Gold - The
Weekly Global Perspective
The CB Gold Agreement -
running out of stock?
Julian D.W. Phillips
Jul 26, 2005
Excepts from the "Global
Watch - The Gold Forecaster."
We have heard of more reports
of gold sales under this agreement to the amount of around 20
tonnes, seemingly from Spain. This leaves around 33 tonnes left
to go from this year's allotment, over the next two months.
The funds must be alive to
this fact and certainly in a position to pick up this amount
for a speculation. If they do then the resources of the signatories
of the Central Bank Gold Agreement will be exhausted well before
the end of the C.B.G.A. year-end on the 26th of September.
More and more are watching
this space to see if these signatories do keep their agreement,
despite the danger of seeing supplies to the market drop to the
extent that we could have an impressive 'spike' in the gold price
until the 26th September.
We are informed that the B.I.S.
has sold 20 tonnes and the Philippines 25 tonnes, in June, but
these sellers are not party to the agreement. Is this gold price
management? It would appear so particularly if they are acting
in concert with the C.B.G.A. signatories, then de facto evidence
is present of gold price management. We are disturbed by the
present lack of transparency in who will and who is selling their
gold amongst the signatories, which gives rise to these comments.
However, if the signatories
are simply working within their agreement, then they will not
sell more than their 'ceiling' quota and will permit the gold
price to 'spike' upwards as their gold runs out. With the present
physical demand being sufficient to hold the prices in the late-$420
area, small additional fund activity to the extent of about 40
tonnes should be sufficient to prove this point one way or another.
If a price 'spike' does not
occur in this time and there is evidence of funds increasing
their long positions to that extent, then we would expect reports
from the C.B.'s to confirm their activities, which would confirm
this manipulation in the next two months.
The future of De-Hedging
to 2006
We have seen de-hedging
drop in tonnage terms for the first half of this year, to finish
the year, we forecast, not too far above 100 tonnes. We are getting
confirmation of this in the form of statements from AngloGold
Ashanti's director Kelvin Williams.
In the face of what they believe
will be a robust gold price for the next eighteen months [giving
adequate reasons for de-hedging remaining positions], they tell
us that AngloGold Ashanti has little volume left in terms of
hedge commitments. The group's hedge for 2005 was 17% of total
expected gold production in 2006, he added. At the end of June,
AngloGold Ashanti's net delta hedge was 321 tonnes, 333 tonnes
at the end of March 2005. They then confirmed that there would
be no material reductions in the volume of hedge positions in
the coming six months to 18 months.
Barrick, also committed to
lowering its edge book shed only 6 tonnes in the second quarter
of the year, dropping the book to 205 tonnes or 9% of reserves.
The policy appears to have been right in the shareholders eyes
as the company achieved an average price of $424 an ounce compared
with $372 an ounce in the second quarter of 2004.
If we take 2004 de-hedging
levels, we see 210 tonnes in the first half of the year, so this
implies a drop in demand by 160 tonnes or thereabouts. With gold
prices holding their own in the face of higher Central Bank sales
for the first half of this year new demand has taken the place
of de-hedging to the extent of over 200 tonnes [absorbing, as
it has inceased C.B. sales]. This appears to have been physical
and investment demand. We do believe both these demand sources
will continue to grow and agree that this will keep the gld price
robust.
Why isn't India as
globally overwhelming as China?
It is abundantly clear
the when the markets look at China they separate the economy
from the Political side. We do not believe that this allows an
accurate picture of the economy to be painted, as we  brought out in our last issue. Bluntly expressed,
the Chinese economy is driven and tightly controlled by the Chinese
Communist Government. They want a high level of growth and will
get it. They have made it clear they would like to see an investment
diversification from bank deposits to a portfolio that includes
gold. Whilst slow about bringing this about to date, we do expect
to see that happen over time, in line with the development of
a distribution system that permits easy access to physical gold
across China. To help appreciate fully the nature of the Chinese
economy a contrast with India, a nation with a similar population
and a dynamic growth of its own should be made. This we have
done by repeating and broadening a dialogue we had recently.
"... India has developed
(Far less than China) without much foreign aid or direct investment
and doesn't need global exports beyond its foreign exchange requirements
for oil and defence related imports. In all other respects India
has already developed to a high degree of self-sufficiency. With
Indian a common feature of Boards of Directors, Analyst and professional
across the entire globe, we can source our oil and defence requirements
through our technical and managerial workforce employed across
entire globe.
Whilst China has become a leader
in manufacturing, India has developed its human resources, which
are family orientated, making these India's main strength (India
will overtake China's population by 2020).
The Knowledge and Service Economy
has lent India an upper hand in the community of nations. Our
workforce in the knowledge and service economy is highly skilled,
efficient, productive, largely disciplined and enormously hardworking,
capable of putting in long hours of work, both day or night and
it can do this in English, French, and German. This renders India
a class apart as a knowledge and service economy. Our economy
is soon to excel in Bio-chemistry.
India has resisted the cultural
swamping by companies such as Lever, P&G, Coco-cola, Pepsi,
McDonalds, which, although they have established a huge presence,
have succeeded only in penetrating the surface of India amongst
a very small sector of the population, despite years of campaigning.
Even in consumer items, Indians largely prefer home made items,
verses branded items and this after years of advertising to change
them. The Indian people are difficult to manipulate as well as
to govern. They look to no State sponsored incentives, or Finance
or other government support for its development."
Reply
"... I do believe
that India will grow more solidly and more sustainably than elsewhere.
The penetration of the global economy by ex-patriate Indians
is a fact of life in most, if not all developed economies, across
the globe.
There is a major difference
between Indians and Chinese. It is why I believe the Indian gold
market to be the most mature in the world. You think for yourselves,
you are family orientated and refuse  to
accept the yoke of government or banking. This makes your people
individually valuable. The Chinese bow to the State, even to
the extent of limiting their offspring to one child, so they
can get State support for the child. They will obey, as a nation,
even the most outrageous of orders from the Central Government.
They will stay silent and inactive in the face of unacceptable
government policies and atrocities against themselves. They have
a culture similar to ants in an anthill, subject to a central
authority on which they allow themselves to depend. Indians walk
their own road and accept government only where they approve
of it.
China can be harnessed by a
Central Government into an unreasoning army, or factory force,
or whatever the government wants, as we saw under Mao Tse Tung.
It is this they bring to the table under the cloak of Capitalism.
This could not happen in India. India poses no Imperial danger
to the outside world, China does. Chinese government representatives
are all over the resource centres of the world contracting for
them, offering free loans or grants to get into the action. They
would not hesitate to bring Chinese workers even into Africa
to develop resources for themselves. India does not operate like
that and appears to respect other nations and they have no ambitions
on the global stage other than for its people.
On the global stage China is
a present and future overwhelming presence in the globe, as a
nation. India does not. It sees itself contributing, not taking.
But both countries believe
that gold is real money!
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Julian D.W. Phillips
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