That was the week that was!

A week of waiting, of doubts, of nervousness, as the gold price threatened to fall and to rise, in a continuously narrowing range, ready as we have said for the last couple of weeks, for the preparations for Diwahli. The 23^rd is when they are scheduled to begin, so if you were readying yourself for that time, tighten your seat belts.

In addition, the Euro is looking a bit better, seemingly heading towards $1.15+ from the current level of $1.12.7. Keep your eyes on interest rate differentials there!

The speculators heightened the stakes, with some taking out shorts whilst others increasing longs, last week. Its not completely accurate to think they act one way or the other, like all of us, its about making money. If you believe that the moves either way will behuge, wouldnt it be wiser to pay the little extra to cover both up and down? We sense that whichever way it goes, there's a crowd waiting to jump in, that way to take the price further than most expect.

For the Indian market to make its presence felt on the price, the conditions have to be right for them. They do not accept volatility, needing to be certain the price they pay is the right one. The conditions now present in the market, do have a measure of stability, after a fall from the $380+ level to the lower and mid '70's. And its working, with physical buyers have moved their buying price up to the middle $370's and above. The price is now steady and ready and has begun to attack the $380's again!

The price at the time of writing at $382.50+.

The New Central Bank Gold Agreement

The media has picked up on the possibility of an announcement on a new Central Bank Gold Agreement. Nothing has been scheduled or proposed to date. One is sure that the communication between Central Bankers is ongoing. As far as we can see the only purpose of a coming together of Central Bankers would be to announce such a decision, not to formulate one. One would doubt whether they would announce it in the shadow of an I.M.F. meeting, unless it were to be an I.M.F. agreement. Such meetings that are held in Dubai, on the subject may formulate policy, but not lead to an announcement. Individual Bankers may use the occasion to enjoy the limelight and tease the press as they have been doing of late. We refer to the statements from Germany's Finance Minister, talking about small quantities or was it 'small steps'???

Germany's E.C.B. Governing Council Member and Bundesbank President Ernst Welteke added another exquisite description to potential sales of gold by Germany. He used the expression, 'homeopathic amounts'. What a tantalising term to use. It had us rushing to the dictionary for a precise definition and this is what we found: 'treatment of a disease by drugs [usually in minute doses] that in a healthy person would produce symptoms like those of the disease'.

There's something to ruminate over! Not the usual terms used in the gold market? It seems reasonable to assume that he was not referring to any particular disease. We would prefer to focus on the size of the dosage, it being 'minute'. This being the case, the anticlimax such amounts would produce would, after a deafening silence, probably convince the market that large sales from the major holders of gold are not imminent.

What is becoming apparent is the care being taken by Central Bankers over comments made, ensuring, as we said last week, the orderliness of the market.

GFMS Demand / Supply figures for the first half of 2003.

'Gold-Authentic Money' has produced an article with observations on the GFMS figures and we refer you to it through our website We believe their forecasts are on the conservative side, as is usually the case with such institutions, but certainly in the right direction.

Swiss Sales

In the nine day reporting period to August 29^th the bank sold another six tonnes of gold as part of its 5 year disposal programme of 1300 tonnes. To date they have sold just under 862 tonnes.

Gold Funds

Gold Funds, the most visible of the large speculators, have been reported as having the strongest rate of return amongst the mutual funds, with returns ranging from 9.3% to 17.1%+. It should get better, much better.

The U.S. recovery

Confirming the reasons why Investment funds are modestly arriving in the gold market, the I.M.F has issued its view on the U.S. economy. It says, 'it is picking up rapidly, but the ballooning current account and fiscal deficits could knock the recovery off course'. The International Monetary Fund revised up its forecasts and predicted the U.S. economy would expand 2.6 percent this year and 3.9 percent next, up from April's forecasts of 2.2 percent and 3.6 percent. It further expected a 'sharp fall in the 'overvalued' dollar'.

With the I.M.F. saying, 'the US is borrowing a great deal in order to sustain this very high recovery but this comes at a cost of mortgaging growth further down the road.' The U.S. current account deficit, the broadest measure of the nation's trade with the rest of the world, narrowed marginally last quarter to $138.67 billion from $138.71 billion in the first quarter. It noted that the make-up of the current account deficit, which used to be financed by equity flows, had shifted and was now funded primarily by sales of government agency and corporate paper, including to a number of Asian central banks [China, most certainly included].

The I.M.F. pointed to the ballooning fiscal deficit as a further cause for worry. The government estimated an $87 billion spending plan for post-war Iraq would increase the budget gap to at least $525 billion next year, or 4.7 percent of gross domestic product. If sustained, higher deficits will offset the longer-term benefits of the tax cuts. They also said the boost in spending has provided some short- term support to the recovery, but it has come at the cost of a substantial deterioration in the medium-term fiscal position.

The net impact of this situation is positive for gold!

Short Term Prospects for Gold

• The Demand / Supply figures from GFMS indicated the presence, albeit modest, of Investment holders of gold. This is more than a trickle, increasing to a stream.
• Consolidation in the mid $370's has continued and as we post this we see the gold price has begun to accelerate upwards.
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Gold Fix19^th September a.m. $376.30 E 331.451

Gold Fix19^thSeptemberp.m. $379.75 E 335.616

Please note the p.m. Gold Fix is barely changed on a week ago, highlighting the narrowing price range and consolidation.