Gold - $330 next as it continues its climb, page-2

  1. 470 Posts.
    Interesting post xerxes.

    Here's Kaplan's take on the World Gold Council report. Makes interesting reading

    September 17, 2002
    For markets of September 18th
    Based on 30 day maturities
    DEC GOLD 318.20 GOLD .00/.75%
    DEC SILVER 4.598 SILVER .00/.75%
    OCT PLAT 549.40 PLAT 3.00/7.00%
    The gold market has seen significant volatility over the past two days as emotions ebb and flow
    as to the likelihood of an imminent conflict between the USA and Iraq. When Iraq offered
    unfettered and unconditional access to UN inspectors, the gold market plummeted, most quickly,
    to the $312.50 to $313 level, where physical buying and purchases by large speculative funds
    quickly shot the price back to almost unchanged levels. The gold price has strengthened over the
    past 24 hours as skepticism has emerged in the market as to the veracity of Iraq’s offer. All of
    these sharp dips and rallies have occurred in rather thin markets.
    There are still many crosscurrents in the financial markets that are affecting gold, some bearish
    and some bullish. Over the past few days, the USD has strangely been quite strong, with major
    foreign currencies values falling back to technical resistance levels. On the bullish side, the
    weakness in global equities values has put some legs under the gold price. Other bullish news
    has been the announcement by at least two major gold producers as to their intentions to further
    reduce their hedge books. All in all, at the end of the day, we are still mired in a trading
    range, make it $312ish on the downside and about $322.50 on the upside.
    Silver prices have, more or less, just mirrored gold movements, albeit in a much more muted
    manner. Again, the trading range recently discussed in the commentary, of $4.54ish to $4.64,
    basis the December contract, continues to hold. There is little to be said about platinum and
    palladium, as they seem to be very little notice of either political, economic, or fundamental news.
    The World Gold Council released its official statistics of gold demand for the second quarter of
    the year, and at first glance, it is truly shocking as to how bad things have been. But….as usual, it
    takes a bit of digging to get to the pearl in the oyster. Lets look at it, step by step.
    With India having a rather poor monsoon, with gold prices rising during the second quarter of the
    year, and with a rather poor global economy, I believe that the market was expecting a decline of
    demand by about this much. A bit disappointing for the bulls, but it seems about right.
    Again, with global economies suffering, with stock markets around the world destroying any
    vestige of the “wealth effect”, with disposable income weak at best, such a statistic is not that
    shocking. But, dear readers, all is not what it seems. Please note that gold prices rose by just
    about 16% during the quarter, so the Dollar Value of all purchases of gold jewelery was
    virtually unchanged at $7.3 Billion USD. So while the gold ounce volume decreased, the
    Dollar volume remained constant. This is to taken as a bullish sign given the state of the world,
    and not as a negative.
    The World Gold Council should also take such information to heart in their plans to promote gold,
    as it is abundantly clear that promoting the use of gold in jewelry will NEVER expand the demand
    for gold in terms of ounces. As prices rise, the volume of gold ounces demanded will fall. Their
    efforts MUST be centered on the investment aspect of this metal if they are ever to succeed in
    their goal of creating a higher gold price.
    Again, not surprising given the deteriorating state of global economies. After all, gold has few
    industrial uses and accounts for only about 3% of annual gold production. So, this statistic is
    rather immaterial in any fundamental analysis of supply and demand characteristics.
    OK, this is the shocker and on first blush is a supreme disappointment to the bullish case for gold.
    After all, gold is perhaps the best performing investment asset of the past year or two, up about
    25% as most other markets have collapsed. And investment in gold, as a safe haven, should
    have increased mightily as the world is in a much more precarious situation than before with the
    fears of terrorism and the fears of imminent war rising almost day-by-day. Given these facts, how
    is it indeed possible that investment demand could drop? Ah, the answer, fairly well hidden
    among troves of rather useless notes, is that the World Gold Council does not attempt to
    measure the TWO MOST IMPORTANT sources of investment demand, that of institutional
    purchases (which can obviously be very sizable) and any retail transaction that is in
    excess of about $100,000 in value.
    Such exclusion of the most salient information is shameful and only harms their mission to cast a
    good light on the future of gold prices. As such, it is best just to discard this statistic as totally
    I would also bet that they do not even try to judge, or quantify, the levels of gold demand created
    by the purchases of futures, options, or derivatives. As noted in earlier commentaries, such
    “paper” demand is playing a much greater role in establishing the gold price than in years past.
    Physical buying is shrinking as investors and speculators seek the most efficient market in which
    to participate, and that market is NOT the physical marketplace as seen by the sharp declines in
    trading in London versus the rises in volume on futures and option exchanges.
    GFMS, the creator of the report for the World Gold Council, also reiterated their opinion that
    global mine production of gold is unsustainable at current levels and that it will fall, somewhat
    heavily, in years to come. Their estimates of future production levels will be announced shortly.
    Such analysis agrees with a Canadian firms estimation that output could plummet by nearly 30%
    by 2010 unless bullion prices rally to bring untapped deposits on stream. Now, such a forecast
    was indeed based on gold remaining at the $275 level, some $45 lower than current prices, which
    obviously changes the equation mightily.

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