The consolidation continues! In a gold market of this type, it is so refreshing to see how "the wise" can be made to trot untidily to new positions and new postures. So it was with the traders who had gone short, at the end of last week and earlier this one, hurriedly covering their positions as the "funds" came in and bought and bought, pushing the price back up towards the $370 level again. Most of the gold market had been expecting a drop in the price. But bullion was not having any of it! It did fall, but like waves on the shore went right back up the beach. But it does seem to be forming a pennant-like shape, narrowing the trading range tighter and tighter around the $365 level. The interesting feature of a such a narrowing of the trading range is that once a sharp point has been made, it can sit at almost the same price for a little while, before moving very sharply in either direction, forcing a sharp intake of breath to all traders, forcing a whoop of delight from those facing the right way or hyperventilating into paper bags by those caught the wrong way! At the time of writing the gold price had fallen to just above the $360 mark before whipping up to $368.50, with a lash, after the ECB cut interest rates by 0.5% to take Eurozone interest rates to their lowest ever, but still 0.75% higher than the $ equivalent, the Fed Funds rate. 0.25% - 0.50% was expected to keep the Euro strong and by current market logic, gold still strong. It would have taken more than half a point to slow the Euro down. Will the carbon copy relationship between the Euro and Gold persist? By the issue of this commentary, next week the fog on this issue should have cleared.

Again the Fix led the way as you can see below, with the p.m. fix at $366.75, showing how the big players think in London.

In the week of the London Bullion Market Association conference in Lisbon, Portugal, we have been subjected to profound words, telling us [as has been the case for the last couple of decades] particularly from the hosts, that gold is still just a commodity and in oversupply, rejected as a monetary instrument. It seems that those who held these long term positions were still pushing their own positions rather than reflecting the fundamental and market realities.

The Portuguese Central bank sold 90 tons of gold earlier this year leaving its current holding at about 562 tons. De Matos, the Deputy Governor of the Bank, said amazingly that gold had become less relevant for a country in a larger monetary union since its had "lost its monetary role" and produced "a low level of monetary value". For anyone who cares to read the Washington Agreement, they will see that this was not Portugal's viewpoint when they signed the Agreement [the first clause reads: "Gold will remain an important element of Global Monetary Reserves"]. Their indication that they would be party to its renewal, indicates that though they might sell more in the future, they support the agreement still!. Perhaps Portugal has , in fact, as we believe, sold quite a sizeable amount more than the 90 tonnes sold earlier this year [their recent sales were options, established around 1998, "called away" in this year] and we are waiting for the sales to mature? Methinks the full picture is still to be revealed. I have no doubt though, that the Signatories of the Washington Agreement are fully aware of and have factored in past, present and future Portuguese sales into the 1999 agreement, and within the 400 tonnes per year, allotted! Indications from the London market tell us that this could well be the case. As to being keen to join the queue to sell gold after September 2004, I would think that Portugal would be wise to keep silent until that date is much closer.

That Portugal should make these statements sounds a bit like Gordon Brown of the U.K. government, still saying, what a clever move it was for Britain to sell the bulk of its gold reserves at an average of $274. I suppose the saying that "if you shout something long and loud enough, eventually some will believe you", is being put to the test. Even if you don't, you usually silence your critics by your very gall?.

That was on one side. On the other, in a minority at the conference, was the small Central Bank of Kazakstan, holding true to its tiny 53 tonnes of gold reserves and confirming they will be adding to it, persistently, with the intention of keeping gold at 16% - 18% of its reserves. [It must be remembered that the European Community aims at gold forming 15% of reserves]. The silence of the big players such as China, [so busy, speedily opening its arms to gold] and Russia, who have taken a similar same position as Kazakstan, becomes deafening, as the price holds up, threatening to spring up, soon.

What is for sure is that the "Washington Agreement"is going to become the focal point of the Gold market in 2004. Even media comments about that are beginning to appear. Gold-Authentic Money has covered the "Washington Agreement" in detail and has written extensively on the prospects for the next Central Bank Gold Agreement.

Physical buying remains sidelined still hoping for the pullback to lower levels, or for stability to assure them that price levels are good buying levels, unlikely to fall back in the short term, but currencies remain the dominant force in the market place in the last week and still now.

Short Term Prospects for Gold
The Gold price is, as the majority of Investors believe, in a "Bull" market with, as we said last week, every fundamental pointing upwards. If indeed the gold is in a long term "Bull" market, then we are seeing good base building. The wave we were waiting for to pull back is doing so now, but having started last week, has pulled back risen a couple of times. We get the feeling a significant wave is about to appear, the one surfers usually wait for. But which way will it go?

The Speculative Investors are trying to pull the market on every move the Euro makes. Their action is making the market choppy and obscuring the tidal movements of the main players. If we are right n the base building, their market force should exert itself in the near future.

Through our issue of "Changing Tack" we gave a sell signal at $369+ much to the delight of our Subscribers. We like to maximise return for these subscribers taking advantage of every move we can reasonably act on. To ring you up to date with our activities we went into gold at;

• the entry point, before Iraq, at $320,
• then pulled out in the $370's, went short, then closed shorts,
• re-entered at $326 and are now out of gold at $369, and better, but did not go short.
• We are now still watching, on an hourly basis, to see how far the wave pulls back, but we still believe it is a neap tide. Our Subscribers will continue to get the signals from us as to when to re-enter, as soon as possible, after the signals are given. Whichever way the market signals fairly soon, it may well signal a big move!

Currencies
$ & Euro - The Monetary Authorities governing the Euro and the $ appear sanguine about their respective currencies. [We explained the thinking behind the different currencies in the last issue of Gold-Authentic Money, including the possible attempts by Europe to pitch for a Reserve Currency position for the Euro and as a contender, to some extent, to the $ plus the U.S. working the "J" curve.]

Euro - A full percentage interest rate cut would have convinced the market that the ECB did not want to lose export competitiveness. Now with so small a cut, the Euro remains competitive on the Reserve Currency stakes.

Yen - The Japanese Yen was weakened by the Japanese to keep its trade competitiveness and now above 118 to the $. Indeed one official indicated they would like to see a value of 140 to the $. That would certainly work the "J" curve for them! Trouble is, the right way to benefit from this process is to be the only one playing the game. If others do, welcome inflation, and Stagflation.Competitive devaluations are a type of "Trade War".

Equity Markets
Whilst Investors are again positive on the market, commentators are wisely pointing to the "over stretched" valuations on the shares. Please note that for a company with terrific growth a price earning ratio of near forty [40] discounts around 10 years of good times, without interruption. For the average company growing in line with average growth rates the price reflects far closer to 40 years of good times, without interruption. I personally find difficulty seeing the concept of a near to medium term Utopia, under the control of the present incumbents, don't you? I simply listen to the cautionary warnings from Alan Greenspan 'et al' who delicately, 'pop' such balloons.

However, the market reality is the Dow trying to break through the 9,000 level. Rather than us posturing a position, we reiterate our view that the market is telling us something, so what id it? The most likely voice is one believing that the U.S. has now turned back to inflation. The cheapening dollar has to increase the price of the shares it is pricing. If this is so, gold will increase in price most solidly!