- The Gold Forecaster
Sales... Russia... Indian
Nov 28, 2005
Excerpts from the "Global
Watch - The Gold Forecaster."
Last week's Gold
Sales [under the Central Bank Gold Agreement]
ago saw two Central Banks selling
4.01 tonnes of gold during the week ending the 11th of November.
Last week [ending the 18th
November] saw three banks selling 16.93 tonnes of gold, within
the Central Bank Gold Agreement.
This brings the total sold
to date in this the second year of the Central Bank Gold Agreement
to 87.19 tonnes.
Extrapolated, this equals 600
tonnes a year. With the "ceiling" at 500 tonnes a year,
were the sales to continue at this rate, sales for the year would
have to stop at the end of July.
This is what happened in the
first year of the agreement, which led to the 'quiet' period
for gold [July / August] being a time when gold prices rose unexpectedly.
It awaits confirmation but
the most likely candidates appear to be France, Holland and Portugal.
France appears to be selling around 7 - 9 tonnes a week on a
fairly consistent basis, to date. With a commitment to sell 600
tonnes in the entire 5 years of the agreement, France appears
to be running ahead of itself. Will it spread these sales over
the 5 years? Or will it sell as much as it can in this price
region [+$500]. It is difficult to isolate sales policy without
any public statement from the banks, so we are limited to the
exercise of extrapolation. But this does help us with the estimation
of future gold prices. As the tonnage being sold weekly has increased
fourfold in the last week, it appears that when "high prices"
[Not if the price goes higher still] are seen in the market place,
the Central Banks will sell greater volumes.
The yearly limitation
of the "ceiling" of 500 tonnes, then takes on a new
aspect. Britain is still wincing from the humiliation of having
sold its gold at around half the present price, a spectacular
exercise in poor gold sales management, so if the present sales
were achieved at levels way below the future average price of
gold the same humiliation may well attend this Agreement. However,
the yearly 'ceiling' affords a measure of protection against
this, because each year another portion of 500 tonnes becomes
available in the next year. So a policy of "averaging"
up comes into affect, allowing the average sales price to be
reached over a 5-year period. Still, at a time when gold is in
the ascendancy the Central Banks can only hope that a fall in
the gold price during or after this period occurs to give the
appearance of wise sales of gold over the period. It is our belief
that this will not be so and that they will be subject to wagging
fingers as Britain is.
Russia may buy?
Last week we almost discarded talk of Russia buying
gold, because the prospect of Russia increasing its gold reserves
has been a repeated story and one that has not come to fruition
so far. But during the week, we have had statements from Russia's
most powerful man on the subject:
President Putin - "I
think that the CB should pay more attention to precious metals
on Russian territory when forming its gold and foreign-exchange
reserves... The reserves are after all gold and forex reserves.
Let's not be too restrained here."
Are we to take this as a direct
instruction to the Central Bank of Russia? Only time will tell!
What does he mean? As we said
last week, in the case of a gold producer such as Russia and
South Africa, it is a relatively simple process to divert local
gold production headed to the world market to their reserves.
We were of the belief that Russia had produced 183 tonnes of
gold last year but now revise that down to 168 metric tonnes
[according to Natural Resources Minister, Yury Trutnev] This
figure will increase to an annual 250 tons but only by 2015.
Speaking about investments in the industry, Trutnev said they
totaled about $16 million in 2004 and in 2005 - about $52 million.
The ministry plans to invest up to $73 million in 2006 and more
than $1 billion until 2010, he added. [These are not large amounts
for this industry, so we would not call this a major expansion
in production at all!]
If this gold production is
trimmed to increase Russia's reserves we have to ask at what
pace? If there is to be a meaningful increase the bulk of this
production should be diverted to reserves and to double [to 10%]
the reserves of gold in Russia, would require 691 tonnes or 4
years + worth of Russia's gold production [provided the gold
price remained static]. Add this to the off-take going into Exchange
Traded funds and you are getting close to matching the "ceiling"
level of 500 tonnes potential sales from the European Central
Banks. Such a drop in supply would require almost no increase
in demand to send the gold price considerably higher.
We have to conclude therefore,
that Central Bank supply and demand will remain a critical
factor in the price of gold!
Indian Demand this
India remains largely
absent from the market still. With prices reaching levels 10%
higher than they were last buying, we will have to wait for some
time before they return to the market. It may well not be until
the New Year is here IF prices have held these levels and not
(1-1/2 decade long dollar index
chart) What sticks out is the violent decline in the Dollar Index
from a 2001 high of 121.21 to an early 2005 low of just above
the significant support of 80. With rising rates continuing in
the US, this bear market rally looks have entered the final leg
of this rally run-up.
There are a few upside targets
where we should see this "bounce" top. Around 92-93
is the first target with a blow-off rally capable in the next
month possible of extending this quickly to the 95-98 levels.
The latter is difficult to foresee with the fiscal dangers the
U.S. Dollar is encountering. That said, a violent fall in the
U.S. Dollar may not be in the immediate horizon, but technically,
it appears we have the likelihood of a year+ out of falling back
to the major support level of 80. That is the battle line we
have outline to you for over a year now and continues to be a
major level to watch in the future.
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Nov 25, 2005
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Julian D.W. Phillips
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