Gold Forecaster
- Global Watch
What's really driving the
Gold price up
Julian D.W.
Phillips
April 20, 2006
Excerpts
from "Gold Forecaster - Global Watch."
Gold has just broken through
the $640 level at a pace that has taken even the most hardened
"Gold Bug's" breath away. Most gold commentators are
still standing opened-mouthed, their forecasts close to $100+
below present levels already.
Why have they been caught out
of touch in this way? We hear that Iran and the Oil price are
to blame, but there is a larger, integrated and global set of
factors that have produced and will still produce this phenomenon
and will continue to do so for quite a few years to come.
Market Observers are going
to have to expand their horizons to encompass these factors if
they are to understand and pertinently comment on the gold market
now and in the future. [This is why we include "Global Watch"
in our title.]
The evolution of
the Gold market
- Three years ago, gold was
still being treated as a "Barbarous relic" the term
Keynes applied to it. Gold had been vilified since the early
1980 period. The influence and spread of the $ was growing across
the globe, until it is now responsible for over 80% of global
international transaction. This figure is shrinking now. However,
as the sheer weight of dollars grew [once oil was universally
priced in the $ the demand for them allowed the number to burgeon],
gold was prevented from reflecting the issue of these "promises
to pay the bearer" notes, by rising in price in terms of
the U.S. $' growth.
- Accelerated gold supplies
were encouraged by Bullion Banks, who loaned gold to developing
Producers [against the gold they were going to produce in the
future] who, in turn, sold that gold at prices [including the
'Contango'] not available to the ordinary man in a falling gold
price market. Over time the over-supply of gold to the market
was felt heavily with the gold price being taken down to around
$270.
- Then came the "Washington
Agreement", which limited the open market sales of gold
by European Central Banks [but with the tacit support of both
the U.S. and Japan] to 400 tonnes a year, then in the second
of such agreements, the Central Bank Gold Agreement, to 500 tonnes
of gold per annum. This turned the price of gold around and it
started rising like the gears of a car as it accelerates.
- Last year saw gold beginning
to react like a currency, moving along with the European currency
the Euro. However, the cry then was that the $ was going to fall
against the Euro. But it didn't and it became clear from the
subsequent Euro:$ exchange rate that the two currencies were
effectively "managed" to hold within a +5% range around
$1.20. This has been the trading range of the two for the last
year.
- Then a further step in this
evolutionary process has been the break away by gold from all
currencies as it began to react to a foreign exchange
system across the world that was interrelated through global
trade and so interdependent. In other words the concept of protecting
values by changing from one currency to another to guard against
dropping exchange rates was seen as unworkable as the problems
facing the globe affected all nations.
- The latest step in this evolution
has been the way Oil in particular has reacted, as a consumable
money, in itself. To illustrate, when seen in this light
the U.S. $ has been devalued by 50% in the last two years from
the day oil was priced at $35 a barrel.
Today's Gold market.
This year so far
[in its short life], gold has run ahead astoundingly, rising
$100 in a matter of weeks. At first it would seem that it is
merely a "spike" in the price, due to turn down any
time. But it hasn't, instead it has only paused at what were
thought to be significant resistance levels. There is no doubt
that the gold market has changed its very nature, from a metal
market to something more fundamental to the functioning of the
entire global market system. If this is correct then these
gold price levels or even considerably higher ones are here to
stay.
Technical Analysts are seeing
a fundamental change in the 'shape' of the gold market, which
is defeating the certainty with which they could accurately forecast
price moves.
It is clear there has been
a significant expansion in the demand for gold, without a similar
expansion in supply. New, highly competent, Investors have arrived
on the scene turning to gold not only a "safe-haven"
but as an investment, which will hold its value in a world where
inflation or deflation will cause the money we are so used to,
to lose much of its value while confidence in it wanes steadily.
It is clear the globe is on the brink of seeing a loss of confidence
in the market system itself, as it approaches a rupture in the
stability of the oil market where we will soon see demand outrun
supply. In this role gold will more than match the rise in the
price of oil, as it did in the seventies.
Why?
So what has led
us to this point? We can point to a series of individual factors
outside the gold market, but relevant to gold in specific countries.
In the States, interest rate prospects, or local inflation rates
will be seen as the cause of particular gold price move. In Japan
the Yen price of gold and the exchange rate of the Yen will be
seen as the cause of gold price move that day and in India, professionals
will believe that the gold price must come down because India
is not importing so the world's largest buyer of gold has to
affect the market, but it didn't. On the international front
the Nuclear development in Iran is seen as a prime mover of the
gold price. But the implication of that approach is that each
nation has the power to dominate the gold price.
Stand back and look at the
global picture and we see gold is a 24-hour market covering the
globe, in a world where the internet and other wonderful knowledge
gathering engines are available to anyone with a mouse. Like
the tributaries of a river, each market and their driving forces
add to the flow into gold. As each market during the day reacts
to the global gold price they begin to realize that there is
a synthesizing going on as well as a simple addition of demand,
contributing to the gold price. This gives the river a turbulence
and momentum beyond the simple weight of water.
For instance in India a new
class of gold Investor is appearing and growing in importance,
the gold Investor, buying gold not only because of Hindu tradition
and trust in gold for financial security, but a buyer of gold
because he believes it is a good long-term investment. In this
he is bringing new thinking to the Indian gold market.
In the States in particular,
the establishment of the Exchange Traded Fund brought a huge
new source of gold investor to the market one who was not permitted
to go into gold directly. This new source has bought 450+ tonnes
of gold since its inception. He is not buying gold because of
simple gold market factors, he is looking at the world's economic
climate in the future and feels he needs to cover his back against
what may well be a very disturbing future.
Add all this demand together
from the 24-hour market and put it against a gold supply that's
gently falling and like the oil market it is a matter of time
only before an explosion in the price had to occur.
And behind the scenes factor
in the reality that gold is no longer a threat to the growth
of the $ as the global reserve currency, but could be an important
support to it and you have the prospect of a gold market in the
next few years that makes the gold market of the '70's and '80's
pale by comparison.
In future articles in our
publications we will cover the detail of this disturbing future
and its impact on gold!
April 2006
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
To subscribe
to "Gold Forecaster - Global Watch," please go to:
www.goldforecaster.com.
321gold Inc
|
