Gold - The Weekly Global Perspective
HIGHLIGHTS in "Global Watch -
The Gold Forecaster"
Silver - EDR.V, SSRI, PAAS, SIL, CDE / Platinum SHARES: HUI, NEM, FCX, GFI, HMY, DROOY NG, AEM, VGZ, GPXM, CAU, WEX.V
Features Below: -
- Greenspan Warns Hedge Funds.
- I.M.F. Gold Sales.
- Falling Euro & Gold.
- Treasuries & Greenspan's Conundrum.
- Prospects for the Yuan.
- $50+ Oil again!
- Technical Analysis U.S.$ - CRB - Copper - DJIA
- The present Gold Price Drivers.
- International Gold Markets.
- Silver - Platinum
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The Global view is the professional picture!
The world of gold is at one and the same time, parochial in its demand and supply and yet global, in its demand and supply. We try to synthesise these aspects to gain perspective and insight on the Gold and Silver and Platinum prices. A simple $/Gold view of the gold market is insufficient to a professional understanding of the gold market. It is important that through the global view of gold, the gold price in different gold-important currencies could be understood from both a fundamental and a Technical point of view.
This summary is produced each week in the "Global Watch - The Gold Forecaster". This shows how gold is well supported. [We will not be reproducing it here in the future]: -
Today's Gold Price - Drivers
In the "climate" created by the global macro-economic view, we see strong reactions from the direct influences on gold.
- Physical demand - for the first quarter of 2005 showed a 26% increase in demand from the jewellery sector, bar and coin purchase and from investment in gold-backed exchange traded funds. This figure is likely to have increased into the second quarter of the year. Indeed, if the monsoon is good this year, we may well see previous peaks in physical demand beaten this year. The Indian physical market has dropped in volume until around the end of August. Asian demand remains buoyant though.
- Fund Selling - Of the 200 tonnes the funds went short of gold they have only closed some 20 tonnes approximately. They have not yet increased or decreased this amount waiting for significant news to give them direction. When it comes it will either cause them to close these 'shorts' at lower prices, or to close them with a dash of speed at present and higher prices. We see their next actions therefore as buyers not sellers.
- De-hedging - Indications are that the year may see de-hedging drop to 100 tonnes for the year below our previous estimates. But De-hedging will continue, according to AngloGold. We should see a far greater level of hedges being delivered to those with whom it was hedged. This tonnage will not reach the open market and will impact as a drop in supply to the market. This will take longer to affect the market though.
- Investment demand - increased in the first quarter by 92% to 190 tonnes. This may well prove to be the strongest source of demand during the second and third quarters of the year too and the oil price takes off alongside increasingly unstable currency markets.
- Central Bank sales - We continue to wait for reports of their sales from March the 18th onwards? We are informed by G.F.M.S. that they have 154 tonnes to sell by the 26th September to reach their 'ceiling' having sold 346 tonnes in the six months to the end of March 2005. This lower amount alone could underpin the gold price and compensate for any shortfall in de-hedging.
- Scrap gold - As the Indian sub-continent still sees the gold price as very cheap scrap sales continue at an extremely low level, as the gold price is still considered very cheap in that part of the world.
- Supplies from the gold Producers - With talk of more liquidations of old mines in South Africa alongside their other woes, gold production continues to fall off more than estimated. The increase in production from the Grasberg mine has compensated for this in total supply terms. The Rand has fallen but not nearly enough to make gold mining across the board profitable there. The big mining companies continue determined to exit that country.
Greenspan warns Hedge Funds!
Greenspan gave a strong warning to operators of large hedge funds, which are investment vehicles for wealthy individuals. He warned that most of the "low hanging fruit of readily available profits has already been picked." Clearly there is a point at which the gaining of high returns requires greater risks. Greater risks bring the potential for great losses. Should one or two of these funds fall foul of such losses there is a large possibility that there will be a pull away from the bulk of them.
Greenspan left the industry in no doubt as to what he meant when he said hedge fund managers who feel driven to continue pursuing above-average returns may encounter risks to their investments that will result in setbacks for the hedge fund industry. Consequently, after its recent very rapid advance, the hedge fund industry could temporarily shrink and many wealthy fund managers and investors could become less wealthy, Greenspan counselled. It seems to be a matter of time then?
Whilst these funds do precipitate a lot of action, they can and do cloud the real picture below the surface. They even act in many cases solely on the Technical pictures and do get it wrong from time to time. They increase volatility and risk to other participants in the market.
But as you can see from the table in the preceding article, their weight can be overwhelming even on the largest of markets. Depending on whether they are 'short' or 'long' in a particular market, their departure will move prices heavily, irrespective of the underlying fundamentals in the short term, were they to depart.
Indian Monsoon has arrived
The rains hit Kerala on the 6th of June. India had been expecting them a week earlier, but this caused no drop in expectations for a good monsoon and to say that they are on time. Hopefully they will persist to give a good harvest this year. Should they do so we expect to see the demand for gold from India, at or above previous record levels.
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