Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Sat, Jun 4, 2005
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HIGHLIGHTS in "Global Watch - The Gold Forecaster"
Silver - EDR.V, SSRI, PAAS, SIL, CDE / Platinum

- Indian Gold Demand.
- The Falling Euro & Gold.
- CB Gold Agreement of 2004
- Protectionsim War is Declared!
- Refinery Pipeline Rupture Sends Oil to the mid-$50's
- Propects for the US $.
- DJIA - 10-Year Bond - CRB - Gold : Oil Ratio Under 8!
- Technical Analysis of the Gold Price: Long/Short term in U.S. $
- Gold Price: Long/Short term picture in U.S. $
- Summary: The present Gold Price Drivers in tonnages.
- International Gold Markets / Focus on the Euro, Euro Gold Price.
- Silver - Platinum

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The Global view is the full picture, not just $/gold !
Watching the Euro fall as opposed to the U.S.$ rising, for that is what's happening, taken alongside the enormous physical demand for gold we have seen since the beginning of the year, aptly highlights that a simple $/gold view of the gold market is insufficient to a professional understanding of the gold market. The average Indian buyer of gold doesn't know what the Trade deficit is or the importance of the referendum on the European on the gold price [nor do we for that matter], nor does it affect his buying pattern. With the Euro falling as it is, the market practice of linking the gold price and the € is now called into question [see the piece below on the € / $/gold links]. As the gold market evolves from 'commodity' through 'currency' to a global measure of value against all 'currencies' the narrow view of gold is proving less and less adequate. We take the elements that make up the gold price from around the world and bring them together, giving each its relative importance, and attempting to identify the synergy these produce that makes up the gold market price in the different gold-important currencies of the globe, through both a Technical and a Fundamental viewpoint. "Global Watch - The Gold Forecaster" provides this 'global' view of Gold each week. The following are excerpts from that publication: -

The Falling Euro and Gold!
Why should gold move only against the $, fused to the €? Why shouldn't gold move alongside the $?

Oh, but it is a convenient measure of the U.S$ you may say, as is the € itself.

This week we have seen it sticking to the U.S.$ while the Euro fell, so then we would have to ask, what in the Euro, or the $, or in their relationship to each other that gives rise to the gold price reflecting the same relationship? It seems that it has become a convenient market measure, based on very little indeed. This relationship to the € gained its virtue from market acceptance itself, but not from reason, or factual fundamentals.

If now the Euro is on the process of "losing its name" in the market place by showing weakness of itself [not reflecting the opposite of the U.S.$], then such a relationship must be broken, because there is even less in this relationship that should cause the gold price t go down with a weakening €.

The weakening of the € could prove to be one of the most exciting and required developments for gold, in its path to a reinstated global monetary instrument having the innate qualities to properly reflect the value of paper currency. Over the last two years we have seen it move from a so-called "commodity" on to a "currency". Now it is moving on from there to be a "currency" free from structural political interference [except where Central Banks put their feet in the market], to a global monetary asset, that holds its value in all situations over time.

Silver was not affected by the fall in the €, nor was Platinum, why not? Because they are not treated in the market as monetary instruments. Gold is, more and more. This week alone has seen it hold its own against the $ and rise against the falling €. It has broken away from this currency. It opposite relationship to the U.S.$ has also broken this week, why? Because gold is subject to far more than the assessment that it simply a counter to the $. It is a counter to weak currencies. Perhaps the most remarkable even in the gold market was the sight of the € price of gold rising as the Euro fell. At the time of writing it stood at €341, having climbed from €333, through resistance at €336 and heading up.

It is moving back steadily to the point where it will run 'contra' to all the main currencies, when they are weak. The next step is to add to this pattern by moving up when currencies 'per se', breed instability in the global monetary system and confidence in them wanes. The Technical picture, particularly of Silver against Gold, became unclear at one point, but now relating the 'commodity'/$ based nature of Silver and Platinum to the 'currency' related nature of gold, we can see why. Understanding the currency aspect of the precious metals is vital!

The gold price looks capable of weathering very heavy monetary storms. The next month or two may prove this point. This is an excerpt from "Global Watch - The Gold Forecaster" on the South African gold production situation: -

South African Rand Fundamentals
South Africa falls into the our first category of nations that adjust interest rates in the light of internal factors, without regard to the impact on foreign exchange rates.

Production fell to 73.8 tonnes during the first three months of 2005 from 84.6 tonnes in the same period last year, mainly as a strong Rand made some shafts uneconomical. This was a decline of 12.8% year-on-year, the Chamber of Mines said this week. If this decline were to continue South Africa's gold production would drop below 300 tonnes for the year. This is a far higher figure than expected and clearly shows that gold production for the year will be below previous estimates.

Bearing in mind that the mines need a minimum of R88,012 / Kg just to cover total production costs, the domestic gold price in the first quarter [which fell 7.7% year-on-year] of R82,206 per kg left most mines facing a very bleak future in South Africa. What should they get in their hands within South Africa? Well, add a profit margin commensurate with investing in South Africa and you can see why South African mines would like to see the Rand at with a gold price of $415 the Rand must fall and stay at R8.50.

The South African Rand has fallen in the last few weeks from R5.70 to R6.70 which is welcome news for the mines. The Unions are doing their best to pressure government to get it down to R8.50, but it is unlikely that this will happen in the near term. The inflow from the Barclays purchase of ABSA bank for cash has not been reported as complete, but they have now acquired the necessary shareholding for them to go ahead. The market is braced for a strengthening of the Rand as this one-off inflow takes place. The reason given locally for the Rand's strength is the U.S.$ strength, but this does not fit as the Rand is weakening in terms of the € as well. It does fit the picture of fund managers lowering their exposure on emerging countries currencies, as the currency turmoil between the € and the $ sets off. This exit of "Hot Money" from South Africa will not be reversed as we now expect a possible interest rates fall as inflation is contained effectively now.

The unrelated strengthening of the U.S.$, rising unemployment [as we can see the potential STILL for 12,000 jobs to be lost, in the mines alone] and in particular the complete desolation of the textile manufacturing industry [a permanent phenomena], alongside the eventual realisation, [but too late] that the Rand is detroying key elements of the local economy, including damaging Tourism, appear to have caused a change in the policy of the Reserve Bank. But will the 20% demands by the Unions get through or will they settle for far less? No doubt they will do well to get 3%!

We hope that the Rand does not recover for some considerable time, but weakens substantially still, so that the mines can recover. South Africa needs the Rand to stay weak for some months so that the average Rand gold price received by the mines benefits from the weak Rand. The South African mining companies are saved by the income stream from offshore mines they own. This too has risen in Rand terms by 20% during the recent fall in the Rand.

Last week the gold price, per ounce was R2,723.58, today it is R2,872.93.

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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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