Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Sat, Mar 19, 2005
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HIGHLIGHTS from "Global Watch - The Gold Forecaster"
Market Action / Short-term forecasts across the Board!
The evolution of spec hedge fund activity and the gold price!
O.P.E.C. does expect $60 a barrel soon! / I.M.F. Gold & the U.S. Position / Prospects for the U.S. $ / Inflation is coming / South
African Mining is hospitalised.
The present Gold Price Drivers.
Technical Analysis of the Gold Price: Long/Short term.
International Gold Markets. Rand Gold Price Downtrend Ends
Silver / Platinum

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The Evolution of Speculative Hedge Fund activity and the gold price!

So as to get the correct 'feel' on the market and not be dominated by the short-term picture, look back if you will, to the market leading up to the Iraq war. The market view of gold then, after a 20 year campaign to alter the perception of gold, was, indeed that it was a "commodity". It was scorned as an archaic relic, loved by the funds as a manageable trading vehicle. With a modicum of joy, they took it from $320 to $390 then took it all the way down again to $326, before it rose again. But then its nature began to change, as fundamental factors grew stronger and stronger, weakening the hold of the funds over the price, slowly but surely. Gradually the huge volumes of gold they traded to shake the price up or down had less and less impact. Then last year just after the Indian physical market went into their 'doldrums' and their monsoon, the massive dumping of the funds long position in gold on the market saw a dramatically diminished impact, leaving the gold price solid but uninteresting until the Autumn, when it gradually re-built its strength, towards the end of last year. This year saw a new development in fund activity. Last year the price peaked in January and many perspicacious Investors closed large positions successfully. The funds tried to copy this by again, dumping a huge position on the market, but this time it had only a small short-term impact on the price. Now fund activity has most of the features of arbitrage activity, taking advantage of the moves in the $ to deal between the $ and the gold markets and between London and New York. The moves are almost clinically related.

So our attention shifts to the € price of gold, as this is the pivot of the gold price. Many will go as far as to say that the gold price is ONLY a $ story now. We dispute that strongly. In the very short term this appears to be so, but it should be seen as part of the transition of gold into a recognised and sought-after monetary investment, effective, not just to counter the swings in the $, but to counter the swings in the value of the $ and soon, all other paper currencies as the structurally destabilising fundamental forces gather momentum and force in the next year and more.

Clearly the lesson of the last two years is that this transition is taking place and is strong enough to alter our basic perceptions of this market. Its continuation will lead to equally major changes in the near future as have taken place in the near past. This can only bode well for the long-term uptrend in the gold market.

With the market appreciating more the Balance of Payments in the U.S. as far as Trade outflows, being measured against Capital inflows, we have seen a new appreciation of these underlying fundamental forces.

It serves to highlight how the "Bull" market in gold has itself changed its nature over the last couple of year, which as it should, points us to where it is going in the future.

I.M.F. Gold and the U.S. Position
Quite incredibly, the last few weeks have seen a discussion around the sale of I.M.F. gold to aid in the write-off of poor countries indebtedness. It is due to come to finality next month. We have stated in our pages that the move that could be made by the I.M.F. that would benefit gold per se would be for it to be revalued at market rates.

This would permit it to function as an independent currency and an effective reserve asset. That it should do so is being recognised in the bulk of the Central Bank Gold Agreement nations, as voiced by the current Bundesbank President, when he said "gold is an effective counter to the swings in the $" - clearly that is at market prices. Even the U.S. has moved to that position and faced the realities of any potential I.M.F. sales when it voiced this opinion,

"Gold is carried on the IMF books at about $48 per ounce, well below current market prices. Accordingly, this below-market value hides the (higher) economic value of these reserves. Consequently, any gold sale, which occurs at market prices, will entail sizable gains to the seller. Relative to the restitution provisions under the IMF charter, such gains would come at the expense of the original contributors of the IMF gold. In any event, the potential profits from gold sales were non-existent when the gold was initially contributed and should not be usurped by the IMF, but returned to the member nations."

This was the case in the actual sale and re-purchase of Mexico and Brazil's gold, the only two times when the I.M.F. actually sold some gold. The profits were used to resolve the crisis Mexico and Brazil faced within the I.M.F. None of this gold reached the open market. The exercise was in reality a book entry alone. The same principles must apply to any potential sales by the I.M.F.

So that you can appreciate these realities the following points must be factored in.

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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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