Gold - The Weekly Global Perspective

By: Julian D. W. Phillips | Mon, Aug 22, 2005
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HIGHLIGHTS in "Global Watch - The Gold Forecaster"
- Silver - COT, Gold : Silver Ratio EDR.V, SSRI, PAAS, SIL, HL, CDE / Platinum.

Features: -
- Market Action / Short-term forecasts across the Board!
- Comex positions/ Commercial Shorts Help Indicate Price Movements
- The CBGA signatories have agreed to stop selling until September 26
- Country risk when investing - Zimbabwe
- Commodity diversification paves the way for gold
- De-Hedging
- An Oil price above $60 is here tostay!
- Prospects for the U.S. $/ Prospects for the US $ Short & Long-Term
- DJIA / 10-Year Bond / CRB / Gold : Oil Ratio - Record Lows.
- Summary: The present Gold Price Drivers.
- Technical Analysis of the Gold Price: Long/Short term in the U.S. $
- International Gold Markets / Focus on Euro, Euro Gold Price.

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

The Central Bank Gold Agreement signatories - Have agreed to stop selling until the 26th September!

But will they?

We have been reporting closely on this agreement throughout its life, realising that a great deal is at stake for the gold market and for the future of gold as a Reserve Asset. We are fully aware that gold should be an asset that should behave in a manner consistent with a reserve asset. But does that mean it must not reflect the volatility of currencies or demonstrate a market condition that reflects a loss of confidence in currencies to any extent? Should the gold market be managed, so as to point to gold being subservient to paper currencies? Currently, the agreement is under test. Just how solid is it?

This week came reports from the European Central Bank that they have crossed the line [500 tonnes] defined in the Agreement by 6.3 tonnes!

The agreement set a 'ceiling', a limit, of 500 tonnes, with a total for the 5 years of 2500. It is reasonable to expect such august institutions to keep to their agreement and to cease selling from now on until the end of their year, which began on September 26th 2004 and finishes on the 26th of September this year. That is if they want to retain their credibility and avoid accusations of 'managing' the market.

Granted the sale that caused a crossing of the line was between banks [The French and the Bank for International Settlements] but a sale is still a sale. Some may assume that they meant sales into the open market? But the agreement did not specify this.

It does make far more sense for a Central Bank to sell its holdings to a willing Central Bank buyer [Russia or China perhaps?], rather than into the open market because the sale will not affect the market price, but they don't. Why not?

With the funds holding large positions and Indian demand absent from the gold market, the gold price in both the and the $ will reflect any further sales. If they do not sell for the next five weeks, you can be sure that the gold price will spike at some point. Too many fundamentals are positive for the gold price right now. However, if the signatories do sell, the gold price should take a 'dip'. What price integrity?

Country risk when Investing - Zimbabwe

Platinum is a commodity hovering in equilibrium between demand and supply. Now above $900, some believe it will benefit from the commodity aspects of the market in the metal and the jewellery scene in China. Little expansion is expected in South African production until the Rand is somewhat weaker.

This makes the huge deposits in Zimbabwe particularly attractive and a place where Implats is poised to dive into the deep end. The Platinum mines operating there currently are Implats [through its company Zimplats], Mimosa Platinum, and Aquarium Platinum. [Other groups operating there include Anglo America, Rio Tinto, of which the Zimbabwe holdings are a tiny proportion of their total assets.]. We are amazed to read the following report from Implats: -

"Impala Platinum Mines intends to expand its operations in the country to produce at least 1,000,000 ounces of Platinum by 2020, through its two subsidiaries Zimplats and Mimosa. Impala intends to follow a staggered development at Zimplats to produce 450,000 ounces of platinum per year within 5 to 10 years. Thereafter this production capacity is envisaged to more than double within the next 10 to 15 years, when it is projected that Zimplats, which has the largest known reserves of unexploited platinum group metals (PGM) in the world, would be producing 1,000,000 ounces per year.

Mimosa, with a current production capacity of 70,000 ounces of platinum per year, would more than double this to 150,000 ounces a year."

But hold on, we say! A key part to any share analysis is the assessment of country risk and currency risk, before you even consider the target company in that country.

Many people are not fully aware of the dangers that the country and currency risk pose to Zimbabwe mining operations. These are the greatest dangers to mining we have seen in the world since Bouganville in Papua New Guinea and include:

As if this were not sufficient to discourage all Investors from placing hard won assets under the control of that country, the government now intends the following: -

"In order to increase participation and ownership by historically disadvantaged persons in the mining industry, companies shall achieve 30% ownership of the industry assets in 10 years of which 20% shall be achieved in two years, 25% in seven years and 30% in 10 years from the date on which these regulations take effect. Mining companies shall give historically disadvantaged persons a preferred supplier status, where possible, in all three levels of procurement, namely capital goods; services; and consumables. Mining companies will now have to apply to the mining department when they want to import capital goods, services or consumables and justify their actions."

These are the problems facing the application of this in Zimbabwe: -

The last time foreign shares were appropriated was in 1984, when the government raided the banks to seize nominee held shares and paid with 4% government bonds for these shares. Had anybody been sufficiently unwise to retain these bonds, their present value is around Z$2.5 from the original 100 and the U.S.$ value has dropped from U.S$100 to 0.0135U.S.cents. So if you had U.S.$1,000,000 I Zimbabwe at the time of the forced acquisition of the last foreign owned shares, they would be worth U.S.$135 only now, at the "Official" rate, which is half that or less, at the 'black market' rate [which is the only way you could get cash out of the country].

So a potential Zimbabwean Investor would have to ask himself, just how masochistic am I?

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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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