Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Sun, Jul 10, 2005
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HIGHLIGHTS in "Global Watch - The Gold Forecaster"
Silver - Gold : Silver Ratio EDR.V, SSRI, PAAS, SIL, HL, CDE/ Platinum
SHARES: HUI, NEM, FCX, GFI, HMY, DROOY, NG, GLG, MDG

- Market Action / Short-term forecasts across the Board!
- China - The Banks to sell real Gold - at last!
- The Oil Price & Interest Rates.
- Feeling out higher oil prices?
- Global U.S.$ Reserves.
- Central Bank Gold Sales to date - Revisited.
- Prospects for the U.S. $ and Prospects for the Euro.
- Prospects for the US $ / DJIA / 10-Year Bond / CRB / Gold : Oil Ratio Under 7.5!
- Tech. Analysis of the Gold Price: Long/Short term in U.S. $
- Summary: The present Gold Price Drivers.
- International Gold Markets / Focus on Euro, Euro Gold Price

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Excepts from the "Global Watch - The Gold Forecaster": -

Recommendations: - We would advise future share purchases be made in weak currencies [please contact us for specifics]. The Rand should be one of these. Any fall in a currency alongside a rise in gold, leads to far greater profits than shares in a rising currency with a rising gold price. These increases can have a disproportionate effect on share prices there and profits in your hands, if you follow our full suggestions. For example, since we recommended Harmony, in the South African Rand they have gone from R40 to R61, a 53% rise, so far!

That was the week that was.
This is an excerpt from our Market review section, which we felt appropriate to include in this weeks Free version: -
We do expect the Central Banks to continue selling whenever the gold price shows strength as they have been doing for the whole of this year so far, but to pull back when they see the gold price decline. It is likely that their activity has been the main feature of the market that has been holding the gold price back from spiking upwards. One can read this as selling for the best possible gain [good dealing], but it is extremely difficult not to read this as managing the price. With the vloumes being sufficient to sell into the market and at the same time to cap the price at these levels, the actions and the results of these actions are capping and mamaging the gold price.

We hope and expect, that the volumes that the market sees, once the physical season begins again, to be sufficient to overwhelm their ativities and take the price higher. This remains to be seen!

Terror Bombing
A note on the London bombing tragedy: To all those affected knowing that no cause justifies such barbaric behaviour.

However, we do not believe that sufficient gold market participants would react to this tragedy in this way. This would bring a sort of callouness to the market and victory to the Terrorists, which we do not believe to be present. The gold market, ever professional, we believe was reacting to a rally in the € and the € alone.

We do accept that Terror adds to what is a decaying global climate, which is inspiring the long term rise in the gold price. This decay is expected to continue, sharpened in the next few months by the pressures brought on at ground level, by the rising oil prices and declining growth.

The Central Bank Gold Sales to date!
We have repeated this table below, as some confusion exists in the minds of readers from last week. The German sale of gold was for coins only and Germany clarified that this was not part of a Central Bank Gold Agreement sale, so it was excluded from the totals. It was part of a commitment to sell 26 tonnes for the minting of coins.

With Germany withdrawing from the agreement prior to its beginning, by not taking up its 'option' to sell up to 500 tonnes over the period of the agreement, the likelihood of the "ceiling" of sales of 500 tonnes per annum, totalling 2500 tonnes over the period of the agreement, being achieved seemed less than likely. But it still remains unclear whether Germany is completely out of the picture, as it stated, just prior to the commencement of the agreement that it had withdrawn at least for the first year. Even French sales appeared at one time as dubious, given the initial reticence by the Governor of the Banque de France to the sales in 2004.

The gap in the total to be sold looked as though it had undermined the agreement and we all read that an amount well below the proposed "ceiling" of 2500 tonnes would be sold over the five years. Sales from committed sellers up to the end of March appeared to satisfy the totals, which needed to be met for the 'ceiling' level of sales to be achieved. But then there was the gap in potential sales, as public commitments had not been made. It was reasonable that public announcements would be made concerning any new sales from the signatories, in the light of the commitment to "Transparency" that was part of the original "Washington Agreement" the first Central Bank Gold Agreement, that preceded this one.

This reasonably, led to expectations that Central Bank Sales would drop away until the end of the first Central Bank Gold Agreement year. However, as you can see from the Table above, the E.C.B. itself appeared in the market, unannounced and sold 47 tonnes, stating it would sell the same amount from there on each year. Now, another unannounced sale has appeared from "E.U." sources. No country has been named as a seller, leaving us all guessing as to whom this is and what future sales can we expect form this source. It seems reasonable to assume that it is a new source of sales, or the sellers would have named themselves.

So much for "Transparency"! But what is of greater concern is the broader picture. It is clear now that the signatories have no intention of conducting previously arranged sales of gold in an orderly fashion. These sales appear to be a commitment by the signatories to sell up to the "ceiling" levels on the part of the signatories as a whole. Should one of the signatories leave the pack, as is the case with Germany, others will step into the breach, as evidenced by the E.C.B. and this unnamed "E.U." source. It appears reasonable to assume that the E.C.B. is controlling the sales. It also appears certain that by "hook or by crook" the "ceiling" of 2500 tonnes of sales will be reached.

Why? You may well ask, particularly as the has gone into a decline of value and of reputation in the face of the clear disunity in the Eurozone. Our thoughts go back to the time, after the $ had been discredited at the beginning of the seventies, when in the eighties, the U.S. stated to sell gold before abruptly halting them, when the $ moved towards global dominance. The question comes to mind, "is the Eurozone attempting to discredit gold in favour of the ? If so, knowing the inherent European thinking on gold, loud objections will be raised, especially in the light of the history of European currencies. The de-coupling of the from the $ becomes significant now. After all, to sell gold when it is fused at the hip to the is one thing, but to sell it when it is proving its strength against a weak €, thus fulfilling the role for which it was originally intended, is another thing.

We sincerely hope that the European Bureaucrats will allow reality to dominate their thinking and not continue to try to regulate reality. There is hope that this will happen, for the sales of gold are managed in such a way as to achieve the maximum income on them when demand is at its height. This shows that the realities of value are present. But will these realities be strong enough to precipitate a re-thinking on the policy in the first place? The memory of Britain's gold sales debacle of which we have been frequently reminded by Mr Brown's continued insistence on trying to sell other people's gold [unsuccessfully - thankfully], should supply adequate incentives to a complete re-evaluation of the policy. If they do choose to re-think the sales, they have been wise enough to aim at a "ceiling" and not a target. So they can, gracefully, simply slow or stop the sales, without losing face. Well, after all it was only a "ceiling" wasn't it?

Sept 2004 - June 2005
  Oct Nov Dec Jan Feb Mar Apr May Jun C.B.G.A.
Yr so far
Tot
com.
Tot
Rem.
E.C.B. - - - - - - -47 - - 47 235 188
Austria - - -10 - - - - - - 10 90 80
Germany - - - - - - 0 -3.4 - 0 500 500
France -7.5 -23.2 -8.1 -7.5 -8.4 -11.2 13.2 - - 79.1 600 520.9
Nether - - - -10 -23.5 21.6 - - - 55.1 150 94.9
Portugal - - -20 - - - - - - 20 200 180
Sweden - - - -4.1 10.9 - - - - 15 45 30
Switzer -22.5 -22.5 -19.8 -22.2 -20.5 -21.5 - - - 129 129 0
EU ? - - - - - - - - 53.8 53.8 ? ?
Total -30 -45.7 -57.9 -43.8 -63.3 -54.3 -60.2   -53.8 -409 1949 1540
Source: World Gold Council
Notes:
1) Germany has only sold amounts minted into Coins.
2) The E.U. sold 53.8 tonnes unexpectedly, without naming the source, so we cannot give a future sales figure nor a residual amount to be sold.
3)These totals are correct if you factor in these notes.

Global U.S.$ reserves.
According to the economic research centre at the Moscow International Institute on Econometrics, Computer Science, Finance, and Law, this is the present state of the main U.S.$ global international reserves:

  1. The Bank of Japan has reserves amounting to U.S.$842.47 billion.
  2. The People's Bank of China has reserves of U.S.$659.14 billion.
  3. The Central Bank of the Republic of China (Taiwan) has reserves of U.S.$253.17 billion.
  4. The Bank of Korea (South Korea) has reserves of U.S.$206.1 billion.
  5. Russia's Central Bank has reserves of U.S.$149.6 billion.
  6. The Reserve Bank of India has reserves of U.S.$139.57 billion.
  7. The Monetary Authority of Hong Kong has reserves of U.S.$122.4 billion.
  8. The Monetary Authority of Singapore has reserves of U.S.$116 billion.
  9. The U.S. Federal Reserve System has reserves of U.S.$79.53 billion.
  10. Germany's Bundesbank has U.S.$ reserves of $76.43 billion.

- The world's biggest surplus on the current account of the Balance of Payments in 2004 was Japan's with U.S.$170.2 billion.
- Germany was second with U.S.$73.59 billion.
- Saudi Arabia's surplus was U.S.$51.5 billion.
- Russia's surplus on the current account of its balance of payments in 2004 was U.S.$46.04 billion.

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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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