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That was the week that was!
The increased employment news in the States was sufficient to trigger a sell-off in gold, taking gold down to $415 from its near peak at close to $430. Bearing in mind that the market felt that such news was good for the $, therefore bad for gold. If that were true it is remarkable that gold held up so well. But does the market believe that, with gold now at around $422?
The speculative position held by the large scale speculators is proving to be so, with them jettisoning a portion of their position, as the figures came out. But they are still there, a mixture of investment and short term profit takers. We still ask the question, which type will hold the ground?
Demand on the physical side is still there, for the Indian rupee rose 3.5% over the last two weeks. To see what that would have meant for the Indian buyers, were they buying in U.S.$, let's do a small comparison:
• Gold was around $430 at the recent peak. It fell to $414 at the recent low. This is a fall of around 4%.
• Counter this with a rise in the rupee of 3.5%, their price of gold dropped down to around $400 at the low and with the arbitrage discount already giving them an $8 discounts, even the recovery of $6 left the gold price at the equivalent of $402 in Rupee terms.
• No wonder their demand is rising as the summer harvest is coming to its ripeness. This demand should remain solid, buying in falling markets and when stability attends the price.
At the time of writing gold stood at $422.00, or Euros 347.00 with the Euro itself worth $1.2100.
Gold in Euros
Again we have to highlight one important facet of the gold market. In Euros gold barely moved! A Euro 2 fall at the worst followed by a quick recovery of Euro 1. Hardly worth mentioning. So the story was, again a currency story, $ / Euros. In the gold market we should be asking ourselves is gold priced in Euros or $. Yes, so the market thinks. Indeed it prices it in $ predominantly, but the shadowing of the Euro should be receiving more attention as a major factor in the pricing of gold. Why is it barely moving in Euros? Logic tells us it shouldn't be. The Euro seems to be doing a better job than the $ in holding value, hence stands alongside gold in this role. Certainly it is not gold's volatility that is present here, but the $'s volatility, with gold getting the blame?
Confidence in the Euro, and its Governors - critical to gold?
It was reported in one of London's most respected newspapers, that the E.C.B. governing council is in the midst of a power struggle, where the President, Trichet, stands accused of trying to politicise the E.C.B. by lowering interest rates under pressure from the French and German governments. He is being opposed on the council by the French and the German Central Bank Presidents, according to this story. If this is true, then the European Union should be grateful to the Council for holding fast the integrity of the Euro. As such, the shadowing of the gold by the Euro [Yes, it can and probably should be seen that way] reflects the maintenance of the integrity of the Euro, which is after all, a currency serving so many diverse economies.
German gold sales, growing less likely by the day.
With the crisis facing Welteke, the Bundesbank President, also the driver behind German gold sales of 600 tonnes in the future, the decision to sell this gold falls to the Council who at one time were not a majority behind these sales. The decision is one for the Bundesbank to make, not the German Parliament. Will they now adjust the decision? We wait to see. Please note, it is by no means a foregone conclusion!
"Gold - Authentic Money" has a series of articles running on the position of the different signatories and others, on gold sales emanating from the 2004 Central Bank Gold Agreement. In the past issue we discuss the "Hidden Agenda" of Germany. Frances position will be the subject of the next article. Please note that if one does not understand the issues involved you will not understand the long term gold price.
The Deficits.
To repeat a view we expressed in an earlier issue of this letter, a thriving U.S. economy sucks in imports, which increases the U.S. Trade deficit. It remains to be seen whether and by how much interest rates need to be raised to keep the $ attractive.
Gold teeth banned
Gold may lose a supporter in the 6 million strong country of Turkmenistan, where President Saparmurat Niyazov, has banned, by command, the use of the traditionally popular gold teeth. Thought for many generations to be a beautiful feature in a tasty girls mouth, he feels that white teeth are preferable. Mind you he has also banned circuses and ballet!
Silver
Silver continues to be extremely volatile, despite it price being the same as last week's price. Such volatility will continue!
At the time of writing Silver was trading at $8.10
Platinum
Platinum is still consolidating at just above $890. Umicore's announcement that it will produce a catalyst based on Paladium, could well undermine this bull market.
At the time of writing Platinum was trading at $890.
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