Gold - The Weekly Perspective

By: Julian D. W. Phillips | Fri, Sep 12, 2003
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That was the week that was!

The last week saw the unexpected. What was that? We were waiting for the market to surge, as all resistance seemed to have been broken. But it didnt happen. Instead we saw the usual, a deep breath being taken by the market as it gathered itself together, after the startling week before when 'Speculators' were such a force. All eyes are still riveted on them, leaving us all looking round to see just who is going to make the next move.

The Euro didn't, instead falling away only to recover back to the uninteresting level of $1.11 - $1.12.

The gold price looked very perky at the beginning of the week, in the eighties, but has just not held on to that level. Although slipping back into the seventies, it is still well above resistance levels. Indeed, tired it may well look, but not weak!

The 'Speculators' do not seem too keen to drive prices up, indeed if our view of them gathering stock is correct, then they may feel that stock would come more easily if they went quiet, rather than chase a price. This turned out to be true, as the price drifted back, at one point to $375, when the funds re-appeared to pick up gold below $380, then retreated.

The gold price is now giving the appearance of being almost stable at$375 - $380, no doubt in the hope of reassuring the trade buyers [Jewellery wholesalers, etc.] that this price is here to stay, so can be relied upon as a good buying level. They have certainly placed themselves in the position they now want, ready for the last portion of September, when Europeans return from holiday, when the harvests are fully in, when the last quarter of the year, the busiest time for gold, is upon us.

Right now the market is dancing up and down with a tendency to the downside, with the price at the time of writing at $378+.

9 - 11

Certainly, it was appropriate that the week should be quiet, it being the second anniversary of the dreadful and tragic destruction of the twin towers. Sad to say the perpetrators seems unbowed and defiant. Indeed, warnings of further attacks marked the day. The horror of that day has not diminished Terrorism, but it seems to have advanced to an institutionalised presence. Certainly, there is no evidence that the next year will be any less traumatic than past year, leaving uncertainty a constant part of our lives. Memories are long, even when we move on.

India Strong Rupee helps to keep gold prices lower than in U.S. $

The purchase of gold by rural farmers has been seen, but as yet has to swell to expected levels. With the 23rd now only the week after next, Monday, when the buying will burgeon, it is hoped. The harvest was the best for years, as expected, and the Rupee remains at strong levels, allowing for the relatively cheap import of gold.

S. Africa June qtr gold output drops 7.1 pct year on year because of a strong local currency. South Africa's gold output fell 7.1% from a year ago, in the three months to end-June 2003. For the first six months of the year, gold production declined 5%. This was despite a 10.8% gain in the dollar price of gold to $347 per ounce, on average.

The Rand's appreciation against the U.S. $ of 25.8%, meant the Rand price of gold fell 17.6%. Whilst imported costs have declined in Rand terms, local costs, combined with effectively lower revenue from a rising $ gold price, overwhelmed the rising gold price. Higher Rand production costs, combined with lower Rand revenues, placed a significant profit squeeze on the industry -- with particular pressure on marginal mines. That meant mining in certain marginal areas had to be curtailed. This is how currency factors impact on producers of gold.

In the U.S where the $ has fallen against gold, the producers have had an excellent year. One of the points an Investor must always take into account is whether a producer, from a resources based currency [Rand, Australian $, Canadian $] has a currency policy, or even if he 'hedges' his currency against such reversals? With strong currencies eating away at profits, such a significant factor, it is also wise for a gold buyer to cover himself against his weakening [?] currency.

Hence for an Indian buying through a strengthening Rupee, the reverse would happen, where he will be able to buy more gold with the same number of Rupees.

Likewise in China, a local seeing the link to the $, of his currency, the Renmimbi, knows that what is happening to the $ price of gold is also happening to his price of gold.

The New Central Bank Gold Agreement

We wait, with baited breath, for any statements from the I.M.F. meeting in Dubai. With Germany having deemed it necessary to have their own Finance Minister say something on the matter last week, the air seems set for more statements, if not announcements of progress on the Agreement. As the discussions are reportedly moving forward, behind closed doors, you can be sure that the statements will be designed to avoid any rupture of the sensitive gold market and those that are made, will be designed to keep the orderliness of the market intact. A sense of responsibility will accompany the posture of the signatories to the Agreement.

We will keep the new agreement a highlight of our work, in our publications.

Finance Minister Hans Eichel was reported as saying that he would envisage the sale of only small quantities of gold by the Bundesbank, if a new international agreement on gold sales is achieved. "The gold market is sensitive and if the Bundesbank takes part in a new gold agreement, they can only enter the market in small amounts," he said. Subsequently he said, on Television, that any sales would be in "small steps". Bearing in mind that this is a highly intelligent man, fluent in politics, knowing what impression he wants to give in any language, we can give no clarity to this odd adjustment, except to say that 'small steps' should mean the same as 'small quantities', but it also implies a long set of steps before the concept is an accepted German path. With new laws to be promulgated and policies to be finalised, it remains unlikely that Germany will be a significant seller of gold, remains our conclusion.

Short Term Prospects for Gold

• We can confirm strong Investment buyers have been seen in the market, a long awaited event, signalling the turning to gold in uncertain times plus the increasing awareness of equity Investors in markets for uncertain days.

• We can also confirm that whilst many leading commentators are trying to wave the U.S. flag egging the Dow to higher levels, the same spirit does not seem to be reflected in the vigour of the Investors, still held back by a contemplative restraint. The structural news affecting the future of the $ and the U.S. economy, with record deficits and debt, does not support the hopes of those expecting the same growth as seen in the nineties, but could support a static to weaker market. It is in this environment, with a relatively strong U.S. economy that a more vibrant gold price, will be found.

• Consolidation above resistance at $370 has continued over the last fortnight, so for ourselves, we do not see a market about to retreat, rather a market about to act strongly? We have made our targets very clear, through "Changing Tack - Gold & Precious Metal Shares" and "Changing Tack" services, where we give the precise price levels we expect to see.

• Our "Market Alerts" alert Subscribers to take what we see as the best positions in the market. We always communicate on Technical Analysis, by e-mail [for the [personal touch], the moment a market signal is given to take action, so helping them to benefit from both the rises and falls in the market place. Our subscription details are below.

Gold Fix 12th September a.m. $377.50 E 338.110
Gold Fix 12th September p.m. $378.25 E 335.773


 

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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