That was the week that was!
As we began to write this weeks issue, the gold price had begun to fall again from $376 and had traded down to $369, then moved back over $370 and was holding around $373. The drop of Net Speculative long position during the last pullback was huge and quick with some estimates saying that around 100 tonnes was unloaded at that time. Just how many weak holders this leaves will be highlighted in the next drops in the gold price, but unloading by the large speculators has continued. But physical buying is being seen again, the climax of the buying for Diwali is still to arrive [29th October?]. It shows itself just below the $370 level. We repeat again, that physical buyers are not so fixated on a price, more on a level of stability. The buyers in this market are professionals and not price chasers, so we dont expect to see the prices driven upwards vigorously unless new dramatic news springs up. The $ is the focal point of the market at the moment, with the momentum of the U.S. 'recovery' beginning to wane. The 'surf' of the market has calmed, so we expect there to be more stability in the market for the time being, with drops or rises being more sudden and significant when they occur.
Gold, at the time of writing was trading at $373, $10 off last week' level.
Other Precious metals.
In the platinum market, Anglos is increasing its stake in Anglo Platinum up to 73% for a good reason. The planned expansion of Platinum production has not gone away. The Rand seems to have blocked this expansion, but in South Africa the pressure on the Reserve Bank to weaken the Rand continues to be enormous, from the President Mbeki downwards. We expect the Rand to have weakened by the end of the year onwards with the likelihood of the S.A. Reserve Bank dropping interest rates substantially, by the end of next year. Hence it is a good time to by the platinum share, but not the metal, which should remain stable and high, but the excitement of rising price diminishing.
We have to say it though, Silver is showing signs of being the star precious metal performer from here onwards, despite the excitement in Platinum and gold. That's not to say that gold will not perform. Our comments are simply based on the metals relative performances. So many have waited so long for silver to begin to show its sparkle, well, we may be close to that time?
The Euro rose further to reach $1.18 knocking up against the $1.19 resistance level.
The "Strong $ Policy".
To the amazement of everybody the White House said they were in favour of a "Strong" $. We picked ourselves up, after having laughed so much we fell off our chair. Maybe the Iraqi information Minister's tactics are proving infectious, with the twin deficits in front of the forex market.
The E.C.B. is indicating that it is not so concerned about the "Strong Euro policy" it has. We know that if the Euro is accepted as a currency in which to hold a nations reserves, the pressure on the $ to perform far better will be on. After all, a switch from the $ to the Euro, by any significant nation, for its reserves will lead to a weakening of the grip the $ has over the rest of the world's reserves. If this became a trend, the currency crises that could result would be catastrophic, not only for $'s role in the global economy, but for the U.S. Balance of Payments. It is not such a large step before that becomes a reality.
The Washington Agreement - The final year!
Officially on the 26th September the final year of the Washington Agreement began. We know just how much the Swiss will be selling as they made clear in their recent Press release [284 tonnes], and will continue their policy of weekly sales of around 8 tonnes or less, a week. We know that the Dutch have committed themselves to selling the balance of the 400 tonnes [116 tonnes] by September next year. They may not be quite so orderly a seller as the Swiss, selling perhaps where they think the price is "spiking".
We would like to make the point that the signatories have kept to their agreement to date, as far as the evidence shows. What is clear for the next year is that if de-hedging continues at the current pace the 116 tonnes of the Dutch will have far less of an impact than the Portuguese sales of 90 tonnes over the space of the three months or so, had earlier this year.
So we will see continue one of the key driving forces to the gold price, not so much increasing demand but effectively, dropping supply. We do believe the this drop in supply will continue, from other Central Banks who were not signatories of the Washington Agreement, such as Russia and China, who will take their local production to their reserves and so remove it as a source of free market supplies too.
Should the demand by individuals, through the shares of the World Gold Council companies, or via the liberalisation moves in both India and China continue then the demand for gold will increase as well, from current levels and possibly to considerably greater tonnages than is the case at present!
We wait the day when the liberalisation is complete in China and individuals are allowed to own gold directly. It would seem that the Japanese example may well come into play here. When Japan was developing from those post war years onwards, they took the wise road of exporting goods when the Yen was low and exporting capital when the Yen was high. This allowed Japanese car parts assemblers, subsidiaries of Japanese car manufacturers to import the Japanese exports at the right time. Applying this to China, it makes sense to allow Chinese individuals to have the individual right to buy gold, after the Chinese authorities have allowed the Yuan to revalue - more gold for less Yuan?
What a simply straightforward attitude to gold the Indians have. You may think it unsophisticated to only want physical gold and not paper shares confirming your ownership of it, held for you in bank vaults. Efforts to bring similar sophisticated systems to India are not having the success expected. The futures market is now launched, but not receiving the attention it had hoped. Why?
The average Indian, sees gold as money in the hand. Once in you hand, it is in your ownership. A piece of paper to them leaves them vulnerable to other people and dependant on them. In their hands they have complete control of the money. In a bank's hands that control is only by permission of the bankers! And the record shows that bankers will obey governments before the owners of the assets they hold, so who is the perspicacious of us, westerners or the Indian gold owner? The real thing in you hand, cuts out broken promises, business failures, and all other human trickery in their eyes. We in the developed world see paper as the sophisticated way to own gold. By the way, the meaning of sophisticate is: "deprive (person or thing) of its natural simplicity, make artificial by worldly experience." Think on!
Hedging policy according to Barrick"
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Short Term Prospects for Gold
• The fall from $394 shook the market. Despite further falls and subse• uent recovery, some of the strength seems to have gone from the market, so its future price levels are more difficult to assess. Though more stable, future prices are less predictable.
• The speculators will continue to do all they can to encourage volatility, but the solid buyers will wait in the wings for the pullbacks.
• Physical demand is there but wise enough to hold off in the face of selling.
• The fundamentals are very strong indeed.
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Gold Fix 3rd October a.m. $370.35 E 315.379
Gold Fix 10th October p.m. $372.30 E 315.375