Massive New Investment Demand for Gold, Taking the Price Up!

By: Julian D. W. Phillips | Wed, Aug 2, 2006
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Anglo Gold De-Hedging continued.
AngloGold Ashanti restructured its forward gold sales again reporting an overall 42.6 tonnes [1.37 million oz] reduction in its hedge book. However, the mark-to-market value of the hedge book stood at a negative $3.3bn. It received a gold price of $600/oz against a spot price of $629/oz in the June quarter and said it would 'seek to manage its forward sales further'.

AngloGold Ashanti said that as of end-June, its net delta hedge position was 10.14 million ounces (315 tonnes) at a spot gold price of $620/oz. "This net delta position reflects a decrease of some 1.1 million oz" [34.2 tonnes].

The decrease in the net delta position was due to maturing positions and "hedge reducing strategies". "The company continues to manage its hedge position actively, and to reduce overall levels of pricing commitments in respect of future gold production." So, expect de-hedging to continue until this embarrassing and profit-draining position is no more.

We so often laud the concepts of prudence and certainty, which is what the hedging process was supposed to be, but it has turned out to be the reverse, why? What the producers who were caught in this wise decision of the past, have not expressed about hedging was that it worked only on a falling gold price. It was so attractive at the time because it seemed to allow producers to get better than the future gold price, because of the added "Contango" in the price paid to them. Now that the gold price has and is and will continue to rise, we would ask producers why they are not taking stronger action to eliminate these positions? Corporate politics should not be allowed to override shareholder interests?

It is a very powerful lesson for all of us in no-matter what situation to realize that all long-term positions must be reversible as well as monitored constantly. This is not advocating hindsight, but an acceptance that the future is uncertain in this world! The price that those Producers still with hedged production are paying is enormous and a result of questionable management. The continuation of delivering into hedges and blinking at the awful mark-to-market situations is to ensure the continuation of the draining of profits and essentially production lost. That they should continue to be allowed to exist on company books should not be acceptable to shareholders.

The U.S. $ and its prospects!
After showing some strength this week, the $ suddenly lost momentum on Wednesday and fell a full cent and a half against the Euro. Boosted by demand for dollars from rising oil prices and market sentiment the dollar held before the trend kicked in again. Nothing fundamental has happened to change the prospects for the $. What is happening is that the fears of the past on the U.S. housing market are coming to fruition:

Sales of existing homes fell 1.3% in June to a seasonally adjusted annualized rate of 6.62 million, the National Association of Realtors said last week. Their report shows a continued weakening in the housing market, with inventories up sharply, while prices are softening. The inventory of unsold homes rose to a record 3.725 million, a 6.8 month supply at the June sales rate, the highest since July 1997. The median price has risen 0.9% in the past year to $231,000. It's the weakest price growth in 10 years. Sales of existing homes are down 8.9% in the past year.

Median prices of single-family homes are up 1.1% in the past year, while condo prices are down 2.1%. Sellers should expect lower prices and expectations are for single-family home prices to fall nationally. Once-hot markets, such as California, Florida and the national capital region, are cooling. Other areas, such as New Mexico, Texas, Pittsburgh and Milwaukee are heating up.

Why is this so important - because it helps to describe the plight of the U.S. consumer! [With debt becoming such a problem that [as my wife tells me] even Oprah is featuring ways to combat it.] Add to this the rising gas bills and inflation while the access to cheaper goods from abroad ensures that wages continue slow to rise, means that despite continuing sound growth in the States, there is a weakening of the U.S. strength on the international front.

With the last week giving us more military conflict in an area where little victory can be expected, but a vortex of military spending will continue, we cannot but express that we are in very troubled times. If we extrapolate areas of concern on all troubled fronts we cannot find a pleasant prospect, only a continuum for the $, at best. The only question remaining is will current holders like China keep holding the $ up with more purchases as this protects their present positions or will they begin to cut their losses more aggressively? But today the $ is still OK!

We feature this chart again this week, because it deserves further comment on the currency front. We look at Japan as a financial colony of the U.S. whose fortunes are entirely dependent on the U.S. and the acceptance of the U.S. $ in their lives. They cannot 'cut the cord' to the U.S. although they are building commercial relations with the China fast. They have to take and hold the U.S. $ in their reserves, so don't expect any changes there.

China is building its reserves at such a huge pace that the only control they have is to collect the currencies of their trading partners, whose main one is the U.S. We have not described China's total reserves, which would show the growth of other currencies in their portfolio as well as the continued growth of the U.S. $ reserves.

This chart is an expression of the growth of China, now the leading holder of U.S. Treasury Securities, more than a description of its acquisition of U.S. dollars.

The role of the U.S. and Caribbean banking in holding the $ and U.S. Treasury markets in a stable condition is very large as you can see by the growth of U.K. holdings of U.S. Treasury Securities [Yo Blair!]. These seem disproportionately large and we now have no doubt that the use of these two buyers is a tool to ensure relative $ and Treasury market stability. The interference from these sources is huge and likely to continue to the brink of a very dramatic currency crisis [remember the disaster of the Pound and George Soros?]

So the Europe U.S. axis with the U.K. more on the U.S. side than Europe's is still strong and effective, postponing the day of disaster for the $.

HIGHLIGHTS in "Gold Forecaster - Global Watch" week of 28th July 2006
Silver - COT, Gold : Silver Ratio, SSRI, PAAS, SIL, SLW, Portfolio / Platinum.
SHARES: HUI, NEM, FCX, VGZ, NG - Takeover Bid by ABX! - Portfolio

1-2. Market Forecasts / Short-term forecasts across the Board!
2-3. Comex Update
3-15. Central Bank Gold Sales in 2006/ Gold E.T.F. - holding tonnage on the fall in the gold price/ What is this investment demand that has taken over? / AngloGold de-hedging continued / U.S. $ & its Prospects / The Oil crisis / 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
15 - 30. International Gold Markets / Silver / Gold vs. Silver / Gold: Silver Ratio / Platinum / Silver & Gold Shares

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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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