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Julian  D. W. Phillips

Julian D. W. Phillips

Global Watch: The Gold Forecaster covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a…

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Confusion In The Ranks

The market is trading at $358.5 down from the day's start of $361 again, which was up $6 since our last report, after a look over a seemingly precipitous edge. The Gold price has shown defiance in the face of a seemingly tired recent performance? Or is it a "sturdy resilience", with the gold price "well bid" in the face of downward pressure as reported at the beginning of the week? We are getting used to the whippy moves both up and down of late leaving us to look harder for clarity on the next move.

Some claim the churning of the market is a change of tide, as the U.S. economy appears to be recovering, confidence returning and the future looking at the beginning of better days. Some have said that the $ will reflect the U.S. economy's health? But then one hears "unconfirmed, unidentified", officials saying that the Fed is worried at the lack of progress in the economy. Others see the strong fundamentals for gold and say it is only heralding a pullback ahead of a quiet summer in the Northern Hemisphere. Still others say it is fighting hard ahead of a surge in the price led by the large serious Investor, replacing the sagging physical demand. Are the shares leading the way, again, upwards? One broker said, "Everybody, including myself, is bearish, but there is nothing to back it up."

It would be tempting to take the side of the Bull or the Bear, but it is not a matter of sides, but of watching and listening to the market. So what is the market telling us?

Short Term Prospects for Gold

  • The net speculative long gold position on Comex, last week 85,047 contracts, fell 20,000, in what appeared to be the beginning of a capricious unloading of speculative positions. Undoubtedly these positions could have a negative impact on the Gold Price, but they have so far, stayed in place.
  • Gold broke away from its strict relationship with the Euro and the $, as the two went up and down against each other. With the Euro at just over 1.16 currently [to the $] its fall was around a 3% pullback from its high, so not enough to draw major conclusions. A Fed Funds rate cut could, with recent history to guide us, set off a $ slide again.
  • It is becoming clearer by the day that the prospects for the worlds currencies is for an increase in instability, for competitive devaluations, which ripples uncertainty into the picture.
  • Physical demand reappears at over $350.
  • With Technical Analysis coming into the spotlight and Commentators are giving more diverse opinions than for some time, the market is at a most directionless point than seen for some time. Undoubtedly this is an important short term point for the market. The one who gets this right will do well as the market threatens to jump a large amount once it decides which way it is going!
  • Still hiding its direction, gold has seemingly moved its Pennant flag formation up into the $360's. Through our "Changing Tack" service we have been sending out Market Alerts and clarifications to our subscribers, readying them for action. We have placed them in what we believe to be the ideal position for action, and ready to capitalise on the position on a moments notice. It has been a long time since the market behaved so , way back just below $330, I believe, so subscribe now! We also give "Currency Guidance" to those who have to deal in these capricious instruments.

Seasonal Factors
Standing back from the very short term and looking at seasonal factors is always useful, particularly to get the physical market in perspective: -

India - The monsoon has arrived on schedule, wedding season over, so the return of the Indian Gold buyer will have to wait until after harvesting, in late August / September and from there to Diwali.

Europe / U.S.A. - Europe goes on holiday in August, and returns with Christmas on its agenda thereafter, and the purchase of gold for seasonal presents.

This time of the year on the physical front is usually the quietest of the year. It will certainly, be useful to us to help identify just how strong the investment players are in the market. In the next two months: -

  • A steady gold price would indicate the presence of de-hedgers and or the serious Investors.
  • A rising gold price would give complete evidence of the presence of the two strong buyers.
  • A weak gold price in the next two months would confirm their absence.

Interest rates and Equities
The Federal Reserve will hold a two-day meeting beginning June 24, and many analysts expect the central bank's rate-setting Federal Open Market Committee to cut the current 1.25 percent rate by at least a quarter point, if not a half point.

The actual size of the cut will help us to see if the foreign value of the $ is more important to gold than the prospects for the U.S. economy.

One can have a rising Dow with a rising Gold price, if U.S. inflation allows $ values to rise in line with cheaper $s.

A cheapening $ is seemingly here to stay. A recovering economy on the back of an inflating $ will lead to a weakening forex value for the $, for sure.

Such a cut in U.S. rates may, later be followed by a similar fall in Eurozone rates, before the end of the year. However, we now believe that the E.C.B. will ensure that Eurozone rates will be held at higher levels than on the $, so any cut will not interfere with that relationship!

The Dow, leading other key Indices across the globe, with the pullback of yesterday, has brought doubts back to the picture. The poorer than expected indicators have seen the frowns return. Alan Greenspan and his team will certainly do his utmost to ensure a recovering economy and may well want to give it a good kick in the pants with a half point drop.

Watch your markets carefully until they have jumped one way or the other!

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