Gold Forecaster
- Global Watch
What is the real price
of gold and who's buying?
Julian D.W.
Phillips
Gold Forecaster snippet
Nov 19, 2007
It's become a knee-jerk reaction
to look at the gold price in the U.S. $ and to comment on its
moves in that currency. And there is good reason to do so, for
the U.S.$ is the global reserve currency at present even if it
is beginning to look of dubious value. Why don't we measure it
in a strong currency such as the Euro? Although that is an 'up
and coming' reserve currency, it has not taken a sufficient hold
of the world's monetary system to be accepted as the U.S. $'s
equal.
But gauging the gold price
in the $ is misleading because it is losing value against its
peer in the paper money world and so is not measuring the real
rise or fall of gold. To see if we really are watching it go
too far too fast in real terms it we need to get a perspective
by looking at gold through the € and look at the oil price.
So we went back to the beginning of the year to compare gold
prices in the two main global currencies so that we could get
a better balance on what is actually happening in this market.
It is a sobering exercise and one that emphasizes the correctness
of the approach we have taken to gold in our publication to date.
In our January 5th Issue we
recorded the Gold price as follows:
Many commentators are stressing at the rise and backing
off their positions, with some having sold half their positions
one to two weeks ago. However, a look at these moves helps us
to keep our balance. In the € as you see gold has had a
healthy rise, but not one to get overly excited about and certainly
not one to prompt an exit from gold.
What we see in clear perspective
is the fall in the value of the $. It's [Its]
weakness moves to center stage not the rise of the gold price
so much. The same applies to pricing oil in the $. It also looks
more bearable in the €? Indeed, most of the drama dissipates
when we look at oil and gold prices in the €. Perhaps the
rise in the oil price tempts us to think it has gone too far
too fast, until we look at the fundamental picture.
We should be asking, "what
is the price of the $?" Is it 1/840.65 of an ounce of gold?
The rise in the price of gold reflects the extent of the damage
done to the confidence in it. The world's main reserve currency
just should not show a 15% decline in 10 months, if it is to
continue to hold its position. So many factors have made
the $ hemorrhage this year and they are structural problems confirming
that the $ may bounce but certainly not recover. It is only a
matter of time before this is realized and the dark future seen
as damage control measures are put in place to protect each individual
part of the global money system. When the Chairman of the Fed
tells us that we should by [buy]
American goods and the fall of the $ won't affect you, he is
waving the flag only. If the U.S. were self-sufficient in all
goods and resources, he would be right, but the U.S. is not;
for two reasons - oil and cheap Asian imports. These ensure that
the U.S. economy is to some extent dependent on outside supplies
for its own well-being. So in the U.S. it is correct to price
gold and the $ in the $ because that is the local price, but
outside the U.S. other local currencies reflect the price of
gold. The lower the price rise, the healthier the economy
of that particular country.
Looked at in the € we
are just beginning to see gold rise, a rise that
despite its hitting historic highs, has a great deal of distance
to go, which is precisely why we follow the Oil: Gold ratio in
Peter's work. A 20% rise is good but far from spectacular. The
oil price rise is spectacular, but it is sobering to be told
that the oil price is unlikely to fall below $80 a 45% rise on
the year. Hey, gold has a lot of catching up to do in comparison
to the price of oil. We do believe that gold will break out against
oil and take the ratio well into two figures again, so be ready
for a real rise in the gold price taking it far closer to oil's
performance than we are seeing yet.
Oil meanwhile is being called
'toppy' as it reaches out for $100, then falls to $92 but with
O.P.E.C. making it clear that no more increases in oil supply
are on the table, three figure oil prices lie ahead. Again, fundamentals
kick in with supply problems and a tipping of the demand / supply
balance tells us we should get used to a world of $80 to $100
oil with 'spikes' to higher levels.
The key to understanding the
$, oil and the gold markets is to keep one's eyes on the future,
not on the past. This is a very different world to any we have
ever seen before!
Where's demand for gold coming from?
As in India until last week,
high gold prices weighed on Dubai's gold sales in October. In
the U.A.E. capital Abu Dhabi, a much smaller market than Dubai,
gold sale volumes dropped by 15% in October, while the sales
value rose 10% on high prices and we believe so far in November,
the same is happening as prices went through the roof, depressing
their value by 6% from a year earlier. They had expected a 30%
rise in gold sales value. The Muslim holy fasting month of Ramadan
ended in mid-October with a feast, during which many couples
marry. Ramadan helped the sales at the beginning of October,
but then sales dropped sharply with the recent price hikes. On
the developed side of the world, a glance at the gold Exchange
Traded Funds shows that demand has not been that strong in the
last couple of weeks [it fell 6+ tonnes]. The funds have not
bought so much that they are driving gold prices higher either,
so who is actually doing the buying that is driving prices so
high? In fact the biggest part of the latest pullback has come
from fund selling on COMEX. So where did the demand come from
that took the price of gold to such a high level?
We got a clue from the timing
of the price rises. The bulk of strong gains happened before
either London or New York opened. This tells us the buying did
come from the Middle and Far East [or by developed world buyers
placing their orders outside their own time zones?]. If it was
not at retail level then could it have been at Central Bank level?
We know that the Japanese investors took a signal that
the time to buy was now, according to certain technical data
they concocted for themselves. Then we heard that Sovereign Wealth
Funds have, are, and will be buyers of gold. Some of these are
so large that just a small portion of their money could swamp
the gold market.
And demand need not be huge
in the gold market at the moment because there are almost no
long-term sellers even after the gold price turned down. With
gold down below $800 and with Indian gold prices now back down
below Rs.10,000 for 10 grams, the market for long-term buyers
is looking a lot healthier and attractive than last week.
But if Central Banks such as
China or Russia [and Russia has confirmed it was a buyer this
year] are also buyers, their dealers are fully aware of the impact
they will have on the gold price, so expect the trend to continue
us as the market struggles to find the more than the small quantities
of gold the European banks are selling at the moment?
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-Julian D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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