Confusion In The Ranks

By: Julian D. W. Phillips | Fri, Jun 20, 2003
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The market is trading at $358.5 down from the day's start of $361 again, which was up $6 since our last report, after a look over a seemingly precipitous edge. The Gold price has shown defiance in the face of a seemingly tired recent performance? Or is it a "sturdy resilience", with the gold price "well bid" in the face of downward pressure as reported at the beginning of the week? We are getting used to the whippy moves both up and down of late leaving us to look harder for clarity on the next move.

Some claim the churning of the market is a change of tide, as the U.S. economy appears to be recovering, confidence returning and the future looking at the beginning of better days. Some have said that the $ will reflect the U.S. economy's health? But then one hears "unconfirmed, unidentified", officials saying that the Fed is worried at the lack of progress in the economy. Others see the strong fundamentals for gold and say it is only heralding a pullback ahead of a quiet summer in the Northern Hemisphere. Still others say it is fighting hard ahead of a surge in the price led by the large serious Investor, replacing the sagging physical demand. Are the shares leading the way, again, upwards? One broker said, "Everybody, including myself, is bearish, but there is nothing to back it up."

It would be tempting to take the side of the Bull or the Bear, but it is not a matter of sides, but of watching and listening to the market. So what is the market telling us?

Short Term Prospects for Gold

Seasonal Factors
Standing back from the very short term and looking at seasonal factors is always useful, particularly to get the physical market in perspective: -

India - The monsoon has arrived on schedule, wedding season over, so the return of the Indian Gold buyer will have to wait until after harvesting, in late August / September and from there to Diwali.

Europe / U.S.A. - Europe goes on holiday in August, and returns with Christmas on its agenda thereafter, and the purchase of gold for seasonal presents.

This time of the year on the physical front is usually the quietest of the year. It will certainly, be useful to us to help identify just how strong the investment players are in the market. In the next two months: -

Interest rates and Equities
The Federal Reserve will hold a two-day meeting beginning June 24, and many analysts expect the central bank's rate-setting Federal Open Market Committee to cut the current 1.25 percent rate by at least a quarter point, if not a half point.

The actual size of the cut will help us to see if the foreign value of the $ is more important to gold than the prospects for the U.S. economy.

One can have a rising Dow with a rising Gold price, if U.S. inflation allows $ values to rise in line with cheaper $s.

A cheapening $ is seemingly here to stay. A recovering economy on the back of an inflating $ will lead to a weakening forex value for the $, for sure.

Such a cut in U.S. rates may, later be followed by a similar fall in Eurozone rates, before the end of the year. However, we now believe that the E.C.B. will ensure that Eurozone rates will be held at higher levels than on the $, so any cut will not interfere with that relationship!

The Dow, leading other key Indices across the globe, with the pullback of yesterday, has brought doubts back to the picture. The poorer than expected indicators have seen the frowns return. Alan Greenspan and his team will certainly do his utmost to ensure a recovering economy and may well want to give it a good kick in the pants with a half point drop.

Watch your markets carefully until they have jumped one way or the other!


 

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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