, rising 100% then falling back 50%, then repeating the process. The picture today, is not exactly the same as in the '70's but there are a considerable number of common denominators.

So, if we took the lowest point to which gold fell back to since the 1980's/1990's, as $275 and multiplied it by the same figure of 24 times, we get $6,600. There is no reason why the gold price should go up 24 times, from that level now. We mention that figure to show you what actually can happen when the U.S. $ loses the confidence of the rest of the world.

It is also salient to point out that this rise took a full decade to occur and was not believed for much of the time it was rising.

We can only say that the situation regarding the $ in 1970 was far less dramatic and far more manageable, than the one the U.S. finds itself in now. This time round gold will climb not only on the back of a decaying $, but of the situation it precipitates globally and the massive rise in monetary instability that must accompany the falling $. We quote, this time round, in the latest issue of "Gold - Authentic Money" these words from John Donne's poem," Send not to see for whom the bell tolls, it tolls for thee!"

Turning away from the $.
Is it really happening? In the last week we have heard that officials at the central banks of both Russia and Indonesia said that their banks were considering reducing the share of dollars in their reserves. Even more alarming were reports that China's central bank, the secondbiggest holder (after Japan) of foreignexchange reserves, may have trimmed its purchases of American Treasury bonds. This would impose a selfinflicted injury on those nations in the form of a sharp fall in the value of the $ and the rest of their reserves.

We said in this letter a few weeks ago, that foreign creditors of the U.S. would not bring on the collapse of the $ and yet these statements are now being made. We now add this. Foreign creditors, if they diversify away from the $ or its bonds, will only do it in such a way as not to precipitate a fall in that $. We now add the following statement:

It is and will be the U.S.A. monetary authorities that will cause the fall in the U.S. $!

You want proof? Read Alan Greenspan's last statement on the matter. We have explored this fully, in a recent issue of "Gold - Authentic Money", which will be sent free to all new Subscribers to the newsletter. This is an important article, giving deep reasons why these things will happen and what drives the growing distrust of the $.

Bank of France to sell gold?
As November closed off, so the Finance Minister of France exited to a new job of lesser consequence. As we mentioned last week, the head of the Banque de France appeared to have his arm twisted into agreeing to the sale of 500 to 600 tonnes of gold, from France's 3,000 tonne + stockpile of gold. This seems to be a reversal of what happened in Germany earlier this year when the head of the Bundesbank left his job under a cloud. We have heard no more from Germany about its sale of 500 tonnes of gold [but still have not excluded the possibility that they may sell]. Having said that we now wonder if, there was more than met the eye with Sarkorsky's departure from the French Finance Ministry? More importantly, will this leave sufficient space for M. Noyer President of the Banque de France, to walk away from the sale of France' gold? Tempting it must be, but we do not walk away from the probability that France will go ahead with the deal, unless someone even more senior, such as the President of France himself, gives the order not to sell? Maybe he didn't want the 'family jewels' sold?

G.F.M.S. Supply figures.
G.F.M.S. has just released its predictions of new supplies of gold up until the year 2014. They predict that global output in the medium term is forecast to trend lower. There has been much discussion in the media and amongst analysts as to what the newly mined gold supplies to the market will be. We have great respect for the work of G.F.M.S. and accept these figures as definitive. Their other predictions are discussed more in our next "Gold - Authentic Money" issue.

Please bear in mind, that for more gold to come into production over and above this, will take up to five years to appear on the market. Hence, it is reasonable to conclude that in the short to medium term, newly produced gold is price insensitive.

China shopping for resources.
A while back we mentioned China's acquisition of Canada's Noranda. Now we read of China's other shopping trips in South America and Africa. What is their objective, what are they achieving and where is this leading us and of the utmost importance, what is China's time frame for it to achieve these objectives?

This is perhaps the most important story of today, because of its direct and massive impact on all of our tomorrows. Indeed, it contributes to one of the main reasons why the gold price is entering not just a $ bull market, but into a new, major leg of gold's 'bull' market. And we are not just talking about an economic extrapolation of current trends. Much, much more is included in this story. We paint the picture in "Gold - Authentic Money".

Silver $7.86.5[Euros 6.0305]
Silver broke out beautifully this week and held above the $8.00 level, retreating only at the end of the week down to the $7.80's. From a very short term point of view, the question to ask is just how far was this a $ story and how much was it a silver story and how much is this a speculative fund story? The answer will be given in next week's prices. A strong point to take is that it had the strength to break out, so perhaps it will keep that strength. All eyes will certainly turn to the performance of the $, itself, to give us direction. The Euro price, to give it to you in a solid currency, this week was Euros 6.0305

Platinum $870 [Euros 655.10]
At $7 higher than last week, the Platinum price has done well. And the price is not only a play on the metal and its fundamentals but it too is responding to the behaviour of the $. The $ is in complete isolation, so here again we give you the Euro price of 655.10

The London Gold Fix
3rd December a.m. $449.15    E 338.317
2nd December p.m. $454.20    E 340.531

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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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