That was the week that was!
The last week of the year of trading saw a quiet and thin market, with no London Fixes. This left the market wide open to any who cared to dominate it. And the Funds jumped into the breach and sat on the gold price, not only in U.S. $s, but in the Euro too. They liquidated their long positions, in the thin trading picture and had a disproportionate effect on the price. But the same can be true going the other way, as well!
The Euro price fell way back to Euros 320, threatening to drop back to the Support level of Euros 316. This was an amazing feat for the $ continued its decline breaking down to lower levels of $1.3650+ and threatening lower levels still.
Clearly the funds are hoping to panic the market to drop the price still further. If they are wrong, they will be caught in quite a squeeze, but if right, the gold price will drop to levels, many had hoped for as a good buying level. Either way we will find out when all return from holiday next week. One thing is for sure, you can't force the market to go a direction it doesn't want to go in. We expect to see a volatile gold price next week.
Our Gold "Point & Figure" chart.
We like to put this "Point and Figure" chart up each week. An old fashioned concept you may feel, for these charts simply eliminate the time factor, focussing on the movements alone. As such they are good at giving a pure picture to read future directions from. Yes, they are most effective long term, but be careful, with the time factor removed, they can also paint a short term picture too. It was on October the 6th that it gave the "Double Top Breakout" signal at $406, pointing to $476 as the price objective. So far so good! Brace yourself for next week, it will be the week of the Bold!
Global market prices
The table to the left helps us to appreciate the viewpoint of gold from the perspective of nations that have a significant standing in the gold world. What is significant on this table, as you will see in the coming months, is that gold is behaving as a currency, but acts differently to people around the world. The Indian market that can draw off somewhere between 20% and 30% of the world's newly mined gold each year looks at the Rupee price, not the $ price of gold. It takes the professional "Arbitrageurs" who buy in one market and sell in another to even out the prices over time. However, the appreciation or depreciation of other currencies can exaggerate or soften the rise or fall of the gold price in that currency as you can see from the table.
- The Indian market likes a stable to falling gold price, so it is more likely to return to the market earlier than western buyers in view of the greater price fall.
- In South Africa, where the producers sell gold for Rands, they need a falling Rand and rising price, so again they suffer a fall in the gold price to well below profitable levels.
- But the feature of this week is the heavy drop in the Euro price of the metal, a price normally reflecting gold factors not currency factors.
At the time of writing, gold stood at $441.75 and in Euros (€) 328.44. The Euro is worth $1.3450.
Global Gold Charts (Dec. 31, 2004)
For subscribers only.
Gold Market Feature of the Week
This week the price of gold in Euros was the main feature, with a heavy fall from €328 down to €319. The holiday season may well be in full swing, but this is a steep selloff, one that may rattle the market's cage. For more than a year gold has shadowed the Euro, so why should the break happen now, during the festive season, with the $ falling to new lows? Could this be a great recovery trade?
Last week we did say that, "In itself this is a translation from other currencies driven by factors other than the $", so tread carefully. The risks have risen! Watch this price in particular this week, it holds the reins of the gold price in the near term.
Recommendation: For subscribers only.
StreetTRACKS - Gold Trust. As the Trust settles into its place on the board of the New York Stock Exchange, its performance reflects it success or otherwise. The initial rush seems to be out of the way with the tonnage held just below 100 tonnes, so far. It is estimated that for its performance to equal that of its London equivalent, the fund should attract around 500 tonnes in total. It is a long way off that at present.
What sort of clients is it attracting presently? Well, demand for the new gold fund, which began on November 18th, has been spurred by fund managers previously prohibited from owning physical gold. This is the expected new demand not seen in the market before, who will broaden its demand base with not only long term Investors but with short term ones such as Orrell Capital Management Inc. who say, "We use it as a parking place for money,''. Their policy is to hold their cash in these securities. This company which has 7% of its $76 million in cash and goldbacked shares.
The Year 2004, laid a strong foundation for the gold price in 2005. How strong is that foundation?
What sort of year was 2004 for gold really? In this issue and the next, we will have a look at the main factors which changed the very nature of the gold market from an ailing commodity, under attack for the last 20 years, to a "currency" that we see now, broadly accepted by dealers. Reflect on that for a moment. Two years ago, gold drew a very different picture than the one we see today, but not of itself. It still carried the label given to it, well before the last boom in 1970, of a "Barbarous relic". - Story for subscribers only.
Silver $6.815[Euros 4.9923] Little has happened this week in Silver other than to keep attacking the $7.00 level. We are finalising the format of our new services right now and will be letting any who wish have a sample of these, prior to being asked to subscribe to them. Please contact us for these samples, if you haven't already received one? - Recommendations and TA charts and remaining issue for subscribers.
Platinum $861.50 [Euros 631.09] - Recommendations and TA charts and remaining issue for subscribers.
The London Gold Fix
24th December a.m. $442.50 E 326.51