That was the week that was!
Gold has, once again, shown remarkable resilience, this week. At one time the price threatened to tumble, only to rise again on this incoming tide. Buyers, not only on the investment front, but on the physical front seem to have accepted these price levels as stable and continuing. The dealers stocks of gold, built up during the period ahead of the harvesting in India, has run down, so a need to come back to the market is now evident in the visibility of the Indian buyers, now alongside European buyers eyeing Christmas. As their confidence rises in these prices, so a solid foundation is being laid for the short term. If they stand back and wait, this foundation could sag.
Then, as we said last week, the funds again saw a fall was not likely, so needing movement, they pushed for an upside stretch. The gold price tensioned against the resistance at $385 to $389 until it broke through and roared up to $397. Above resistance, dealing thinned out and dealers adjusted prices. Once they raised their prices, buyers stood back knowing they were simply chasing prices up. Some selling emerged, possibly short' sellers pushing the prices back to the $393-$394 level before a small recovery today to current levels.
So will they assault the $400 level, or is more time needed before that wave sweeps upward? First impressions are that it looks like no-mans land above $400, a lonely place at that. No one wants to be caught out there unless he knows he will be followed. How much smaller a distance this would be, if it took place from just under $400. So now the waves must ebb and flow some more, before that big wave comes in to take the price over the top.
And if it does go above this 'big figure', will there be a mad panic to cover shorts, buying to cover increased Deltas on options, with the next target of $500 in mind? The next few days in the market should prove exciting and revealing!
The market is very ready to be influenced by a forceful piece of news, although inclined to favour good news over bad! And we are not talking about the ongoing Terrorism in Iraq, with its religious undertones, way out of the jurisdiction of the U.S.. That story looks set to go on far longer than the one still on the go in Northern Ireland [whose present phase began on August 12th 1968 with a 'religious' March, also out of the U.K.'s jurisdiction], as the cause is far more explosive!
Gold, at the time of writing was trading at $395.85.
The Euro
Gold's ally, the Euro has been recovering, but not as vigorously as gold. At the time of writing it was sitting at $1.1675, still below its recent high. The gold market has run ahead of it and risen in terms of the Euro too, as you can see below at the "Fixes". Does this mean that Europeans are now comfortable with the thought that instability has increased to the point that they want to see gold rise in Euros? Will gold be forced to wait for the Euro to catch-up? Unless physical buyers take over as the leading influence, this will not happen. They don't like leading the race, so a certain measure of market resolution still has to take place.
Demand for Gold changing
In the latest G.F.M.S. report the drop in the demand from de-hedgers stood out, but in pointing to the buoyant gold price, they emphasised that this demand had been replaced by investment demand. Many commentators ignored this, or played it down without emphasising the importance of the change. Of particular note is the diminishing influence of the producers de-hedging over the last quarter and the rising tide of Investment demand, even out of Japan, where gold demand this year has been surprisingly low. The still strengthening Yen, as with the Euro is encouraging gold buyers who are seeing the gold price drop in Yen.
This change is one we at G-AM have been looking for, for over a year now. We have seen it coming, but this is the first substantive report confirming its large presence. The potential demand from this quarter has the inherent strength to carry gold forward to levels seen in the '80's and higher.
What is investment demand? Simply put, long term holding of gold to: -
• To retain real value.
• To counter the fall in alternative investments.
• A protection against a degeneration of other investment markets.
• Then, to also profit from price falls offer solid values in alternative markets
It is a structural change in the market and should it continue, our belief that this is a multi-year 'bull' market in gold, reflecting a structural global instability that cannot be resolved by short term economy pumping measures, will be validated. The causes of the growing instabilities are tied up with structural decay in the monetary system and must be addressed on a global front. The common denominators needed to find such resolution are not yet present and may take some years of disturbance still, before they are sufficient for agreement to be reached on an effective global monetary system. Until then, we see more and more investors move into gold.
For certain, the resolution of these structural problems will require the presence of gold, in any agreements to cure these problems.
With the degeneration of stability in the currency and trade markets growing, this trend will not only persist but will grow strengthening the foundation of this growing gold market. For our full story on this trend, subscribe to the upcoming issues of G-AM.
Gold and the U.S. recovery
The figures of the growing U.S. economy, haven't led to a sprinting Dow. It seems that they have been ignored by the market, or already factored in. What a surprise to most commentators. What do we learn from this? - It is unlikely that further confirmation of this growth, unless it is seen to take up spare manufacturing capacity significantly, will spur the Dow to great heights. What has been clarified graphically, is that gold does not move relative to the Dow. No, the heavily weighing influence on gold, albeit on a temporary basis, is the weakness of the $ against the Euro.
What was spectacular, were the figures of profit growth in Asian countries who supply the U.S. clearly benefiting hugely from the recovery. As the recovery continues, so will this ripple effect, which will exacerbate the U.S. current account deficit and lead to further downward pressure on the $.
The World Trade Organisation's declaring the Steel Tariffs illegal, would seem to be the first step in a trend towards "Protectionism". Unless this is resolved fairly quickly, the negative impact on global currencies could prove extremely serious!
Other Precious metals
Platinum
- is for people with parachutes with it sitting up in the clouds at $770. Will it fall or continue to rise? A key factor in this case is still the Rand. It's far too strong and despite the hopes of the gold industry, is not weakening. The Rand is relatively stable in Euro terms though, bringing home a vital point to South African exporters that one should price ones exports in Euros and not in $ if a semblance of price stability is to be achieved. As it is the bulk of South African exports are priced in Euros as Europe is its main trading partner, outside the mining industry. Hence, Anglo Platinum's expansion plans are held captive by the Rand. Until this occurs, or alternative metals are substituted for platinum [unlikely in the short term], platinum will stay in the clouds.
Silver
- is beginning to rut!
Its jump through resistance was more spectacular than gold's move forward [see "One-on-One" for successful gold / Silver trading] leaving our subscribers very happy. Is that foundation built up over such a long period now, at last, solid enough for a take-off?
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Gold as a Currency in the Daily 'Fix'
The Euro / Gold relationship can be seen in the London Bullion Market 'Fix' below. The price of gold in Euros has been holding only a small variation pattern, as you have seen in past issues, but this week you see that gold is rising in Euros. The behaviour of 'gold as a currency' is showing itself this way presently, but please note, this will change, should instability increase, or other influential factors overrule the currency demand, as we have seen from the physical and fund demand.
Gold Fix 12th November p.m. $389.70 E 334.938
Gold Fix 13th November a.m. $395.50 E 338.381
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