Global Watch - The Gold Forecaster
How different Global Gold Investors see the gold market

Julian D.W. Phillips
Nov 5, 2005

Excerpts from the "Global Watch - The Gold Forecaster."

India
Standing in the Indian market place looking at gold priced in Rupees, the sudden price jump was more than the Indian retail buyer would accept. The price had broken through the 20,000 Rupee level, into new territory. Murphy's law told them that, if they bought then, the price would drop, making them look a little foolish, so the buyers walked away and the wholesalers found the remaining demand was satisfied by the stocks they held.

Loathing the thought of paying too much for gold, the desire to buy gold for the festival of Diwali was overwhelmed by unacceptably high gold prices. The gold price had risen too fast and too far for them. And what's the harm in waiting until the price has held at the new levels for a while, showing that the higher price will not drop, or watching it drop back to the old levels. This is just prudent buying, which is for the family's future welfare, after all.

We emphasise one very important difference between the developed Western attitude to gold and the Indian attitude to gold. In India gold will be bought with savings as always and family wealth will grow, ready for the rainy day, tucked out of the way of any who might harm or take it, tax or regulate it.

The typical Indian buyer is a long-term buyer and doesn't look for a profit, just a store of wealth he or she can rely on, out of the hands of others. Totally oblivious to the global economy, the $, the €, the oil price and U.S. interest rates the Indian market 'feels' the price, looking for sustainable price levels. If it seems to have risen too far, they step away from the market until it 'feels' right. That's why they are out presently, watching for the new 'floor' price level again.

The Middle and Far East
The attitude to the East is in line with the Indian attitude, but not tied into the traditional and religious respect for gold. It is recognised in the East as a whole, that gold is a real store of value, superior to the paper money issued by the governments of the world.

Both the Japanese and the Arabic Investors are buying gold out of their paper wealth and in the midst of great wealth and 'good times'. The importance of specific economic factors, like U.S. interest rates, is not a direct influence on their buying of gold, but as a rising oil price reflects an uncertain future, so investments of surplus wealth in gold makes for good prudence in investing. They watch and play the market factors to make the money to invest in gold, their real lasting money.

Gold's independence from the paper monetary system, with all its human elements and pressures, values the thought that gold is an alternative to the $ and U.S./Western influence. Yes, gold shows $ independence, but not in an antagonistic way. A pertinent point to the Eastern nvestor is that U.S. $ policies, do not affect the gold price, in contrast to the $' price itself!

To the Middle Eastern buyer, gold is real money, to the Japanese, a source of profit!

The U.S.A.
U.S. Investors are convinced that the gold price is reactive to U.S. economic factors. Whether they still believe it moves in a contrary way to the $, or contrary to the state of the U.S. economy, or contrary to U.S. interest rates, because the U.S. is the largest and the richest economy on the globe, is by-the-by. They firmly believe that non-U.S. factors such as the above are not effective in determining the gold price.

COMEX speculators, Traders and Investors, watch economic indicators alongside global factors encouraging uncertainty, like the oil price, to guide their market moves. The dominant funds, which dabble in gold are not true gold Investors, they play any market the same way, driven by Technical considerations and the profit motive. Gold to them is not a long-term haven for their wealth, the $ is. They don't look to gold as a home for their wealth, but as a potential profit opportunity only!

Outside Comex, the bulk of U.S. gold related purchases are the gold mining shares. This is not an investment in gold, but in a derivative, which only indirectly affects the gold price. Again the profit motive drives these investments, not the concept of a home for their wealth. These derivative markets [including COMEX] as a whole have huge $ volumes, but these volumes don't make it to the pure physical gold market

Hence the impact of the U.S.A. Investor on the gold price is far smaller than the influence of the Indian market! We are so used to the wealth and wisdom of the U.S. dictating all market prices that it is almost alarming that the gold price is not under the control of the U.S. Investor.

However, the U.S. knowledge base, investment criteria and systems do have an enormous impact on the rest of the developed world and their markets and investment approaches and opinions. But their belief in the $ and the U.S. is so strong as to leave their faith in gold, as an investment, in the minor league. This makes the U.S., despite its enormous wealth and ability to dominate the gold market [should it wish to do so], a lesser player in gold.

Should uncertain times hold sway inside the U.S. [a poor global scene, per se, will not shake the faith of the U.S. citizen in the U.S.A.] and Joe citizen turns to gold, it will be because of desperation, reflecting the shock that comes with a loss of faith in the U.S. of A.

By then as in the past, the U.S. government will have grabbed the reins of the gold market from their citizens, as they did in the early 1930'. Until then he will not be a leading gold force.

Europe
Having learned the hard way the value of gold in extreme economic conditions, including war, the last 25 years has seen Europe turn away from gold, as their own wealth increased. The growth of the Eurozone enhanced their newfound faith in a growing Europe and its new currency the €. Gold has become just another source of profit, not a place to store value, in line with U.S. thinking,

But just below the surface on the brink of difficult days, lies a huge trust in gold. Such is the influence of the past, that the return to gold is never too far away, as we have seen as the gold price separated itself from the €. Last year the President of the Bundesbank pulled Germany away from selling gold, citing as his reason that "gold is a good counter to the swings in the $". No doubt he has now added that it is also "a good counter to the swings in the €" too!

Yes, gold is inflexible and unmanageable as an investment instrument, but it is reliable in all, including bad times. Europeans will be the first to run to gold as a haven in uncertain times. As of this moment we are seeing the phenomena of Europeans protecting themselves against an uncertain € and an uncertain $, by buying gold. If they become sure that uncertainty is here to stay, much more of their wealth will find its way into gold as a % of their investments, than will be the case for the U.S. Investor.

The road to gold will be joined by the European Central Banks, as they did in the 1960'.

Blending this mixture into a price
Take each of the above ingredients, at the time they are in action in the gold market and you will see how in each part of the gold world, Investors become puzzled by the behaviour of the gold price. Now add the demand and supply elements to the mix and you have a seemingly unpredictable dish.

To understand the gold price requires an understanding of the timing and relative importance of each feature influencing the price of gold at that moment. That's what we try to do in this publication, so you too can get the correct perspective on gold and a balanced insight into where it is going.

Nov 4, 2005
Julian D.W. Phillips

321gold Inc