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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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That Was The Week That Was!

Independence day July 4th sees the summer go into full swing. The long weekend should be tranquil in the States gold market with the market favouring a squaring of the books, so as to remove any fetters disturbing the balmy weekend. You may well ask, does this mean holding Gold or holding $s?

The Gold price in the last week tried to fall into the low $340's, as the second quarter of 2003 ended and the third began. There was evidence of speculative positions being closed then reopened in the new quarter. With the net speculative positions reducing a fall was expected, but with quite a dose of Testosterone from Japan's Investment buyers, the gold price came back over $350.

At the time of writing, it was trading at $350 in the middle. We were watching the market directly, this morning and saw the gold price well bid, very well bid. Indeed, as we watched we saw the ask price [price at which gold is offered to buyers by the dealers] stay above $350 most of the time and whenever the bid price tried to drop, in came the buyers to take it up again. The trade is reportedly thin in London, with the physical market in a tranquil mood, checking the Indian rainfall levels.

Japanese buying of Gold

One riveting feature of the market is the continued steady strong presence of Japanese buyers, despite the strengthening of their markets. The battle of the currencies is currently going their way with the Yen around 118 to the $ down from 115 last week. Let's be clear on their motives though, gold is not being bought on the basis of the Euro and $ play, nor on the state of the U. S. economy, but on concerns by Japanese Investors on the state of the Japanese economy and their investments, i. e. on instability in Japan.

Clearly the very unstable state of the economy is defying all cosmetic attempts to convince the Japanese Investor that all is well. But should the Japanese investing public cotton on to just how rudderless their economy really is the tonnage of gold bought by them would rocket. Will they keep up this demand we ask?

Central Bank Buying!

No further news on the mystery Central Bank Gold buyer, but maybe no news is good news. What continues to be apparent is the solid continuation of solid demand for gold from or is it through Japan? Time will tell!

Strengthening Currencies bring bad news to Canadian, Australian and South African Gold Producers and other Exporters in those countries.

Australia: - From the top in 1996 to the low in 2001 when the Australian dollar against US dollar fell by almost 40 percent, exporters were shipping goods out of Australia for record profits. But the smile has been wiped off their faces by the subsequent rise in the value of the AUD.

The accompanying chart of the AUD shows it in a solid upward trend with no evidence yet of any respite. Of particular interest is that despite a rising gold price in US$ terms, the price in Australian $ dropped through its 3 and a half year upward trend when it went through AUD575, giving evidence that the decline is not yet over. What we don't show here is the 34 month indicator, which is declining at 77. 5 The monthly Mesa forecasts a declining trend until May 2004 before there is a bounce.

Australian gold producers will soon start to hurt (if they aren't already) but by judicious management of the currency they should be able to offset much of the strength of their currency. Shares of gold producers should come under pressure if the gold price falls in US$ terms and the Australian currency continues to strengthen and they fail to protect themselves.  

The other resource currencies, Canadian dollar, New Zealand dollar and South African Rand have also had poor and weakening currencies until this last year saw them regaining substantial strength over the past year and a half, causing major problems for them too, leaving all exporters howling at their governments. Many are reporting that they are reviewing future plans for expansion in this $ "Bull" market for Gold.

  • We through G-AM have given the judicious managers "Currency Guidance" to some of the county's biggest corporations on how to handle their currency exposure, with the same results as we have had on the gold price. By tasking the right action in time, much of these negative currency moves have been turned to advantage by our Subscribers. We have now extended this service to currencies like the Canadian and the Australian $ and others. We are happy to extend this service to cover any currency our Subscribers wish. So, contact us to subscribe to this service, if you are an importer, exporter or generally deal in cross border transactions.

The Indian Monsoon and the spread of Gold trading

The market expected gold to suffer as a result of the absence of the Indian buyers, who can purchase as much as 855 tonnes per annum in a good year and who are not due back in the market until mid + August. But the Monsoons are as much as 6 - 9% more than last year, so when they come back it will be with a vengeance. The weather office has predicted rainfall this year will be normal, unlike last year, when the country suffered its worst drought in 15 years. We're sure their suppliers are switched on enough to pick up gold ready for them, whenever the market weakens. Indeed physical buying is strong whenever the price drops below $350 per ounce.

Indian Gold trading is growing steadily across the country, with the IndustInd Bank setting up nine trading centres and with the setting up of the Multi Commodity Exchange (MCX). With India consuming 35% of the world's gold production, the setting up of the exchange will help jewellery manufacturers hedge their risks better through making futures contracts available to them. The largest Jewellers already have arrangements whereby they take delivery of gold and pay for it once they are paid, leaving suppliers to cover the risks involved. This arrangement will extend such risk reduction across the board. Starting in September, the main longer term impact will be the spreading of Indian purchases across the year as opposed to their purchasing period being predictable.

As part of the vast improvement of gold trading in India taking place, with the lowering of taxes on certain gold bullion products, the broadening of the Indian gold markets and now the clearing out of intermediaries and lower transaction costs, there is a strong likelihood of the Gold market becoming even more popular, a turnaround since the prospects for Indian gold trading looked set to decline. Once in place, the commodities exchange would help in removing the intermediaries in the market and bring a better deal to both farmers and end-users. MCX will be one of the three commodities exchanges in the country to be given a multi-commodity licence in India. A brokerage fee of 0. 5 per cent to one per cent of the transaction value would be charged by the members.

Hedgers down!

It had to happen and eventually it will happen again, a gold mining operation Yandel, in Australia is going into liquidation. Newmont bought the Yandel operation believing it was a profitable gold venture until it became clear that its proven gold reserves were less than the Hedges it had in the market place. So not enough gold in the ground to repay the Bullion Banks [and Central Bank behind the Bullion Bank]. Newmont itself not responsible for the disaster, so suggested offering 50% settlement to the banks that provided the hedge. All but one accepted, but Newmont had set as a condition precedent that all accept the offer or else. The 'or else' has happened and Newmont said it is now making an offer to bring Yandal out of voluntary administration by valuing its assets at US$200 million, which could leave Yandal's third-party note holders and hedge counter parties, the bullion banks with no more than 40 cents on the dollar. The original offer from Newmont is still open, so let's see if a price of $50 million will be the cost of pride?

Future Hedgers might find their terms somewhat more onerous?

Short Term Prospects for Gold

  • The net long position of speculators on Comex dropped from 293 tonnes to 240 tonnes over the previous week and may well have dropped still further. It is remarkable how the price has absorbed this drop, far better than after the Iraqi war ended and speculators unloaded.
  • The market has fixated on the currency relationship between the Euro and the U. S. $, so although this is not a fixed relationship in the longer term, we believe that the Speculative side of the market will continue to react to this relationship.
  • Do not ignore the lack of substantive physical demand, it could prove a weak factor in the price.
  • The market remains thin, so we expect the volatility levels to rise, with the market quick to position itself in the face of trade one way or the other. The price could resume its mercurial pattern. Some would see that as creating an uncertain picture, we see it as an opportunity.
  • Through our "Changing Tack- Gold & Precious Metal Shares" and "Changing Tack" services, we have been alerting them and giving them precise levels at which to buy to sell or to go short. Our aim is to enable our Subscribers to make the most out of this market. So far, since just before the beginning of this year they have been able to make $160 out of the Gold price, or around 46% profits. We are led to believe we are at the front of the market performers. Our subscription details are above.

U. S. Jobless figures far worse than expected

The U. S. Labour Department reported Non-farm payrolls dropped 30,000 and undermined confidence that the economy was on the mend after three years of sluggish growth. Economists had expected no change in Payrolls. This figure is far worse than expected and reinforces the comments we made in the latest issue of "Gold-Authentic Money". Where will this take the Euro and Gold tomorrow in London and the U. S. next week?

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