Gold's behaviour in the last week has been surprisingly resilient. Japanese demand has been present, but not as significantly as last week. Good physical interest continues to be evident in the mid to lower $340's, but the Speculators and dealers have had one eye on the Euro. Most institutional comments have been that the current weakness of the Euro is a normal correction in an upward trend. Sizeable physical buying was reported briefly above $350 at one point, but trailed away as the market drifted lower. This physical buying is a solid support at the moment defeating any speculative unloading of long positions. This is the ideal time for de-hedgers to be buying.

It seems that currency factors are the dominant influence in the market place!

At the time of writing, the Gold Price was $34370, in the middle and the Euro $1.1318 in the middle.

Speculative Net Long Positions

Net long positions on Comex continue to decline falling to 224 tonnes from the previous week of 240 tonnes. We would have expected a greater drop had gold reflected a singular view of the poor seasonal factors, but it hasn't, showing again a certain resilience in these figures. Yesterday saw a drop of another 20 tonnes in these positions from one seller, but this proved insufficient to send the price down, as physical buying happily took up the offer.

Gold Bullion Limited

Leading what we believe to be a dynamic new source of demand and an increasingly efficient and cost effective international way of selling gold, Gold Bullion Limited reports an increase in sales in one month of 50%, taking total sales over three tonnes. Many similar less dramatic companies are achieving similar results, taking gold into the smaller and broader markets. This market will grow substantially, we believe, in the future.

The U.S. Economy

Figures from the Institute of Supply Management were a disappointment on the one side, implying more interest rate cuts were needed to stimulate key areas of the U.S. economy. But their figures for non-manufacturing services were more encouraging rising fro 54 to 60, but it is the key manufacturing capacity figures that count in this scene and these, for non-defence spending were down 0.8%. The poor earnings from Yahoo had buyers putting their hands back in their pockets. Until now, equity markets have shown they want to rise to new levels and are determined to read good news and ignore bad. Indeed the Nikkei broke through the 10,000 levels prompting observers to believe in an real recovery in the U.S. and subsequently Japan? But again, many remain sceptical, expecting this "rally" in stocks to come to en end in the near future. So when a discouraging economic report and earnings release arrived the obvious disappointment was expressed in the Dow dropping to close to the 9,000 level. Disappointing jobless claims figures for the week of July 5th showed that initial claims rose for the second week in a row - by 5,000 to 439,000 representing the 21st consecutive week of claims above the 400,000 mark.

Japan's Nikkei was down 3% yesterday as investors led New York and dumped those shares that had driven the Nikkei to over the 10,000 level. Clearly, the market had discounted optimism beyond realities and when facing it dropped their hands to the side, and hung their heads. Will this see the resumption of diminishing confidence, that critical ingredient that fuelled the recent rises unjustifiably?

It has become apparent that the equity indices are expressing more hope than reality. It is now a belief in the future struggle. Should the Indices weaken it could lead to dramatic falls and a resumption of the Bear market in equities. This struggle is not just a short term battle but a structural statement. The influence of the tide of confidence will assert itself one way or the other!

Central Bank selling!

Canada sold about one quarter of its official gold reserves in June but lost $2 million on the transaction because of slumping bullion prices at the end of last month. Gold sales in June totalled 114,064 ounces, leaving government holdings at about 300,000 ounces on June 30. Canada has a policy of gradually selling off its gold reserves and replacing them with interest-bearing instruments. Gold sales in June totalled 114,064 ounces, leaving government holdings at about 300,000 ounces on June 30. This is not a significant amount, measuring just over 3 ½ tonnes, leaving their reserves at around 9tonnes. Canada has certainly placed total faith in the $, a statement of the reality of their relationship to the U.S.A. not to be confused with their viewpoint on gold.

Central Bank NOT selling!

Bundesbank Vice President Juergen Stark said that selling Bundesbank gold was not an option for the German government seeking to finance tax cuts. "The use of gold reserves would lead to a monetary financing situation which is forbidden by the Maastricht Treaty. The Treaty forbids central banks to underwrite government deficits. "Politicians have no influence over how the Bundesbank proceeds with its gold reserves. All interference from the politicians' side must cease," Stark said. The Bundesbank has about 3,500 tonnes of gold-- worth over 33 billion euros -- making it the world's second largest official holder of bullion after theUnited States. Bear in mind it will take a new law to permit the Bundesbank to sell its gold. This will allow them to invest in interest bearing securities, not hand the money to the government, as emphasised by Herr Stark. It is most unlikely then that Germany is even permitted to sell its gold at all, despite past vague comments from Herr Welteke.

Much debate goes on about whether Central Banks are going to sell Gold or not. These statements reinforce our view that the Germans are not going to be substantial sellers of Gold after September 2004, when the current Central Bank Gold Agreement expires. The impact of such statements when they are digested by the market are extremely bullish for the gold price. G-AM continues to follow and write about Central Banks Gold behaviour, closely!

European Interest Rates held steady

As we were warned by Wim Duisenberg, Euro rates remained unchanged. This makes the Euro a tad more attractive than the $, a significant feature, given what we believe to be an ongoing effort to make the Euro a respected reserve currency. [In the latest "Gold-Authentic Money" we have an article on the dangers this poses based on Greenspan’s own comments].

Short Term Prospects for Gold

• The market has strong physical support in the lower $340’s, even though this is the poor season for physical demand. These doldrums could last until the middle of August, unless dramatic news set the price on fire.
• The markets believe the Euro $ rates are the fixating factors at the moment. If this blossoms into a general lack of confidence, we will see it turn into a turning to gold from the inherent dangers in the U.S.A.
• Through our "Changing Tack- Gold & Precious Metal Shares" and "Changing Tack" services, we have been alerting Subscribers 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.

Gold Fix 10th July p.m. $343.40
Gold Fix 11th July a.m. $344.20