Gold 2005 Summery

Good year for Gold, Silver, Metals and most of the Commodity sector. Nice gains for the companies who dig for all the stuff we need. The global population is growing and developing countries need more basic materials to produce a higher standard of living.
Don’t forget the commodities are just climbing out of a 20 years devastating bear market hole.

I Don’t have any prediction for the paper Forex market – which is very unpredictable and highly managed. I don’t see a better paper currency then the US dollar. The USA is still the strongest country and the very important reason - the Fed is still the biggest gold holder(?).

Gold and silver - the monetary commodities did not gain as much as other commodities this year, but that could change next year - for the fact they have the monetary ingredient.
Over all I expect gold and silver to really outperform other sectors in 2006, we could easily see a 50% gain in the price of gold and the price of silver the next 12 months.

Spot Gold 4 hours chart

Not much change today in the precious metals market, at least from a price perspective. Spot gold is basing around the 50% Fibonacci level.Watch out for more and more volatility and expending daily trading range. The same goes for Silver which is doing just fine.


Click on the chart below to enlarge.

The Great Gold Paradox (Part 3)

Thoughts:


The Bond market is sending signals, reflecting a good chance for economic slowdown and lower Interest rates ahead. While some say gold reflecting higher inflation expectations. Forex traders are just trading this way today and that way tomorrow - You win some you lose some. Central banks however are walking on a thin line like a bunch of jugglers, very cautious not to hurt the fragile system. On one side they see Inflation fears and the slow but constant erosion of paper monies. On the other side they see the fear of deflation and the huge amount of debts all over the world especially in the developed world.

The system as it is today seems to work perfectly well but you cant ignore the huge imbalances between the east and west , the rich and the poor … under the hood it feels like all is done to keep the price of gold from going higher too fast, why is that ? could it be that gold is not important to the monetary system only if its price stay under a certain level ? What is the logic of fighting the forex of nature?

It remains a great paradox, If you ask me, central bankers are actually playing the biggest Poker game in the world, the managed Forex Casino.





The great Gold Paradox (Parts I + II)

Gold & Silver 60 minutes Charts

Good progress for gold and silver today. Silver continue to lead the move upward, already around (above?) the 61 Fibonacci line. Gold is still struggling with the 50 Fibonacci line and the gold stocks indices are breaking to new highs.
See charts below :

Gold spot 120 minutes chart.

Gold is up 20$ since its last bottom one week ago. Gold is trying to break out of the 20$ range box formation and the Bollinger bands look to be expending. The top of the box is exactly at the 38 Fibonacci line. So if its basing around, this line should provide good short term support. In my opinion, it will not be long before the price of gold will make new high.
The paper monies markets are less and less relevant for gold which moves up against all of the paper monies , right along his small buddy silver.

See this joke by MOF Japan:

TOKYO (Reuters) - Japan's Ministry of Finance said on Monday it will auction off modern gold coins from its collection through the Internet next February.
Some 2,445 coins will be sold on a Yahoo Japan Corp. site from February 3-19, the ministry said.
The MOF holds some 32,683 modern gold coins, which it plans to sell off by March 2008. A floor auction in October sold 1,037 coins, reaping some 561.82 million yen ($4.83 million)... Read More

Silver 120 minutes Chart – update

Silver working it’s way back up, just broke out of the Box - leading gold . The price of silver is now above the 38 Fibonacci line and the 20 period moving average. Will gold follow ?

China faces dilemma on expanding gold reserve

China should increase its gold reserve from 600 tons to about 2,500 tons in a short term and to 3,000 tons in a long term to cope with the versatile exchange rate risks, said Teng Tai, an economist of China Galaxy Securities Company.
Too little gold reserve would pose threat not only to China, but also to the global monetary system, Teng said.
China should increase gold reserve to reduce the foreign exchanges risks and diversify its state reserve with various goods, like gold and oil, in the long run, said Shen Xiangrong, director of the Shanghai Gold Exchange, China's sole gold market... Read More

Gold and Oil ratio

How many barrels of Texas Light sweet crude oil you can buy with one ounce of gold?

I will post more about this important ratio as well as other gold ratios in the future , but for now just two points :

1)Gold is far more ancient commodity then oil.

2) Oil is consumed and destroyed , Gold is durable !


Here is a 12 year chart of gold/oil ratio.

120 minutes & weekly silver charts

Silver - poor mans gold, moving side by side with gold.

120 Minutes GOLD Spot Chart - In the Box

Click on the chart below to enlarge.

I will post more charts over the weekend , Merry Christmas and Happy Holidays to all !

30 Minutes Chart

Click on the chart image to enlarge the 30 minute gold chart.

One Hour Gold Chart

The great Gold paradox (part II)

After reviewing the BIS OTC derivative report It is clear that gold and other commodities ( oil and maybe silver ) are still very important to the global monetary system , It’s very difficult to understand the report for several reasons :

1) The definitions are very general to say the least.

2) The data regarding Commodity contracts ( Gold & other) as well as E. “Other” (defined as : “ Include foreign exchange. Interest rate, equity and commodity derivatives of non reporting institutions, based on the triennial central bank survey on foreign exchange and derivative market activity”) is minimal.

3) Very little transparency.


However my insights are as follows:

1) The OTC derivatives market is huge and growing and might be accelerating! , Grant total notional amounts was 270.1 trillion US$ with Interest rate swaps contracts responsible for the majority (163.749 trillion $). Those numbers are very big compared to any other economic number on earth!

2) The grand total gross market value is much smaller at 10.694 Trillion, tough more volatile and could change quickly!

3) Total commodity contracts value is growing. Standing at 1.693 trillion for notional value and 271 billion for gross value. – note those are huge numbers but are representing just a few percents of the Grand Total for OTC derivatives.

4) Gold contracts, both notional and gross values declined standing at 288 Billion US$ and 24 Billion US$ respectively. Nevertheless those are big numbers representing 693 million gold ounces for notional value and 57 million ounces for gross value. (Calculations based on a 415 $ / OZ at the end of June 05 ). A fairly big number considering total gold world wide production is just 82.5 million ounces annually.

5) Other commodities notional & gross values increased substantially. – We don’t really know what kinds of commodities are included but I guess they include oil and silver.

6) E.other standing at 27.793 trillion and 1.866 trillion for notional and gross values respectively. – the point is (and that’s a big point !) we cant know how many gold & commodities are hiding inside this numbers.

7) The data is super non transparent , but one could feel lucky to have any data at all. The fact is that Gold and other commodities continue to be very important for the global monetary system and one should not rule out a renewed gold standard or something similar , It will be Interesting to see how higher (possibly much higher!) gold price affect the BIS report and the financial health of those holding a short gold position.




Please review the latest BIS OTC derivatives review - (pay special attention for sections D & E of table 1 on page 10.)


yours + real1

The gold stock indices

There are 3 main gold stocks( gold and sometimes silver mining companies) Indices: CBOE GOLD INDEX(GOX) , AMEX GOLD BUGS INDEX(HUI) and the most known PHLX GOLD AND SILVER SECTOR IND (XAU).
The fact that the gold stock indices had very small correction is a positive sign for the near future price of gold ( the gold indices tend to lead the gold price most of the time).

Not much have changed today with the price of gold but gold indices moved higher.

Please note that gold & silver stocks are very different from the metals for a wide range of reasons : production cost , declining reserves, politics , hedging, human factor – to name a few... , However it’s interesting to follow their performance for general market sentiment.

The great Gold paradox (part I)

Some(most ?) people still wrongly think that gold is just another commodity that lost its monetary role a long time ago. It’s true that since 1971 when President Nixon closed the gold window (making the dollar inconvertible to gold directly, except on the open market) the global monetary system is not officially backed by gold.
So in 1971 a great economic experiment have started – a completely ‘free’ global money system where central banks, commercial banks and politicians have a very high level of flexibility to control the amounts of money .

Needless to say the result over the last 35 years was an exponential growth of money amounts & Debts along a severe loss of money buying power (Inflation).
However, central banks continue to hold large amount of gold reserves (for a very good reason!) just in case this ‘great’ experiment will fail…

Please review the latest BIS OTC derivatives review - (pay special attention for sections D & E of table 1 on page 10.)

More later... real1

Gold & Silver 4 hours charts.

Both are building a triangle which can break up or down , price is close to the third fib line (61.8% retracement).

Please view this interesting report by GFMS




We will see... More later - real1.

More Charts…

Gold Investors getting washed out …

The thing to watch is the Fibonacci retracements levels.

See charts below for gold & silver fibs.

Gold daily commentary

As the year end coming everything is being made(in the future I Will write about the “powers” working behind the scene) to downgrade gold fantastic appreciation for 2005.

So what we have is a Gold correction. When will this correction end ? – see chart for clues.


I am going to reveal very interesting facts about the gold market fundamentals so be sure to come back and check for updates.

I would like to add that the gold market could be used as a leading indicator for the stock market, last year gold sold off and stocks followed. So stocks bulls should be WORRIED – In my opinion.

That’s all for now, more later – real1

The Price of gold

Gold is real money hence it doesn’t really have a price but an exchange rate with other currencies.

Since the US dollar is still the most used currency the Most important gold exchange rate is gold / US dollar(USD).
Other then the US dollar the 2 other most used currencies are Euro and Yen. Therefore it is important to track the Euro & yen /gold exchange rate .


Please see annotated charts courtesy of stockcharts.com

Gold measuring

Since gold is real money it doesn’t really have a price but more of an exchange rate with other currencies.

Gold measuring is usually done from 2 points of view:

Purity and Weight

Purity

The purity of gold articles may be described in three ways:

Karat, meaning parts of gold per 24.

Percent, meaning parts of gold per 100 .

Fineness, meaning parts of gold per 1,000 (European System) .








Weight

The most widely known and used measure unit for gold is the troy ounce. A troy ounce (480 grains) is 31.1034768 grams.

There are many other types of weight systems:

Grams and kilograms (metric system) , tolas , teals and baht.

Gold is a chemical element in the periodic table that has the symbol Au (L. aurum) and atomic number 79. A soft, shiny, yellow, dense, malleable, ductile (trivalent and univalent) transition metal, gold does not react with most chemicals but is attacked by chlorine, fluorine and aqua regia. The metal occurs as nuggets or grains in rocks and in alluvial deposits and is one of the coinage metals.
For millennia, gold has served as money and is also used in jewelry, dentistry, and in electronics. Gold forms the basis for a monetary standard used by the International Monetary Fund (IMF) and the Bank for International Settlements (BIS). Its ISO currency code is XAU.

here is what the IMF have to say about gold :

• The IMF's policy on gold is governed by the following principles:
  As an undervalued asset held by the IMF, gold provides fundamental strength to its balance sheet. Any mobilization of IMF gold should avoid weakening its overall financial position.
  
• The IMF should continue to hold a relatively large amount of gold among its assets, not only for prudential reasons, but also to meet unforeseen contingencies.
  
• The IMF has a systemic responsibility to avoid causing disruptions to the functioning of the gold market.
  

35 years price history of gold (Courtesy of bigcharts.com)

more later, real1.