That was the week that was!
This is also the week that still is and what a week it is! With a Thanksgiving weekend ahead, [which we hope you enjoy as much as the gold market is enjoying itself at the moment] plus the year end rushing up at us, the 'hands' of many holders of gold will put on the table soon.
Right now gold is sitting in the middle $390 level having attacked $400, before slipping back to the $390 level and then fighting back to current levels. It has been absorbing long liquidation beautifully, and the price looks settled just above the level of some hungry physical demand. There are a lot of sellers at the $400 level and these sales have to be absorbed before further price progress can be made. If this absorption falters, the price looks vulnerable. But the picture we see is that this absorption is sucking it in.
Will the long positions of "Speculators" be rolled over? Will option holders see $400 and exit with a profit, or the price held below this, allowing them to expire unexercised. If the intention is to take delivery this will become apparent, although it would be a good disguise, were this the real intention, to roll over those positions again. Why? With the holidays ahead the market sees a thinning out of trade. Many assume that open positions will be closed. But place yourself in the position of those who hold positions and ask yourself, would you rather hold $, or gold during this period? To state the obvious, holding cash / $, is taking a risk position. Let's see what the market does. This will tell us, not just the waves, or even tides of the market, but what the dominant trend or current is.
Gold is still standing alongside the Euro, as it has been doing this whole week, performing just like a currency. As we have said many times before here, the tight link to the Euro will prove temporary. We believe that this story is not just the $ and Gold, but will embrace all currencies, eventually.
Big things have happened recently and been publicised this week for the price of gold on the fundamental side, but should take time to feed through. [see below]
Gold, at the time of writing was trading at $396 and the bull is rutting.
The GFMS quarterly report
What a revelation! Investment demand is not just visible but dominant! De-hedging was absent in the last quarter, after nearly two years of vigorous de-hedging, why? We have had so many of the big Miners saying that they are de-hedging still and possibly for the next couple of years too, so why did they suddenly stop. Were those tears of pain in their eyes, or hope that the price will retreat? If it doesn't you might well see what a panicking crowd looks like.
So who filled their place during the last quarter and so far into this quarter? Investment demand, substantial determined and staying the course. We have seen this in the shadows, then seen it on the floor, now it stands proud, as the main factor driving the gold price, for the last four months. That is why gold is sitting just above physical demand levels. As we said at the start of this issue, the run-up to the holiday period will allow us to see their hand more clearly.
And Jewellery demand rose. Does this mean that jewellery is not so price sensitive? - seems so.
There are so many more features of the gold market highlighted in this report. - Our full story on this report will be in the next issue of "G-AM".
The Euro
Steady as she goes. You may well ask is it the fulcrum of the currency world now? Â Growth in Europe is not nearly as strong as it is in the States, so why is the Euro stronger, if growth is the currency driver? Could it be a greater respect for the international monetary scene, and the Euro's place in it, as opposed to too much focus on internal economic factors? The opinions out there are virtually unanimous in believing that the $ will continue to weaken! Don't believe it was a market accident. - Full story is available to Subscribers of G-AM.
At the time of writing it was standing at $1.1900 and trying hard to rise.
Exchange Traded Funds - coming to the market.
We believe that trading in E.F.T.'s may begin on the 9th of December in the main centres!
With transaction costs so low through this avenue, a great deal of current smaller buyers could switch into this avenue of buying gold, as well as new buyers attracted by the capability of buying in small amounts [each share represents 1/10th of an ounce of gold]. A new source of demand on top of a tight, thin market could have a very noticeable impact, as it grows.
If it starts off with a bang, all well and good, but most new instruments build up to a cruising level over some time. With Australia having already proved a success, the markets expect great things from these instruments. If they are a success, watch just how quickly other centres pick up the baton.
China
Major nations hoping to buy gold in the markets have little chance of doing it unnoticed. The underlying principle of this should be carefully noted. For example, you are a Central Bank and you want the price to go down. What do you do? - Make it public that you are a seller and you can be sure the market will stall mid-flight. Tell people you are limiting your sales to a measured amount, as per the Washington Agreement, and you stop the fall as the market accepts that these sales can be handled.
Turn the other way as a Central Bank and enter the open market as a buyer. If you make it public, beforehand, you can be sure you will ramp up the price. Go in quietly and you may get away with it, once or twice, before suspicions are roused and the price takes off. To avoid these pitfalls then, isn't it logical to liberalise gold in the hands of your citizens, and get free financing for such purchases, as well as a huge batch of buying power, steadily and persistently buying over a long period.
Following India in widening its doors to gold for some time now, [India is hoping to be the "Gold Hub" of the world - India has about 13,000 tonnes under their beds] China, the 'sleeping giant', has just about completed the process. The potential for China is, eventually, far, far, greater.
The U.S. Recovery
Conventional wisdom has it that a recovery in the States must surely lead to a strong $. We dispute that and believe the opposite is closer to the truth, why? Yes, those who hold to 'a strong U.S. economy = a strong $' need to re-visit the fundamentals. The recovery is growing and has convinced many that it is strong, but again, we have yet to be fully convinced that the foundations, from which such growth springs, is sufficient to sustain a major growth phase in U.S. economic history. Consumer demand is down with less money in their pockets, from Mortgage refinancing [down 1.1 million] and tax cuts. This is reflected in flat auto sales and durable goods sales. The final quarter is expected to be far lower than the revised, 8.2% growth in the last quarter. But for jewellery [gold and diamonds] demand the figure is expected to be 7 or 8% up on last year. Those buyers are certainly not affected by gold prices, buying as a reflection of more money in their pockets.
But the gold man is concerned with this recovery only as far as it affects gold. The fact is that a 3.3% rise in third quarter GDP has left the $ falling and continuing to fall. We are seeing a clear divergence of the U.S. economic picture and that of the $. We see this not just in the short term but the far longer term. This is a dynamic and vital feature that all should understand, to understand just why gold is performing as it is.
This edition does not have the room to discuss this fully, but to get the full story get "Gold-Authentic Money". [Subscription details below]
Barrick Stops Hedging for 10 years!
Toronto-based Barrick is the world's third-largest gold producer and Chairman Peter Munk last week told a conference in London the company would hold off selling any future production for the next decade. He didn't say whether the company would buy back future output it has already sold, but the previous statements of the current C.E.O. would indicate that to be the intention. As you know, his statement was made more amazing by the fact that the day before he had defended hedging nobly. Sounds like unhappy shareholders watching the share price lag other gold shares and saw this as bad news.
But the real significance of his action lies in the picture of the strongest defender of hedging saying they will not hedge for 10 years. It seems most likely that, except in the case where no other line of finance is feasible, hedging will virtually cease, for a decade? Bear in mind that hedging had its value in maximising income in a falling market, with high contangos, neither of which, if current sentiment persists, are likely to be present for a while. This means no more 'accelerated' supplies to the market either.
Other Precious metals
Platinum
Flying high still, but not running ahead. $800 is still possible, but a very vulnerable figure if it does get there. Increased demand for Diesel cars has led to an even stronger demand for platinum in catalysts.
Silver
Showing a strength and solidness not seen for some time and seemingly building a foundation for higher prices. Standing over $5.30 it needs to be followed closely, particularly on the technical front. We are following it closely on our daily service we call "One-on-One".
Our purpose in "Gold - The Weekly Perspective", is to give you only a general insight and perspective on features of the market. The full story is available to Subscribers of our publications above and below.
Gold Fix 20th November a.m. $396.25 E 333.704
Gold Fix 20th November p.m. $395.45 E 332.451
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