Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Fri, May 13, 2005
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HIGHLIGHTS of "Global Watch - The Gold Forecaster"
SHARES - Stock of the Week: Golden Phoenix Minerals & Win-Eldrich Mines SHARES - HUI, AGT, NEM, DROOY, FCX, GFI
- The Yuan revaluation - further impacts on the U.S. $
- De-Hedging prospects.
- Why physical demand will continue to the end of June this year.
- Oil inventories grow but demand fears keep oil around $50.
- The Trade deficit drops.
- Prospects for the U.S. $ & $ Technical picture.
- Gold Price: Long/Short term picture in U.S. $
- Summary: The present Gold Price Drivers.
- International Gold Markets.
- Silver - EDR.V, SSRI, PAAS, SIL / Platinum

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The Yuan Revaluation - Further impacts on the U.S. $!
The talk to date on a Yuan revaluation has been from those outside China pushing the Chinese to do something. Now we have had an authoritative voice giving his opinion from Hong Kong, now, essentially part of China.

Hong Kong Financial Secretary, Mr Henry Tang said this week, "The question now is not if (China will revalue the Yuan) but when. Our speculation is that it will move to a basket system. The contents or propositions of the basket system of course will not be known." He commented on the timing of any revaluation, "China might revalue its currency at a time when it was least expected."

Hong Kong operates a "Currency Board" system. Under the currency board system, a country pegs its currency to an anchor currency, and can only issue domestic currency if the currency is backed by the value of its currency reserves. Countries operating a currency board system forego their independence in setting monetary policy as they can only increase the money supply if there are sufficient reserves in the anchor currency. Tang said that as Chinese companies from the mainland had a lot of activities in Hong Kong, many foreign investors and fund managers saw Hong Kong as a proxy hedge for the Chinese currency. Hence, he said that whenever there were rumours of Yuan's revaluation, Hong Kong would see an influx of money to buy Hong Kong dollar assets like shares that are denominated in the Hong Kong dollar and traded on the Hong Kong Stock Exchange, but is a Chinese national company. So you buy the HK $, you buy into China.

But why is this a significant piece of news for us? With such a strong currency the possibility of the Yuan trading internationally would attract Central Banks. The very economic strength of the country will ensure the Yuan will continue to revalue in the years to come. So it will be a desirable reserve asset for any nation. The current extent of international trade it already has ensures its exchangeability in the future both short and long. As China is an importing developing country as well as an exporting country and is growing by the year to a main global player, the days when its prices are always in the U.S. $ are shortening.

One of the greatest fears the U.S. $ has is that oil producing nations will price oil in Euros or in any other currency. This would immediately put the U.S $ on the back foot and force its issuers to be more responsible regarding its Balance of Payments.

If it became easy for the nations to move away from the $ through the foreign exchanges, the U.S $ would have to suffer the consequences of its profligacy through the gradual pullback in the capital investments into the States, as Greenspan said, the nations ..."would lose their appetite" for the U.S $. Could the revaluation of the Yuan be the trail-blazer for international pricing of goods to move away from the U.S $ to a basket of currencies?

Should this happen, the value of gold will be appreciated far, far more. It would be an opportune time for gold's price to move up with the Yuan, not the least prompted by the discounts in Yuan the gold price would present to the Chinese who remain strong potential buyers of gold in the future!

Oil Prices, priced in a basket of currencies?
Oil Producers, like us, are intrigued by the latest possibility of the Yuan being valued on a 'basket of currencies' basis. Will they be brave enough to follow suit. We doubt that O.P.E.C. will as their lot is tied in with the U.S. But the other oil Producers?

Why physical demand from India will continue to the end of June this year?
The wedding season in India started late this year. In India, according to the priests (Who advise on the auspicious marriage dates for Hindus) there are many auspicious wedding days are to be found in June this year. So the wedding season will continue through June.

In Hindu, Jains and Budhist belief, the calendar is a lunar calendar. Each month starts from New moon and goes through to full moon, which is counted as the first half of the month with the month being completed from the full moon bact to the new moon. Hence the total rotation constitues one month. As the moon only takes 29/ 30 days to rotate around the earth the Indian month, going back to yesteryear normally have 29/30 days.

So 29/30 multiplied by 12 leaves a balance of 11/12 days, when compared to a solar year. The Indian Calendar compensates for this by adding one full lunar month once every three years so as to match the solar and lunar years, mach as we add one day every leap year, once every 4 years to compensate for the extra 6 hrs taken by earth for one full rotation around sun. This year is one of those years for the Indian calendar.

Why important to the gold world? Because the slowdown in physical demand from India this year after the wedding season, normally the end of May to the last few days of August [when the harvest after the monsoon is in], will not be 3 months, but 2 months this year. With there now being little doubt that Indian phycical demand has played a very large part in supporting the gold price to date, this reduction in the time retail buyers are not in the market strengthens that gold price support.

Wholesalers in India, who are more than sophisticated enough to build positions and smooth seasonal price variations will undoubtedly be present during the summer 'Doldrums' so that the seasonal price swings are erased.

What is already clear this year is that the demand from India must be moving well above last year's annual demand levels of 600 tonnes for the year and moving towards an annual total towards the previous high of 855 tonnes.

Akshaya tritya.
May 11th this year is called 'Akshaya tritya' and considered the most auspicious wedding day of the year. On this day every year, nearly 50% of marriages take place in India. Akshya tritya falls on a different date each year in the English calendar, which is solar based. As one of the four most sacred days of the year, it is considered the best time to buy gold and to start new ventures. Apparently anything that is donated on this day is believed to be 'Shaya' or never ending, which would then apply to marriages or business ventures and happily for the gold market, gold bought on that day in the hope that gold will keep coming to the purchaser the whole year.

Last year about 15 tonnes were sold on Akshaya tritya and according to World Gold Council estimates this is set to increase by 20% to 18 tonnes, this season.

As Christmas, a tradition of Christendom has spread across the globe through all religions and cultures, so the hype around 'Akshaya tritya' is growing in leaps and bounds, wherever there are Indians. Will it too leap the cultural divide? Not yet, but Indian gold at 22 carats plus is making huge advances into the international jewellery market this year, so let's see?

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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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