Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Fri, Apr 15, 2005
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This weeks Features found in "Global Watch - The Gold Forecaster"
1. Whom do oil prices hurt first / I.M.F. Gold Sale effectively opposed / Why any "Official" Gold Sales? / Greenspan the Soother / Prospects for the U.S. $ / The Euro-$-Gold story is not the real Gold story
7. US $ Index, 10-Year Treasury
8-9 CRB/U.S. Markets at Critical Supports / DJIA vs. HUI Predicting a market sell-off? DJIA & S&P 500 T.A.
9. Summary: The present Gold Price Drivers.
10. Technical Analysis of the Gold Price: Long/Short term.
12 - 15. International Gold Markets.
15. Silver / Platinum

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The Euro/$/Gold story is not the real Gold Story!
The relationship between the Euro and the $ is the yardstick in the developed world is one that is governing the gold price in the hands of the funds and the dealers.

This is ridiculous as the implication is that the gold price and the Euro have the same value, which they do not! The Eurozone is as vulnerable as the U.S. is to the transfer of wealth to the Middle and Far East, inflation as well as all other woes facing the U.S. Like two people falling, the distance between them should not be a measure of the health of the situation, rather the very fact they are falling should be! So, a sense of proportion is needed here when we look at these numbers!

Here is some perspective for us - Since 2001 2/3 of foreign capital invested in the U.S. has headed for Treasury and agency debt. This represents easily removable liquid investments. As to long term investments in the U.S. economy, equities have accounted for less than 6% of the total a drop of half of the amount held during the 1990s stock market boom. China will use these surpluses on its own internal development. They are not long-term investment in the development of the States! If Japan's example is anything to go by [look at Toyota's history], the U.S. Dollars not used on China's development will be used in Chinese assembly plants and the like inside the U.S. to promote the import of even more Chinese goods. So far the year to date shows that the trade deficit with China is 47.4% higher. The same will become true of the Eurozone and the rest of the world that imports from China.

It may be a good time to have your children or grandchildren, learn Chinese?

With foreign Central Banks now holding $2 trillion or over 50% of all marketable Treasury securities, foreign investors, mainly Asian, are being relied on to finance America's enormous 'twin' deficits [note, not just the Trade deficit]. In addition to the Trade deficit, the U.S. federal fiscal deficit is headed for a record $440 billion this year. Taken together, it is a wonder that there is not amore dramatic retreat from the $, but into what? The same is happening across the globe to each and every richer country!

Eventually, not merely control over the international bank balance of the U.S. will be in Asian hands, but so will their manufactured supplies, over a broad front. If they take the reins in so they don't spook the horse, that's just fine. But this horse has never been ridden before! And this horse is going to buck. What can they use to defend themselves?

The entire developed world has to restrain the potential deflation that comes with such a transfer of power and wealth. The only tools they have are:

  1. Inflation.
  2. Protectionism.
  3. Capital Controls

A little dramatic you may say, but reflect please on this -

- China does not have U.S. financial interests at heart except to have them continue to buy Chinese goods.

- Oil producers and resource producers sell to the highest bidder.

- The developed world cannot continue to allow control over their economy to pass into foreign hands for much longer.

- At the end of the day, it is the transfer of power that is moving east.

We are tasked to look at gold primarily. Gold is, in reality, independent of the Euro, so should reflect the levels of global currency and monetary stability. With the structural changes now well under way, globally, the potential for global ruptures has never been higher. Basic sound currency and monetary behaviour is being breached as this issue has described so far. It is only a matter of time before there is a monetary accident which will send the gold price leaping. Once the focus moves away from Europe's disparity with the U.S. and onto the pressures both are facing, then gold will reflect its true value. Presently, with the traditional measuring tools [which are inadequate] the damage to date is not being properly assessed.

I.M.F. Gold Sales effectively opposed.
This Saturday sees the meeting of the International Monetary Fund and the discussion on I.M.F. gold sales brought to a head. Being such an emotive issue and one so tasty in the mouths of politicians, do not be surprised if the issue does not go away. Mind you it should go away and be replaced by a meeting of those who are the poor countries Creditors, so that they can find straightforward and effective ways of helping the poor indebted countries.

However, echoing the position of the Bundesbank, European Central Bank president Jean-Claude Trichet criticized the idea that the IMF should sell some of its gold reserves to finance debt relief. "Development assistance should normally be financed from budgetary resources rather than through the use of monetary assets," Trichet said. On the plan to sell I.M.F. gold he made the position of the European Central Bank clear saying, "We would certainly be cautious in this respect as central bankers."

The U.S. has made it clear that it opposes the sale, as has Germany's Bundesbank. Such a positions virtually rules out any such sale as the combined voting power of these members provided far more than the 15% required to knock out the proposal.

Why any "Official" gold sales?
What we have found amazing throughout the entire topic of "Official" gold sales is the lack of sound investment management principles that prompt them. Germany's standing back from selling was based on good principles and they cited them as an, "effective counter to swings in the Dollar". So what prompts them? The E.C.B. stated that, "it was an appropriate way of reshaping its reserve assets". With the U.S. $ being the replacement for gold in these assets it seems to most observers of the last Trade deficit figures, to be a way of putting these reserves into a worse shape?

One principle of the sales is their aim to hold only 15% of their reserves in gold. Think about this! If the gold price falls, will these prompt purchases of gold? Will a further rise in the gold price prompt more sales of gold and purchases of weakening currencies? Will sales and purchases [?] of gold be an ongoing process, or is this a one-off adjustment? These are questions that the public needs to know, or Central Bankers will continue to attract the suspicions and accusations of those who cry manipulation!

As to the sales of gold being now aimed at achieving as good a price as possible, which appears to be their intention, why are they not directly negotiating with Central Banks, such as Russia, who have openly declared they wish to raise their gold holdings to 10% of their reserves [leaving room for substantial ongoing purchases as their surpluses grow]? By not doing so, they are effectively trying to manipulate the open market gold price.

In the new issue of Gold - Authentic Money we have produced an article on just what gold is now being sold and what could lie ahead for the sales of the signatories of the Central Bank Gold Agreement. Important new information has surfaced clarifying a picture that they have been at pains to camouflage. [We will send this FREE to Subscribers and new Subscribers only of "Global Watch - the Gold Forecaster". To subscribe to either publication - see below]

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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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