Gold: Taels, Tolas and Mommes
Mark Griffith
Jun 6, 2005
When speculators look for trends
and levels in charts of gold and silver, it's reasonable we get
our prices from the world's most public, most liquid precious-metals
markets: New York and London. So it's not surprising those levels
are calculated in dollars per ounce.
But every day huge quantities
of gold change hands on the street all across Asia. In Arab countries,
Pakistan and India, Indochina and the Far East, many small businesses
treat gold as the only real thing. It's different there, not
like the West where gold bugs are often seen as eccentrics, and
Western businesses are happy (to date) to accept payment in wired
dollars, pounds, euros. Or in paper promissary notes.
It would make a lot of sense
to watch gold trading in Asia more closely, where they laugh
at people who don't value gold. So how to better track their
daily unofficial ups and downs for the yellow metal, traded off
the official radar screen?
Luckily, there is a simple
way to track private, small-scale gold trading between millions
of businesses, at the souk or the kazbah, across the world's
largest continent.
The data is where it has always
been: out in the open on the charts and price quotes of Western
financial markets. A move in the gold price anywhere quickly
shows up in prices everywhere. You just have to look at those
familiar charts a little more closely to see the price signals
that the massive hidden iceberg of Asian gold-trading plays off.
Every Western gold trader realises
that breaching a level like 400 dollars an ounce is a big moment.
There will be resistance from sellers on the underside, and once
through and consolidated, 400 dollars an ounce will quickly act
like a floor with resistance from buyers.
But how many Western gold speculators
watch levels like 7000 rupees a tola? Or 3500 yen per tael?
7000 rupees a tola translates,
at the moment, into around 428 dollars an ounce. Heavy trade
in India, now the world's largest country, is done in rupees,
and in tolas, a trusted unit of weight for gold. Just this level
was broken through in late April this year, and then, in early
May, gold fell back through 7000 rupees a tola, and drifted down
the rest of May.
It didn't drift much lower,
bouncing several times off an apparent floor somewhere in the
region of 416 dollars an ounce. Which, at current values, is
3500 yen per tael.
Taels are so widely used in
the Far East, for gold and silver trading, that there are three
slightly different weights: the Hong Kong tael, the Taiwan tael,
and the Singapore tael. They're all within one per cent of each
other, though - the fact that all three different taels are regularly
quoted only goes to show that they are all taken very seriously
in the Far East. Japan has its own version, which is subdivided
into ten momme - so please accept my apologies, I should have
given 416 dollars an ounce as 350 yen per momme.
The point of all this should
be obvious by now. I'm not saying that traditional chart signals
such as head-and-shoulders, leading average, or more recent innovations
to the West like Japanese candlestick trading graphs are obsolete.
Far from it.
But there is yet more to see
in a price graph than even these.
Some Asian-unit signals will
show up as weaker than dollar-ounce levels, but as any technical
trader will tell you, in a financial market as big and liquid
as precious metals, there is no such thing as noise - only data
that has not been understood yet.
Keep in mind that these levels
move around on the charts, since the rupee, the yuan, the won,
the yen and so on, themselves move against the dollar in daily
trading.
Right now, 400 yen per momme
(in the region of 476 USD per ounce at the moment) and 8000 rupees
per tola (currently near 489 or 490 dollars per ounce) look like
important levels, among others, but they will have moved a little
up or down by the time we get that close to 500 dollars.
Given the power of round numbers,
small rises in prices will be pushed back by each of these levels.
A big surge will gain impetus, on the other hand, from breaching
three big levels in quick succession.
One of the reasons Western
businesses are relatively comfortable with paper money is that
Western central banks still keep a lot of the hard stuff in their
vaults. Around a third of most European central bank reserve
holdings are in gold.
By comparison, Far Eastern
small businesses are suspicious of their own monetary paper.
This might have something to do with their own central banks
typically keeping less than five per cent of their holdings in
gold. Oil-rich Arab nations hardly do much better at around ten
per cent.
Two and a half years ago, Ralston
Thiedeman of the World Gold Council told a Singapore conference
that a handful of Far Eastern central banks had decided to raise
their gold holdings from under five per cent of their reserves
to more closely approach world averages. Since he said that,
gold's price per ounce has risen by almost a third, to put on
almost exactly 100 dollars.
That's how big a difference
it makes when official East Asia moves. Since the unofficial
East (Far, Middle, Near) is much bigger, there are substantial
trading profits to be had from being able to track the levels
that loom large in people's minds in different countries across
Asia. Many are very local, only showing up in world figures in
the band five dollars each side of the level. Others are bigger
- and so are the profits to be made from understanding them.
Mark Griffith
email: markgriffith@yahoo.com
Mark Griffith
has a BA in Economics and Philosophy from Cambridge University,
England; has traded in the open-outcry futures and options pits
of LIFFE, London; has been published by Forbes Magazine, Financial
Times newsletters, Playboy Russia, and American Spectator.
He writes about
commodity markets and finance, and is researching a book about
how firms can profit from virtual currencies. He can be contacted
at markgriffith@yahoo.com.
321gold Inc

|