Excerpts From - "Gold Forecaster - Global Watch"

By: Julian D. W. Phillips | Tue, May 2, 2006
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HIGHLIGHTS in "Gold Forecaster - Global Watch"
Silver - COT, Gold : Silver Ratio EDR.to, SSRI, PAAS, SIL, SLW / Platinum.

1-2. Market Forecasts / Short-term forecasts across the Board!
2-3. Comex Update
3-12. Central Bank gold Sales in 2006 / Insanity prevails yet again/ Indian Demand/Iran, gold & fear of the future/The Oil crisis / China & Oil/ The U.S. $ prospects / Gold: Oil Ratio / Dow Jones / Technical Analysis of the Gold Price: Long / Gold price drivers 2006 / Short term in the U.S. $ / Treasury Notes / CRB Index
12 - 30. International Gold Markets / Silver / Gold vs. Silver / Gold:Silver Ratio / Platinum / Silver & Gold Shares

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To buyback or not to buyback?
The gold price rise is almost exactly the reverse of the market when it fell to the "Brown Bottom" of $270 [the price at which Britain was selling its gold] and so much additional profit seemed to be gained by hedging.

As the gold price fell, hedging became the clever, conservative and profitable thing to do. Now that the market is rising these positions are becoming an embarrassment. With most hedged positions averaging in real terms around $430 [including the 'Contango'] and with the opportunity cost of $200 at present, even the most resilient of gold company executives holding these positions must be sweating buckets.

In the end, the producers with huge hedge books still will have to take action to close them. With targets indicated on the above chart, the 'opportunity cost' feel far more like losses and will be held as such by shareholders. If the targets above are achieved, these hedged positions will achieve only half the market price for gold at the time!

We find it nigh on impossible to believe that the producers are not buying back these positions. We fully expect them to be adding to current demand.

Investors - measure your political risk!
To those who invest in gold shares globally, and there are some exciting mining companies out there, one of the investment analysis processes investors must go through is to assess currency risk as well as the taxation picture present and future. But Political risk is an equal part of the process too. So that we can emphasize this point a leading South African company issued this statement. We don't mention the name of the company, because we want to emphasize the principles detailed here as they apply so strongly in this politically decaying world. Minor countries whose land contains these resources are assuming powers which essentially will lead to investment being discouraged there, but these politicians, driven by their own agendas seem oblivious to this. Here is the statement:

Some 70% of our operations are in developing countries. In many of them government capacities are limited or lacking, institutions are often weak and poverty is a major challenge. The sectors in which we are active have a number of distinct characteristics. These include:

• Firstly, our operations have significant environmental and social impacts that need to be carefully managed;

• Secondly, since mining involves the extraction of a non-renewable natural resource it presents distinct challenges in relation to sustainable development. We therefore seek to ensure that during the lifetime of a mine we balance the depletion of a natural resource through growing the stock of social, human and man-made capital. This is not too difficult where there is an effective State that makes good use of tax revenues - but that is not always the case;

• Thirdly, the revenues that we generate are often volatile and may cause macro-economic difficulties and extractive revenues have sometimes been subject to wholesale embezzlement by government; and

• Fourthly, our assets are immobile and once we have committed to the development of an operation we have a clear incentive to manage relations with stakeholders in such a way as to minimise conflict and to promote stability and prosperity.

These distinctive challenges involve us in having to manage a wide range of increasingly salient social and political risks. These issues are not peripheral, but are fundamental to our continuing access to land and resources and to our ability to attract investors and the best talent.

Moreover, I think we are seeing a retreat from some of the protections of fiscal and regulatory stability that inward investors enjoyed in many countries during the late 1990s and the early years of the twenty-first Century. Fuelled in part by an increase in nationalism around the exploitation of natural resources and by the current boom in commodity prices, some governments have been seeking a proportionately higher tax take. In such situations, governments need to recall that investor confidence is important at times of famine as well as feast and they should avoid tax models which do not reflect market lows or which, through reducing margins, lessen the resources which can be viably developed.

So Investors, check these facets too!

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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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