Weekly gold market analysis


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Welcome to The Week in Gold! (2002 Jan-Jun Archive) Through the courtesy of the World Gold Council we are pleased to offer these portions of the Weekly Gold Market Commentary assembled from their worldwide staff's observations of the significant events that shaped each week's gold market. (View Commentary for Current Year)

2002 (July - Dec.) WEEKLY GOLD MARKET COMMENTARY

9 December, 2002 - 13 December, 2002

Trading patterns
Background
Gold embraced five-year highs on a p.m. fixing basis at the end of last week as a combination of factors took the market over $330/ounce in heavy trading. In spot terms the market reached levels last seen in October 1999 in the wake of the Central Bank Gold Agreement, when on an intra-day basis spot prices approached $340/ounce.

This latest increase in price is an amalgam of all the following underlying factors, long term and short, and reflects a steadily increasing interest in investment in gold as an international reserve currency and a hedge against alternative asset classes.

The background to this latest price movement goes back to 1999, when the previous bear market drew to a close. The low fix was registered on July 20th 1999 (252.80/ounce) and the price steadied thereafter as heavy physical buying interest from the traditional physical investing regions (notable the Middle East, India and Asia) absorbed available supplies. Over the course of the rest of 1999 and the year 2000, the emphasis shifted towards the professional market as money market interest rates declined. With the associated fall in the gold contango and the stability of the underlying price, the risk:reward ratio in favour of trading for the short side was considerably reduced.

As a result, the professionals who had been heavy short side traders started to cover in and prices continued a gradual improvement over the course of 2000 and 2001. Since the latter part of last year the economic, financial and political backdrop, which had previously been perceived as benign, has changed and gold has increasingly attracted the attention of professional risk managers, looking for diversification in the face of stressful investment environments. During the middle part of this year the weakness in the dollar took over as the driving force, latterly geo-political tension has played its role. Similarly, the traditional physical investor has continued his purchases of gold as a local investment product. Higher prices and a slowing economic environment have reduced jewellery offtake, but this has been counter-balanced by renewed interest from the professionals, a market constituency that had been absent for some time.

Short term
The dominant factors remain much as before. The tension over the Middle East has put the froth on the price this past week, along with the associated equity market weakness and a softening dollar, allied to an improvement in the technical picture and enforced short covering. Prices reached up towards $336/ounce on Friday morning before giving back some ground to fix at $332.20/ounce on Friday afternoon; this was followed by some physical buying interest in the $332/ounce region which prompted further fund activity and New York traded over $335/ounce before closing around $333/ounce.

Over the week-end the physical market has retreated in the face of price volatility, but the support at $330/ounce has held good and given the market a sense of confidence.

The latest Commitment of Traders Report from the CFTC, covering the week to 10th December, a period in which prices gained gradually from $320/ounce to $325, showed a large increase in long positions held by large-scale speculators as well as an increase in short positions. Longs increased by 76.7t and shorts by 19.5t, taking the outright position to 227.7t long and 68.0t short, giving a net long of 159.7t.

Market factors
The tension over the Middle East has helped to contribute to underlying equity market weakness over the past week, with the Dow closing 2.3% lower on the week. The shake-up among the team of economic advisors in Washington also helped to put some pressure on the dollar, as the new Treasury Secretary John Snow, chairman of the transportation company CSX Corporation, is believed in some quarters to be less of an advocate of the strong dollar policy than some of his predecessors.

Background news
The People's Bank of China has published its plans for precious metal coin issue next year. There will be 18 series of gold coins, absorbing 275,000 ounces of gold, along with 20 series of silver coins and two series of platinum coins. The designs were not specified in detail.

Meanwhile an official at the Shanghai Gold Exchange has said that, subject to approval by the People's Bank of China, the Exchange may allow trading by individuals as early as next year.

ICICI Bank, India's largest private sector bank, has announced the launch of ICICI Bank Pure Gold-certified 24 carat pure gold coins. The coins will initially be sold at the bank's branches in Mumbai and Delhi and then the programme will be rolled out across the country. The coins will be assayed to a minimum of 99.98% purity and imported from Switzerland.

The latest weekly report from the European Central Bank, for the week ended Friday December 6th, reports a decrease in gold and gold receivables of four tonnes as a result of a disposal from a national central bank. The sale was in line with the Central Bank Gold Agreement.

2 December, 2002 - 6 December, 2002

Trading patterns
Friday saw gold reach a six-month high as, building on the constructive performance over the week as a whole, it pierced the $325/ounce resistance on the announcements of the resignations of Treasury Secretary Paul O'Neill and economic advisor Lawrence Lindsay. The market ran into selling activity before it reached the old resistance level of $330/ounce, however, (and as the equity markets regained their poise after an initial knee-jerk reaction to the news) and this pressured prices towards the day's lows just above $324/ounce. This area attracted fresh fund interest and the market ended in New York on a positive footing as once again the market tensed over developments in the Middle East especially as this week-end saw the release of the Iraqi dossier to the UN. In Asia over the week-end there was some light liquidation, partly as the news developed that the dossier is 12,000 pages in length and UN deliberations will therefore take longer than some observers had thought, but support remains healthy in the $325-326 region, the previous area of resistance. On balance then, the physical market is moving to the sidelines in the wake of the recent rally, while the professional participants remain friendly to the market. Conditions are quiet this morning and dealers expect them to remain that way as the international political situation unfolds.

Market factors
After an initial drop on reports that the White House had requested the resignations of Messrs. O'Neill and Lindsay, the equity markets and the dollar showed renewed strength as investors focused, inter alia, on the upcoming fresh fiscal package in the US.

President Bush later announced that the post of Treasury Secretary is to be taken by John W. Snow, the President and CEO of CSX Corp. The initial currency market response has been to let the dollar weaken further with some observers suggesting that Mr. Snow would be in favour of economic stimulus at the expense of a strong dollar.

Background news
The Russian central bank has announced a small increase in the value of its gold reserves during November, to US$3.735Bn from $3.733Bn on November 1st. Since the bank generally values its gold at $300.ounce, this implies a fractional rise in holdings of around 0.2t.

25 November, 2002 - 29 November, 2002

Trading patterns
In a foreshortened and quiet week, gold held to a very tight range bounded by $317/ounce and $322/ounce, which levels produced physical demand and professional selling respectively. The equity markets and the dollar were relatively strong which helped to prevent prices advancing, while increasing political tension, notably the terrorism towards the end of the week in Kenya, remained an important background feature. Conditions were generally thin, however (especially, obviously at the end of the week with the US closed for Thursday and Friday for Thanksgiving) and prices moved little. Much of the activity in New York in the early part of the week revolved around rolling forward of positions from the December to the February contract; February prices outperformed those of December, confirming the natural expectation that the majority of the contracts rolled forward were longs. Activity in the forward markets was also sluggish.

The week opened in London at just over $321/ounce, but soon eased to below $320 and remained tightly constrained between $317 and $320 thereafter, trading mid-Friday in London around the $318.50/ounce level.

Market factors
The Japanese government has said that the Financial System Council is to look at whether the country needs a new system for providing banks with public funds. The deliberations are expected to take about six months. The draft programme includes tightening up the rules under which banks' non-performing loans are assessed. At present historical experience is the primary parameter; this is to be replaced with a model based on analysis of the borrowers' discounted cash flow.

Background news
Last Friday completed the first month of trading on the Shanghai Gold Exchange. The market turnover has averaged between 300kg and 400kg a day of bars of purity either 99.95% or 99.99%, in a ratio by volume of roughly 3:1, although the volumes in the four nines bars is increasing. This equates to between 66 and 88 tonnes per annum and compares with local mine production of 173t (2001; GFMS estimate). Not all the country's locally mined gold is yet traded through the exchange as it is not all refined in the accepted refineries. The market only trades spot, not forwards or futures.

The European Central Bank's weekly financial statement shows that there was no change in its gold and gold receivables position in the week to 22nd November.

18 November, 2002 - 22 November, 2002

Trading patterns
This past week has seen gold in a consolidation pattern, holding to very narrow ranges, with physical support (and some professional interest) propping up the market in the $317/ounce region. For the majority of the week professional liquidation prevented any advances much beyond $321/ounce, although the tone improved towards the week's end (as has been its wont during this period of political uncertainty) and this week has started on a steady note. In fact last week's low of $316.90 was registered early in the New York day on Friday before steady support generated a short-covering rally of some power, so that the week's range was traded in New York on Friday. The market touched $322/ounce at the high.

Much of last week was taken up with the fact that there was heavy open interest in the $320 strike in the COMEX December options series that expired on Thursday evening, but in the event the expiry passed off quietly and although there was no immediate discernible impact on the price, there may have been some effect given that the $320 level was cleared with comparative ease on Friday. There was little new by way of fundamental influences during the week, although the strength of underlying physical demand is perhaps noteworthy. Short-term intra-day moves remain governed by the equity markets and currency moves. Professional liquidation at the upper end of the range is probably, to some extent, self-fulfilling that the market is aware of the long positions held by the speculators on COMEX, and the inability of the price to push through earlier resistance at $325/ounce is likely to make this a renewed area of resistance.

OTC options expire this Wednesday and, as with COMEX last week, there is substantial interest in the $315 and $320/ounce strikes while the situation in the Middle East remains a primary force in the background. We have Thanksgiving later this week and this may well restrict traders' inclinations to go out on a limb.

The CFTC's Commitment of Traders Report (released on Friday evening) for the week ended Tuesday November 19th, a period in which the gold price had pushed up the $324 and then eased to around $319/ounce, showed that among the large-scale speculators (open interest of 100 contracts 10,000 ounces or more in any one delivery month) there had been a small measure of long liquidation but a larger degree of short covering. The net long position increased accordingly to stand at 117.7 tonnes, back towards the level of early October.

Physical demand was particularly well underpinned by Indian interest, with some buying also coming through from Japan as the currency weakened and the price moved higher. While this may seem paradoxical it is not unusual as market participants often prefer to buy into a rising price than attempt to finesse a market "bottom". The Japanese government's plans for an extra budget is also playing on the minds of local investors as it refreshes concerns about the state of the banking system.

Market factors
In the US, the September trade deficit was broadly unchanged from August, at US$38 Billion (against $38.3Bn) and although this was in line with expectations it was nonetheless the second highest on record, in absolute terms at least.

The OECD's semi-annual economic outlook is forecasting a gradual and sluggish global economic recovery, with no real progress made until 2004. The OECD said that falling stock markets and low business confidence are, inter alia, leading to a global recovery that is "slow and irregular". For the OECD nations, it forecast global growth at 1.5% for this year, 2.2% next year and 3.0% in 2004. It said that rate cuts in the US were helping the situation, but had yet to have their full impact, and called for further rate cuts within the euro-zone. China is the bright spot, with a growth rate of 7.9% forecast for 2002, slowing to 6.9% in 2004. The OECD also commented that, while most equity markets had worked off the over-valuations that had accrued during a period of excess, further falls must not be ruled out. Earlier in the week, Bundesbank president Ernst Welteke forecast that inflation in the euro zone would decline to below 2% annualised during 2003.

Background news
The European Central Bank's weekly report on the foreign currency reserves of the euro zone central banks showed an increase in foreign exchange holdings in the week to November 15th but a decline in gold holdings. This latter reflects the disposal of a member central bank of two tonnes of gold, in a trade covered by the Central Bank Gold Agreement.

The latest figures from the Swiss National Bank show that in the twelve-day reporting period to November 20th, gold sales (which fall under the auspices of the Central Bank Gold Agreement) amounted to approximately nine tonnes. This takes sales to date under the disposal programme, which commenced in May 2000, to approximately 645t.

Work on construction of the new 100 tpa [tonnes per annum] refinery in Dubai has commenced, with the groundbreaking ceremony held last week. The refinery complex, which will include coin minting and jewellery fabrication facilities, is to be run by the ARY Group. Jewellery will include stone set pieces as well as yellow gold in 18, 20 and 22-carat. The refinery is part of the DMCC project (Dubai Metals and Commodities Centre), which will provide storage, assay services etc.

In India, the world's largest gold consumer (typically over 20% of the world market), the government data released last week show that the country's six core industries grew at a year-on-year rate of 6.1% last month. The sectors concerned are electricity, coal, steel, crude oil, refinery and cement. To some extent this is a function of the patchy monsoon season this year (one of the worst on record), which meant that construction did not slow down the way that it normally would have done in April-September and that the momentum was accordingly still there in October.

11 November, 2002 - 15 November, 2002

Trading patterns
This past week has seen gold ease slightly in dollar terms, trade effectively sideways in euro terms, and score small gains in sterling and the yen. Trading has been reasonably lively, with good two-way interest. The physical market remains supportive, and contained the currency-induced weakness on Friday, when dollar prices tested the $317/ounce level. Over the week as a whole however, the dollar price eased away from the stiff resistance in the $323-325/ounce band, with selling coming both from trade and speculative sources. The release at the end of the week of the Commitment of Traders report (see below) showed that in the week to last Tuesday the speculative net long position had increased sharply, and it does look as if some of the selling in New York during the latter part of the week was either stale bull liquidation or stop-loss trades [COMEX].

Currencies and politics remain key to professional market sentiment and any change in the atmosphere between the US and the Middle East has produced the appropriate reaction in the markets. At the start of the week the US:Aussie rate was notably strong and there were suggestions of selling coming into the market from Australia has a result. Over the rest of the week the selling was mixed. Meanwhile; as one dealer pointed out this morning (Monday 18th), there is now a regular pattern off "per-weekend insurance buying" which is generally tending to lead to some liquidation at the start of the week.

On balance, the market is continuing to consolidate with physical support evident down to the $315-317 band, and resistance at between $323 and $325/ounce. The size of the outstanding long on COMEX is likely to dampen sentiment, although the figure is a week old and some liquidation has already been seen.

The Commitment of Traders figures from the CFTC, for the week to 12th November, during which prices had risen from $319/ounce towards $323/ounce, showed a large increase in outright long positions among the large-scale speculators, and a smaller increase in outright shorts. Longs increased by 57.9t to 179.2t, while shorts rose by 5.2t to 64.4t. The net position thus increased to 114.8t from 62.2t. Small-scale speculators saw an increase in their net long position also, from 114.2t to 129.1t.

Market factors
In the financial markets, the Dow was up by 0.5% on the week. Early weakness, on the back of analyst downgrades in the technology sector, a hefty drop in Hewlett Packard on news that the company's president is leaving and reports that the US government could be preparing to mobilise up to a quarter of a million troops, was effectively reversed over the course of the week as some bargain hunting appeared and progress was made in negotiations between the US, UN and Iraq.

The market did ease slightly in response to Dr. Greenspan's Congressional testimony, in which he talked of the recent weakness in consumer spending (although overall it had held up surprisingly well) and the lack of "appreciable vigour" in business spending. He said that the Fed had cut rates by 50 basis points last week in an effort to ensure that the economy worked its way through its current weak phase and to try to avoid a recession. With inflationary pressures subdued it was less of a risk to cut rates by too much in this environment than by too little. [Editor note: "The quest stands upon the edge of a knife. Stray but a little..."] Dr. Greenspan also countered those observers who foresee deflation, with the words "We are not close to a deflationary cliff," and that there is no "meaningful limit" to the Fed's power to inject money into the economy.

Merrill Lynch's latest fund manager survey has found that the majority are expecting global nominal GDP growth to be only 3% in the next twelve months, and that most would also prefer to see companies using cash flow to reduce debt rather than increase capital expenditure. Merrill concludes that if the emphasis continues to shift towards cost-cutting and capital expenditure reductions then this could lead to increasing unemployment, reductions in sales and potential deflation. [Editor: Please note, again, Dr. Greenspan also countered those observers who foresee deflation, with the words "We are not close to a deflationary cliff," and that there is no "meaningful limit" to the Fed's power to inject money into the economy.]

4 November, 2002 - 8 November, 2002

Trading patterns
Gold attracted attention last week with the change of "big figure" as it moved above the $320/ounce level, but this is of psychological interest only and should not produce an over-reaction. The primary drivers have been much as before: solid physical demand remains a supportive feature below the market and is cushioning any retreat in price; indeed in Tokyo towards the end of the week the steady nature of demand was sufficient to prompt short covering activity. As is the norm, however, physical buyers are tending to stand back once prices rally. In the professional sector the dollar has been important in recent days as have the developments in the US and UN with respect to the Middle East.

The mid-term elections in the US were generally deemed as supportive because of the received hawkish implications of the result in terms of international policies. The gold price rose in dollar terms over the week, eased very marginally in euro and sterling terms and was flat in yen and Swiss franc terms.

Trading was quieter than usual because the majority of the Indian market was not in action due to the celebration of Diwali ("Festival of Lights"), and because the markets were focussing on the FOMC meting on Wednesday. In the event, the 50 basis point cut in both the fed funds and the discount rate (which takes "real fed funds, compared with CPI, into negative territory), had little impact. If anything it proved to be supportive as falling interest rates militate against short side trading, but equally the market was expecting a cut and reaction was muted accordingly.

As the week wore on and dollar prices worked higher the market encountered bouts of selling from mixed sources, which was overcome below $320/ounce, but there was insufficient buying momentum to clear resistance at $323/ounce and as we go to press it is dozing peacefully in the $320/ounce region.

Market factors
In its statement, the FOMC said that the risks in the economy were weighted towards weakness. This time the FOMC has said that "the Committee believes that, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals in the foreseeable future". The FOMC cut not only the fed funds rate to 1.25%, but also reduced the discount rate by 50 points, taking the latter to 0.75%. It also noted that part of the greater uncertainty in the economy was attributable to heightened geopolitical risks. The vote was unanimous.

In the currency markets, the dollar has remained in bearish mode and has now registered another two-month low against the yen and three-month low against the euro in response to fears over military conflict.

Background news
The latest Commitment of Traders Report from the Commodity Futures Trading Commission shows another increase in net longs both among the large-scale and smaller-scale speculator on COMEX in the week to November 5th, during which time the spot price had traded very narrowly between $316/ounce and $320/ounce. The net large-scale position has increased to 62.2t from 47.7t, reflecting an increase of 16.4t in the outright long position (to 121.2t) and a small increase in the shorts to 59.1t from 57.1t. Among the smaller-scale speculators there was an increase in outright longs coupled with a small degree of short covering to take the net position to a long of 114.2t from 109.4t.

The European Central Bank has reported that in the week to November 1st 2002 the decrease of ¤ 32M in gold and gold receivables corresponded to the sale of three tonnes of gold by a European Central Bank.

Figures from the Swiss National Bank for the eight day period to November 8th suggest that during that time the bank disposed of 7.3t taking its cumulative sales (which fall under the auspices of the Central Bank Gold Agreement) to almost 636t over a period of approximately three years.

The Canadian government said last week that it had disposed of another 90,937 ounces of gold reserves last month, taking its holdings to 700,000 ounces.

[Randy's Bottom line: Some things may be done by proxy. Owning gold is not one of them. In other words, don't leave it up to your government to own gold on your behalf, especially as represented through their currency.]

The Malaysian Deputy Finance Minister said last week that Iran has offered to use the gold dinar for bilateral business with Malaysia, via the Bilateral Payment Act. The concept of a gold dinar has been under discussion among some Islamic countries for some time and the Malaysian Prime Minister is looking to set up a secretariat to encourage use of the gold dinar in other Muslim countries.

Taiwan's finance ministry reported that gold bar and coin imports in October fell 32% to 4.07 tonnes from October 2001. This takes cumulative imports this year to 33.3t, a 27% drop from the equivalent period in 2001.

28 October, 2002 - 1 November, 2002

Trading patterns
After spending much of October under a cloud, gold last week built on the improvement in sentiment that had started to develop at the end of the previous week. In last week's review we noted that the feeling in the market was that any weak-handed longs were out of the market, which implied that overhead pressure on the price would be reduced. This sentiment was sustained during the ensuing week, and the CFTC figures (below), released on Friday with reference to the week ended Tuesday October 29th showed that the majority of action from the funds during that time had been short covering. The market registered price gains over the course of he week before running out of steam above $320/ounce on Friday and easing back today (Monday 4th) towards the $316/ounce level.

The market opened last week between $312 and $313/ounce. Prices were generally in a narrow range, with London usually reasonably quiet and the action concentrated in New York and parts of Asia. Professional interest was driven early in the week by increasing tension over the Middle East, notably the implication from the US administration that it was running out of patience with the United Nations, but the over-riding feature of the week was the approaching FOMC meeting this Wednesday. The financial markets as a whole have been strengthening their view that another cut in rates is imminent and this has fuelled much of the action in the past few days. Weaker-than-expected economic numbers have also played their part and these features along with ensuing weakness in the dollar all proved supportive for gold from the professionals' standpoint.

In the physical market there was lively activity, especially in India ahead of Diwali (Festival of Lights) which fell on 4th November (this Monday) and gold buying ahead of the Festival reached a crescendo last week. This week will be much quieter as the Indian markets will not be trading.

On the other side of the market there were sporadic reports through the week of selling from Australia, and suggestions as the price moved fizzled out above $320 at the week's end that other trade-related selling was also developing.

The Commitment of Traders report from the CFTC of the week ended Tuesday 29th October, a period during which the price had gradually increased from $312/ounce to $316/ounce, showed a small decrease in long positions held by the large-scale speculators, but a sizeable drop in the shorts. Longs were reduced by3.6t, while the shorts covered in 21.8t. leading to a net long position of 47.7t (from 108.4t the week previously).

Background news
Trading on the Shanghai Gold Exchange, launched on Wednesday, has been lively.

The latest figures from the Swiss National Bank, for the trading period ended October 31st the bank disposed of ten tonnes of gold, taking the cumulative sales in the programme to date to just over 628 tonnes.

The European Central Bank said on Tuesday that its gold holdings fell last week due to the sale of two tonnes of gold by a national central bank. The bank said that the sale was consistent with the 1999 Central Bank Gold Agreement; logic would accordingly suggest that the bank in question would have been the Netherlands.

Jewellery purchases for Diwali this year are reported to be booming, with some traders reporting turnover at 30% higher than last year. The interest in hallmarked and branded pieces has been particularly strong and jewellers are also reporting that smaller lighter pieces are selling rapidly.

21 October, 2002 - 25 October, 2002

Trading patterns
Last week saw gold confined to narrow ranges, with strong physical demand providing a floor in the region of $310/ounce. Initially this was offset by professional selling into rallies, and this activity, combined with a better tone in the equity markets, saw a shake-out on Thursday to just below the $310 level. Thereafter, however, professional selling dried up to some extent and the market tentatively took the view that much of the potential speculative overhang had been eroded. Resistance at the $315/ounce level came under renewed pressure at the start of this week and is wavering this morning (Tuesday) with spot prices testing $316.

The Commitment of Traders report for the week ended October 22nd tended to confirm the view about the overhang, showing that the net long position held by large-scale speculators on COMEX, at least, had contracted to 29.4 tonnes from 49.5t the previous week. This reflected the liquidation of 15% of the long contracts, or 18.6t and an increase of 1.4t of shorts. Among the nonreportable positions the longs increased very fractionally while 2.7t of shorts were added, taking the net long position to 100t from 102.4t.

After the earlier tightening up in the forward markets (albeit from a very low base), last week saw lease rates continue to ease amid sporadic reports of lending activity. This does not necessarily mean official sector activity it could as easily reflect the unwinding of short positions across the yield curve.

On a day-to-day basis the equity markets remained the key drivers among the professionals, but in the physical market the strength of demand was notable. Indian dealers are reporting a healthy increase in imports as we come up to Diwali, (the "Festival of Lights" which is next Monday November 4th and which also presages a week in which there will be little or no trading. Traders are reporting that imports are now running at 14,000 ten tola bars a day, against 11,000 daily this time last week. With a ten tola bar weighing 3.746 ounces, this implies daily imports of just over 52,000 ounces or 1.6 tonnes. Reports are also healthy from Turkey.

Market factors
In Japan, the Finance Minister Masajuro Shiokawa said last week that the government's economic package, which includes measures to address the disposal of banks' non-performing loans, along with policies designed to insulate small businesses from any ensuing adverse impact from the bank reforms, is nearly complete. The Financial Services Minister, Heizo Takenaka also said on Wednesday that the government and the leading banks in the country are aiming to resolve the non-performing loan problem by fiscal 2004/05. It has already started to look, however, as if this will be watered down to some extent as the policies are being met with stiff opposition from within various parts of the relevant industries. Some bankers and anti-reform politicians aim also to have measures included in the government's anti-deflation package that will limit the negative effects of bank reforms caused by the government's hard-line plans; the argument being that a softer line will encourage sellers of bank shares to hold onto their equity.

Background news
Physical gold trading on the Shanghai Gold Exchange is due to launch on Wednesday [Oct 30]. For the time being membership remains limited to 108 domestic entities of which 56% are end-users and 12% are banks and other financial institutions, according to a report from Reuters quoting exchange official Mr. Yin Po. The opening of the exchange will be the first big step on the road to ending more than 50 years of absolute control. Settlement will be in physical metal (the only other exchange to trade solely in physical is that in Istanbul). It is possible that silver and platinum will follow once gold trading is up and running. Opening the Exchange means that the People's Bank of China will no longer be the sole fixer of the local price, nor the sole purchaser of domestic mine output. Price discovery will fall to the exchange and be likely therefore to run closely in line with international prices and local production will be sold on the exchange.

The press is reporting that Saddam Hussein is transporting gold bars and valuable works of art from museums in Baghdad and Mosul (which is in the north of Iraq) to Abu Kamal, which is in the north-west of the country near the border with Syria.

The press is also reporting that Malaysian Prime Minister Mahathir Mohamad said in response to a question at a "Gold Dinar in Multilateral Trade" conference in Tehran last week that, subject to the agreement of the Cabinet, Malaysia would set up a body to study and promote the use of the gold dinar as currency for international trade. Mr. Mahathir's economic advisor has already said that Malaysia is expecting to use gold dinars in trade with Islamic countries as of mid-2003 and is in discussions to that effect, and the Prime Minister said that he was considering some potential partners, although he did not specify which. The Iranian government has voiced its support for the idea.

14 October, 2002 - 18 October, 2002

Trading patterns
Gold opened the week slightly firmer on Monday, as the resurgence of large-scale terrorism over the weekend unsettled investors and prompted a flight to the safe haven asset, reaching highs of $319.50/oz during Asia trading. With public holidays in Tokyo, Hong Kong and New York however, Monday was a quiet day and saw gold range-bound around $318.00. However, the fact that the Dow closed firmer on Monday in spite of earnings downgrades for both Ford and GM gave some indication of the week to come, a week in which equities shrugged off repeated bad news and a strong negative correlation between gold and the Dow was firmly established.

A softer tone to the yellow metal emerged in the morning on Tuesday, but the downward bias was sharply extended when US activity began and the Dow was propelled sharply higher, primarily on the back of strong results from Cisco, GM and Johnson & Johnson. The rally in the equities pushed spot gold through an area of support between $315 and $316, the break of which triggered stop losses and gold was swiftly traded down to overnight lows of $312.50. Physical demand emerged towards these lower levels and once the down-move had run out of steam gold consolidated around $314.00 and this consolidation extended through Wednesday's session as equities paused for breath.

Gold traded quietly in Asia on Thursday, but suffered early in Europe as the dollar firmed against the Euro and European stocks strengthened. A bout of long liquidation added to the pressure on the yellow metal, resulting in a six-week low in the a.m. fix. The bearish mood in the gold market persisted into the afternoon as the Dow responded to strong September housing data and strong earnings results from IBM. The p.m. London fix was the lowest since August 27th at $310.75, but these low levels drew buying interest both trade and physical into the market, enabling gold to manage a slightly firmer close in New York.

Good two-way interest was noted throughout Friday's London session, before dipping slightly at the New York open despite a softer tone to the equities. Physical demand for gold cushioned the downside however, and gold was able to finish the New York session marginally stronger, despite a firmer close in the Dow.

The positive tone has filtered through to the open in Europe this morning, as spot gold trades around $313.25, but the equity markets very much remain key to the tone of the market again this week.

The latest CFTC commitment of traders report shows that the gross long position was scaled back in the week ending Tuesday 15th to 126.9 tonnes, compared with 192.8t in the previous week. Gross shorts rose by almost 2 tonnes to 77.5t, leaving a net long position of 49.4t, much reduced from 117.2t in the week ended Oct 8th.

Background news
Harmony Gold Mining has announced that it has secured North American distribution rights for The Lord of the Rings
trilogy, including the distribution of the One Ring, produced by Harmony for the launch of the film trilogy last year.

Deregulation continues in the Indian market; last week the Reserve Bank of India gave permission for domestic bullion banks to treat their foreign exchange and gold limits as one. Local banks are hoping that this is paving the way for further liberalisation, especially as a number are keen to develop products such as Gold Accumulation Plans.

Meanwhile the government of Andhra Pradesh is to bring its sales tax on gold into line with the other states (which means halving it to 0.5%) in an effort to revive imports into the state.

Tuesday's Financial Times reported that financial insecurity and domestic investment opportunities have prompted a net inflow of gold and capital into Iran for the first time since 1979. Official figures value Iran's gold at around $2.5bn.

Official sources have confirmed that the Shanghai Gold Exchange will open for trading on 30th October, following clarification of the VAT rules on gold trading. The Exchange opened on Wednesday for an initial trial period and the first trade to be logged was a 3kg purchase by the Beijing Caishikou Department Store.

The People's Bank of China (PBOC) cut the domestic buy/sell price of 99.995 pure gold on Wednesday outside of the regular fixing. The new purchase price is 81.93 yuan per gramme (vs83.21), while the new selling price was cut to 83.56 yuan/gramme from 84.86.

In Russia, major state-owned bank Vneshtorgbank (VTB) increased its purchases of gold from domestic miners in the first 9 months of the year, purchasing a total of 18 tonnes, a rise of 50% on purchases made during the same period in 2001. VTB plans to purchase 26 tonnes of gold this year, which would represent a 53% rise on 2001.

7 October, 2002 - 11 October, 2002

Trading patterns
The gold price traded gradually lower throughout the week, with new boundaries defining the short-term range.

Light professional selling emerged in the OTC market at the beginning of the week, although trade was generally quiet ahead of Monday evening's speech by President Bush. In the event, Bush took a less hawkish line on Iraq and this eroded bullion's risk premium, which seemed to set the tone for the week. News of the proposal by the Japanese government to postpone the second phase of its plan to limit guarantees on bank deposits prompted funds to begin liquidating stale longs, activity that continued throughout the week and on Tuesday resulted in a breach of $320/ounce, which had been acting as the short-term range base. Stop were triggered on the break and $318.00 swiftly followed, but physical buyers again stepped in to contain the move.

Bullion gained ground mid-week in good two-way activity as the dollar and the Dow reacted badly to a raft of downgrades of large US companies and to realisation of the potential costs associated with the West Coast port lockout. The Nikkei followed suit overnight on Wednesday, which put in place the conditions for a firm open in London Thursday, but gold had barely attempted a test of $320 before it fell back in response to a more cooperative stance from Iraq towards UN weapons inspectors. Physical interest remained firm around $318, but a rally in the Dow on an unexpected drop in jobless claims and some strong corporate reports sparked a text down towards $316, before physical buying once again intervened.

Although a strong end to the week in the equity markets kept gold on a tight reign, the yellow metal proved relatively resilient, with Friday's price action confined to a $1.50 range around $317.25. Significant borrowing interest emerged on Thursday, which on Friday was met with fresh lending, but not before lease rates had been jolted higher. There has been a range of suggested reasons for this activity, but is thought largely to result from covering by one or two operators against an imminent (or expected) withdrawal of metal from a central bank or banks, which then prompted a nervous market to follow suit. Note also that "three months" now encompasses the year-end and with rates low it may have been tempting to lock in.

The tragic events that emerged over the weekend dominated opening trade in London at the start of this week, as gold's safe haven appeal once again came to the fore.

The report from the CFTC for the week ended Tuesday 8th October (a period during which gold had been confined to a very narrow range between $319 and $323/ounce) shows that the net speculative long position has narrowed to 117.2 tonnes, compared with 132.8t in the previous report. The gross short position fell by 2.2t to 75.6t, a drop that was outweighed by a 17.9t reduction in gross longs to 192.8t.

Market factors
A raft of significant downgrades (JP Morgan Chase, Merck, American Express and GE) on Wednesday reversed Tuesday's gains however, and the Dow lost 2.9%.

The Nikkei fell through 8,300 mid-week. No change in interest rates from the Bank of Japan, but the bank did release plans to deal with the ailing banking sector, including possible purchases of ¥2trillion of shares from major banks by September 2003 and the possible use of public funds if any of the banks' capital is endangered by the write-off of bad loans.

Background news
Deregulation, government issues
The Russian central bank on Friday October 4th reported a rise in the value of gold reserves to $3.732 billion on October 1st from $3.731 billion in September. With reserves are valued at $300/ounce, this implies a small increase in holdings of roughly 3,000 ounces.

Following the recent announcement by the central bank of Vietnam that the government is planning to rescind quotas on international trade in 'foreign exchange' gold, news emerged last Monday that up to 7,000 gold trading businesses are planning to meet to establish an industry body. The intention is to establish a representative body, which will 'gather the voices and provide a forum for gold enterprises in Vietnam where Traders can address all their concerns', according to Hoang Dinh Ngu, Chairman of Vietnam National Gems & Gold Corp. One of the first items on the agenda for the new body apparently will be to tackle the government over the current 5% tariff levied on gold imports.

Meanwhile the government of Andhra Pradesh is to bring its sales tax on gold into line with the other states (which means halving it to 0.5%) in an effort to revive imports into the state.

The tax issues that have delayed the opening of the Shanghai Gold Exchange are expected to be resolved this month, allowing formal trade to begin, marking a major step in the liberalisation of the Chinese precious metals market.

The beginning of the 'festival of lights' season in India is seen fuelling demand for gold imports, which could reach up to 12,000 bars a day by the end of the month. Higher international and domestic prices are likely to prevent imports reaching the same levels seen a year ago, of around 20,000 bars a day.

Indian officials have announced that that this year was "the first all-India drought year after a continuous spell of 14 good monsoons". An "all-India drought year" is defined as when rainfall in the southwest monsoon is more than 10% below normal with over 20% of the country hit by drought. Rainfall in this year's southwest Indian monsoon was 19% below normal and that this resulted in drought-like conditions in 29% of the country. Indian production of food grains in thus expected to fall by 18% from 2001 (to 91M t) and oilseed production is forecast to fall by 11.3% to 11.7M t. The rains are not over, however; the southwest monsoon runs up to mid-October while the northeast monsoon, which covers the southern state of Tamil Nadu, is concentrated in October December.

The latest figures from the Swiss National Bank suggest that in the ten day reporting period to October 10th, the SNB sold 8.8t of gold, taking its cumulative sales under its disposal programmed to just under 612t.

Imports of gold bar and coin by Taiwan amounted to 3.9 tonnes in September, representing a 14.3% year-on-year increase. Year-to-date imports of 29.23 tonnes are down 26.6% on the same period in 2001, according to a statement by the finance ministry.

Details of the long-awaited South African mining charter were released last Wednesday afternoon, October 9th. The report committed to a target of 15% of local mine assets to be in the hands of black business within five years, increasing to 26% within ten years. In addition, the charter pledged to raise 100 billion rand (US$9.6Bn) to assist new entrants into the industry. A number of mining companies, including Harmony, AngloGold and BHP responded positively to the charter, with AngloGold stating that it believes the targets are achievable. The legislation is expected to go through Parliament early next year.

30 September, 2002 - 4 October, 2002

Trading patterns
Gold closed the week on Friday marginally lower than it began the week in London, with a lack of any notable activity in between, locked as it was in a $320-$325/ounce range prior to Friday's test of slightly lower levels. Activity on Monday was chiefly fund-led, although physical buyers were reportedly showing interest around $320; interest that gathered pace throughout the week, hence the strength of the floor that built up at this level. The fate of gold was still largely in the hands of the equity markets throughout the week, resulting in a softer tone to the market on Tuesday as the Dow revived, given an added boost by the announcement of an agreement between UN inspectors and Iraqi officials. Wednesday saw an approach to $324-325 on the back of safe haven interest in response to the Congressional authorisation of the use of force against Iraq without UN sanction, but the move was repelled by resistance in this range.

The remainder of the week was characterised by quiet range trading in anticipation of US economic numbers and Friday's non-farm payroll release. In the event the numbers painted a mixed picture, as the jobless rate fell to a surprising 5.6% (forecast at 5.9%), while the September payrolls number posted a fall of 47,000. The equity markets chose to focus on the significant upward revision to August payrolls however, which were adjusted to show a rise of 107,000 against the previous +39,000, and the Dow raced higher. This put a dampener on gold, which traded down to $319.80 before recovering levels above $320. In the NY afternoon corporate profitability worries and concerns over possible conflict with Iraq erased previous gains from the equities, resulting in a 188 point close in the Dow, while gold closed on a relatively firm footing.

Dollar:yen moves had an impact in Tokyo, but not in the way that typical currency moves would suggest. The problems with the banking sector in Japan (see below) are at the front of investors' minds, and strengthening in yen prices has tended on the whole to produce short covering in gold rather than profit taking.

The latest Commitment of Traders report from the CFTC, for the week ended October 1st, a period in which prices had again oscillated between $320 and $325, closing at $322 showed a small drop in long positions among the large-scale speculators, and a slightly larger degree of short covering. Longs were reduced by just over one tonne, while shorts were clipped by 2.7t, giving a net large-scale speculative long of 132.8t.

Opening action in London this morning saw gold drawing strength from political and economic developments over the weekend, as an explosion on a French tanker of the coast of Yemen sparked fears of a terrorist attack while Asian equity markets plunged in the face of Friday's losses in the Dow. The physical market appears to be well accustomed to the short-term $320-325 parameters and should be encouraged by further price action within this range. Funds are reportedly still long however and stale bull liquidation remains a feature of moves towards the top of the range.

It is worth noting that at the grass roots level, as opposed to that of the "professional" traders, day-to-day buyers, notably in India, appear to be increasingly comfortable with the area around $320/ounce as an entry point.

Market Factors
The Nikkei extended the negative tone of the week overnight, plummeting to a fresh 19-year low at 8,688, plagued by persistent concerns over the size of non-performing loans and proposed measures to tackle them by a new banking task force. The Tankan report released at the beginning of the week reflected a slowing in the pace of improvement in sentiment, which instilled market nervousness.

Background news
Indian jewellery traders have been reporting a boost in exports during July and August, and also a reversion to gold jewellery rather than stone-set pieces as gold is regarded as a better investment with a better resale value. Traders noted especially that following cuts in US jewellery import tariffs, sales to that destination were particularly healthy. Overall exports of jewellery for April - August inclusive gained 25.2% in value over the equivalent period of 2001, at US$3,385M from US$2,704M. Traders are expecting the year as a whole to show an increase of, conservatively, between 12 and 15%. Latest Indian figures show that official imports into the country in August were up at 37.3MT this year against vs 32.4MT of last year.

The Istanbul Gold Exchange has reported gold imports for the first nine months of 2002 at 99.15t. Although an equivalent figure was not readily available for the first nine months of 2001, imports in the first six months of the year were 31.2t higher than in the first half of 2001, at 56.4t.

An official from the central bank of Vietnam is reported to have said today that the government is planning to rescind quotas on international trade in what it terms "foreign exchange" gold, as part of its programme to liberalise the local gold market. No deadline was given, however. Finished products have been free of import and export tariffs since the early 1990s, although local; jewellers were given a limit as to the amount they could use. We estimate that Vietnamese demand for gold for retail investment in 2001 was 36.5t and in the first half of this year amounted to 16.7t; jewellery demand is estimated at 23.8t in 2001 and 11.8t in the first half of this year. Overall retail demand, therefore, is put at 60.3t in 2001 and 28.5t in the first half of this year.

23 September, 2002 - 27 September, 2002

Trading patterns
Last week was a week of mixed fortunes for gold, with the Middle East and the equities markets again among the driving forces, but with one or two other elements having an influence in addition. In terms of price action, the market started the week trading between $321/ounce and $324/ounce, where there was physical support and selling resistance respectively, some of the latter reportedly related to the weakening of the Australian dollar against the greenback. This was overcome on the Tuesday, however, as fund-led activity propelled prices higher, and the $328/ounce level came under test although this proved to be the high for the week, with trade selling again in evidence, partly driven by a bout of weakness in the gold equity markets. This was followed through towards the end of the week as the equity markets appeared to regain some degree of stability, and gold accordingly slipped to the $318-319 level, before finding physical interest in a variety of the day-to-day purchasing regions. The week ended on a reasonably steady note, and the market was given a fillip thereafter as equities slumped once more on renewed earnings fears and an escalation of tension both about and in the Middle East. Some of the selling during the week was attributed to end-of-quarter book-squaring.

The physical market does seem to have adjusted now to these higher ranges and the market is tending to find support between $318 and $322/ounce. It must not be forgotten, however, that physical purchasers do not like volatility in price and they will retreat from time to time when the market is choppy. Equally there are some signs of trade selling emerging towards the highs (but see above), and scrap continues to flow into the market. Most dealers are talking in terms of the $330/ounce level being pivotal, while citing supportive charts and the potential de-merits of being short in the current political environment, -- though equally, the overhang of the longs is something of which to be aware.

That said, the outright short position on COMEX was increased in the week to Tuesday September 24th, during which time prices had increased steadily from $316/ounce to $326/ounce. Unsurprisingly, however, long positions were increased by even more. The gross long position rose by 68.3t to 211.7t, while the shorts added 15.5t to a total of 80.5t. The net position thus increased from 78.3t to 131.2t, the highest since May 21st, when the net outstanding long was 145.9t and spot fixed at $315.20/ounce.

Market factors
The Dow dropped 3.6% on the week, with earnings forecasts and political tension both undermining the market's performance. Economic news was mixed. The Federal Reserve left its overnight interest rate unchanged at 1.75%, although the vote was 10:2 rather than unanimous. While it said that aggregate demand in the economy was growing at a "moderate pace," it did not specify when sustained growth would be attainable. Although the market had expected rates to be kept on hold, the Fed also referred to heightened geopolitical risks as part of the reasoning behind its uncertainty over the timing of economic recovery.

The IMF has released its six-monthly World Economic Outlook and is projecting growth of 2.8% for this year and 3.7% for next. The U.S. economy is forecast to register growth of 2.2% this year and 2.6 % percent next.

Background news
Dr. Rudolf Trink, the Directory, Treasury, at the Österreichische National Bank (ONB) said at the GFMS seminar in London last week that the ONB is convinced that the Central Bank Gold agreement is beneficial to the gold market with respect to market stabilisation and that it gives the market an element of added credibility. He said that central banks owe the market a degree of responsibility and the ONB votes in favour of a renewal of the Agreement.

The Swiss National Bank (SNB) has given details of its proposals for the coming twelve months with respect to its gold disposal plan, which falls under the auspices of the Central Bank Gold Agreement. The SNB is planning to sell a further 283t of gold by the end of next September 2003. This will take its total sales to 883t, leaving 417t remaining for disposal. The bank is selling at an average rate of approximately one tonne daily and the sales to date (603t) have raised just of SFr 9.1B (US$6.1 billion), achieving an average price to date of $279.40/per ounce, or SFr15,140/ kg.

Latest figures from the US Mint show that September sales of gold American Eagle bullion coins amounted to 20,500 ounces of gold content, taking the total for the year to date to 182,000 ounces of gold in Eagles. Sales in the year to end-September last year amounted to 178,500 ounces, while the total for the full year was 325,000 ounces (10.1 tonnes). Sales this year picked up markedly in June with the momentum maintained through July and August although September was slightly slower.

Japan's imports of gold in August were 63.88% higher than in August 2001, at 5,534 kg, according to preliminary data from the Ministry of Finance.

Scientists at the University of Arizona, the Commonwealth and Industrial Research Organisation (in Australia) and the University of Edinburgh have used radio-active dating methods to assess the age of the gold deposit in the Witwatersrand Basin at approximately 3.03 billion years (with a 20-million year tolerance). Interestingly the gold is located within rocks roughly 300 million years younger, implying that the deposits were washed into the basin and later compressed by the surrounding structure. This conflicts with the theory that the deposit is hydrothermal (which suggests that the host rock was formed first), and is generating interesting debate.

The South African Minerals and Energy Director General Sandile Nogxina has said that the negotiators hope to make an announcement by the end of this week and that a final draft will be ready by year-end.

The deputy director of Gokhran was quoted in the Russian press last week to the effect hat he expects Russian gold mine production to reach 175t this year, against 154.3t last year and total output (i.e. including scrap) to reach 180t.

16 September, 2002 - 20 September, 2002

Trading patterns
The gold market remained dominated by politics, economics, equities and currencies more or less the whole range of external parameters, in fact, during the past week's trading. Repeated attempts to pierce the resistance at $323-324/ounce failed during the week last Friday, but it has given way subsequently and as we write this note the market is trading in the $326/ounce region.

The market opened the week with spot prices trading around $315/ounce and dipped towards $312 fairly early on, responding to the news that UN inspectors were to be allowed into Iraq. Physical demand emerged between $312 and $315/ounce and was sufficient to cushion the weakness, especially as most financial markets took stock of the situation after their initial knee-jerk reactions, and after a period of consolidation, political jitters again took hold and repeated bouts of investment, speculative and short covering interest took prices up to the top end of the $312-324 range. At that stage there was insufficient momentum to carry prices higher, and the week ended on a steady note with a constructive underlying tone but an unwillingness to commit into a new range. The majority of short-term moves over the past week have been engendered by political developments, and the sustained nervousness in the other areas has continued to give background support.

The latest commitment of traders report from the CFTC shows that for the week ended September 17th, a period in which prices had opened around $318, dropped to the $312 level noted above and rallied towards $316, showed another increase in the net long position held by large-scale speculators. The net position at the close of the week was 78.3t, reflecting gross shorts of 143.4t against outright shorts of 65.1t. There was a small increase on the part of the longs, while shorts were covered in by 15.4t against the previous week.

Market Factors
In Japan, the Bank of Japan took the markets (and some senior politicians) by surprise when it announced plans to buy shares from banks in an effort, according to the Governor Masary Hyami, to "help banks reduce risks from their shareholdings". The move was not well received by the ratings agencies, but is expected to receive Finance Ministry approval. The Governor said that this "will not be a stock price-boosting measure or be aimed at boosting market liquidity". The BoJ reports that Japan's larger banks held about ¥25 trillion yen ($200 billion) of shares at the end of March.

The result of the German election was close, with gains from the Social Democrat junior coalition party the Greens playing an important role. Market observers suggest that the incoming administration, again under Chancellor Schroeder, will be unlikely to reduce government stakes in national utilities, but also that economic debate may in future be more finely balanced than in the recent past.

Background news
The Swiss electorate voted last week-end against the government's plan to use interest earned on its gold sales to fund the Solidarity Foundation. The proposal would have seen approximately one-third of the investment income on the proceeds of the sale put into the state AHV pension fund, regional governments and the Humanitarian fund with the government retaining the balance. Voters have also voted against putting the income into the pension fund and the government will now look at alternatives.

Meanwhile the latest figures from the Swiss National Bank suggests that in the ten-day reporting period to September 29th, the bank sold 8.9t of gold, taking cumulative sales under the disposal programme to 595t. The programme falls under the auspices of the Central Bank Gold Agreement.

The Hong Kong press has reported that the Chinese Gold & Silver Exchange Society is planning to boost its competitiveness by introducing electronic trading and expanding its opening hours by eleven hours until 03:30 (19:30 GMT the previous day), in an effort to attract hedging and arbitrage business.

Newmont NFM has restructured its hedge book. Total hedging has now been reduced by 1.1M ounces (34.3t) since December 31 2001, and Newmont NFM has implemented a new hedging policy that will eliminate the outstanding hedges (300,000 ounces) by February 2003. The gold interest rate on all remaining contracts is now fixed to maturity. The reduction has been done by delivering into 400,000 ounces of forwards and buying back 700,000 ounces on a cash-neutral basis. There is an additional 300,000 ounces outstanding (i.e. 600,000 ounces were outstanding at end August), which comes from the acquisition of Otter Gold Mines; this will be reduced as opportunities arise.

9 September, 2002 - 13 September, 2002

Trading patterns
The rally in gold prices that developed on additional risk hedging on the approach of September 11th and in the face of heightening tension over the position between the US and Iraq, petered out towards the $324/ounce level, as some momentum was lost and the market was unable to pierce the resistance offered at these levels. As a consequence, the gold market opened last week at the $320/ounce level and looked up at $324 during New York hours in the Monday and the Tuesday but ran into some profit taking, both professional and from private hands, and ultimately retreated towards $316/ounce over the rest of the week as some political tensions eased.

The prevailing market conditions of late have meant that, until the middle of last week, the buying in the market had tended to come from the professional sector with market players looking for risk hedge instruments. The physical buyers in the market certainly retreated to the sidelines on the run-up to prices in excess of $320/ounce, averse as they are to price volatility. (The CFTC figures for the week ended Tuesday 10th, when the market had closed towards its highs, amply illustrate this, with the net large-scale long position increasing from 19.1t to 61.8t, with gross longs standing at 142.5t and gross shorts at 80t). The trading patterns changed around, however, as the price fell, with some stale bull liquidation developing (look for the CFTC figures to illustrate this next week), while some physical buying started to appear in Asia around the $316/ounce level.

Although there is an expectation among some dealers that the market's inability to clear $324 last week may generate some further stale bull liquidation, the majority of the market is continuing to point to the fact that gold is currently carrying a "war premium" and that the technical picture, while mixed, is broadly supportive.

Market factors
Dr. Greenspan's testimony to the House budget committee affirmed his desire to strengthen fiscal discipline, which in his view has been eroded over the past year, using the words " our current fiscal situation remains more favourable than it has over much of the past few decades. But history suggests that an abandonment of fiscal discipline will eventually push up interest rates, crowd out capital spending, lower productivity growth, and force harder choices upon us in the future".

In India last week the law minister of Indian Kashmir and three of his associates have been assassinated by suspected separatists. In Pakistan, police have killed two suspected members of al Qaeda and arrested five more following a siege in Karachi.

Background news
The China National Gold Corp (CNGC) is continuing its process of deregulating its gold industry by applying to the China Securities Regulatory Commission to list its subsidiary Zhongjin Gold Holdings on the domestic stock market. CNGC is the majority shareholder in Zhingjin, along with Citic Guoan (a subsidiary of Citic Pacific) and Zhongyuan Gold. Zhingjin assets consist primarily of mining and smelting operations, with CNGC responsible for approximately 20% of national production (which is of the order of 180-190t), with much of the balance scattered among a large number of small discrete entities.

The director-general of the gold bureau at the powerful State Economic and Trade Commission, Cheng Fumin, has said that China is likely to produce approximately 190 tonnes of gold this year, up from 181.83 tonnes last year, partly in response to the recent improvements in the price.

The latest figures from the Swiss National Bank suggest that in the ten-day reporting period ending 10th September, the Bank had disposed of approximately 7.8 tonnes of gold. This brings the total sold under its on-going programme to approximately 586 tonnes.

Latest clearing figures from the London Bullion Market Association (LBMA) show that ounces transferred in August amounted to 17.1M per day, a fall from 17.3M in July and 14% below last August's figures.

AngloGold, the NUM and the ICEM (International Federation of Chemical, Energy, Mine and General Workers' Unions) last week signed the first global labour agreement in the mining industry (and also the first in any industry). This is geared towards ensuring best international practice, as specified by the United Nations' Secretary-General's Global Compact, and the International Labour Organisation conventions. It commits AngloGold and the ICEM to ensuring "harmonious and food work relationships throughout the world" as well as committing the company to a "humanly secure and environmentally stable industry".

Anglo American CEO Mr. Tony Trahar has said that the company would be prepared to sell between 10 and 15% percent of its existing South African mining assets to black businesses. He said that "We hope we can achieve values of 10-15% on existing operations, and 25% and beyond on new projects where the value has not been created yet". This follows the negotiations on the draft mining code that was presented a few weeks ago and which seeks to increase the influence of black-run business within the industry.

2 September, 2002 - 6 September, 2002

Trading patterns
A lively week for the gold price, with thin conditions early on leading to more heady activity later in the week as the upside resistance in the $315/ounce region gave way and ultimately prompted a successful breach of the $320 level. The market opened on Monday at around $312/ounce and gained $10/ounce over the following seven days. The price was broadly static on Monday, with the US markets closed for Labor Day, and ranges remained narrow, with a marginal upward bias, through until Thursday's trading. Light selling had emerged on Wednesday in the $315/ounce region, but when this was assaulted on the Thursday, sellers withdrew and the market moved through the resistance triggering buy stops along the way and swelling trading volumes as they did so with the result that the New York market's final half hour on Thursday, and TOCOM thereafter, were frantic. Friday saw prices continue to work higher and $322 came into view at one stage before some profit taking saw prices ease towards the New York close, but Asia was robust over this week-end and London has opened this week on a strong note and the market is now looking for a test of the $325 resistance.

As usual a combination of factors contrived to generate the change of range. In terms of the immediate market, steady traditional physical buying support in the $310 region (notably from the Middle East and India) combined with a clutch of moving averages in the same area gave the market solid downside support, and although there was some stale bull liquidation early in the week, the support held good. The contributing elements among what might be deemed "external" factors included continued nervousness over economic performance (see below), fresh pressure on the dollar from time to time, but the factor that has been of increasing significance has been the exacerbation of political tension with respect to the US and the Middle East. The war-element does of course impinge in its own right on currencies and to some extent equities and, as ever, all these factors are linked to varying degrees, but the hawkish stance being adopted by the US Administration and the approach of the anniversary of the atrocities of September 11th are the primary focus of the market's attention.

Lease rates remain very slack in the wake of the lifting of short positions and although some Central Banks have responded by withdrawing metal from the market, there is still plenty of liquidity available.

The latest Commitment of Traders Reports from the Commodity Futures Trading Commission, for the week ended September 3rd (during which prices had traded in a very narrow range, working gradually higher from $310/ounce towards $313/ounce), showed a small increase in speculative long positions along with some short covering. Among the large-scale traders the open long position increased by 6.8t to 92.4t, while shorts were reduced by 4.8t to 73.4t, giving a net long position of 19.0t.

Market Factors
The Nikkei dropped to an 18-year low on Tuesday at 9,217.04, its lowest close since November 7, 1983, amid concerns about the fragility of the economy given the mixed picture elsewhere in the world. The index remained weak over the rest of the week, although there was some improvement at the start of this week, with the index closing at 9,306.26 on Monday. There is an increasing expectation in Japan that interest rates will have to fall again, and this is also seeing activity in the bond market, with some of the banks looking to move out of shorter-dated paper in favour of the longer-term bonds. The additional spill-over from the equity market weakness is that it is re-kindling fears about the stability of the major banks as their capitaladequacy ratio is expected to fall towards the internationally recognised minimum of 8% if stocks continue to slide. The 9,000 level on the Nikkei is seen as key, both technically and psychologically.

As well as renewed concerns over the state of the US economy, corporate governance reared its head again last week, when analyst concerns that Citigroup may be coming under scrutiny with respect to its corporate finance activities was one of the primary catalyst behind the sizeable drop in the Dow on Tuesday. As the week wore on the Dow unwound some of its oversold position, with strong performance on both Thursday and Friday, the latter underpinned by healthy employment numbers, with the non-farm payroll showing a gain of 39,000 jobs in July.

Background news
The latest figures from the Swiss National Bank suggest that in the ten-day reporting period to August 30th, the Bank sold approximately 7.7t of gold under its disposal programme, taking cumulative sales to date to 578.3t.

19 August, 2002 - 23 August, 2002

Trading patterns
Last week initially saw gold under the dual influences of the strengthening dollar and equity markets, which saw it trade down into a lower range, but latterly there was sufficient buying power in the physical market to put a cushion under the price and repeatedly support it in the $305 region over the course of the week, despite continued improvements in the US equity markets and in the dollar. Professional activity was characterised by selling towards the highs early in the week as the $315/ounce level proved impenetrable, but subsequently tapered away ahead of the long week-end in the UK. The market is of the view that "the funds" are now broadly flat in the gold market and that it is therefore in a period of true consolidation (although there was a small increase in speculative long positions on COMEX during the week, see below). In the physical market, buying has been healthy from India ahead of the festival season and there has also been some interest in Asia, although conditions in the Far East have generally been light.

The lack of "professional" interest in the market has been one of the key reasons why the dollar and equity markets' activity have been of reduced significance towards the week's end, as the physical buying has been largely driven by seasonal considerations, in this case the onset of the Indian Festival season. Buying elsewhere is quiet, for equally valid seasonal reasons, i.e. the Northern hemisphere holiday season. There is one new element in the equation, however, which is attracting comment from a number of dealers, and that is the rise in the oil price, and the associated increase in tension between the US and the Middle East. At the start of this week this is still the overriding issue among the professionals in the market, following hawkish comments on Monday from US Vice-President Dick Cheney. While that remains in the background the underlying sentiment towards the gold market remains supportive.

The latest Commitment of Traders figure from the CFTC for the week to Tuesday August 20th, during which time prices had edged up from $313/ounce towards $316/ounce and then dropped back to test support at $305, showed an increase in long positions held by large-scale speculators and a reduction in the number of shorts. Longs increased by 8.2t to a total of 88.0t, while shorts fell by 7.9t to a total of 73.3t. The net outstanding position was therefore long 14.6t, having been fractionally short the previous week.

Market factors
While the equity markets are relatively buoyant and gold is continuing to find support, the treasury markets eased towards the end of the week and as of close of business on Monday 26th August the ten-year note was 4.21%. The Presidents of the Reserve Banks of San Francisco, Chicago and Philadelphia have all pronounced favourably on the state of the US economy and hinted that there would be no rate cuts in the near future. Fed funds, meanwhile, are continuing to price in a 60% chance of a cut before year-end, although the chances of a cut in September are put at below 30%. The dollar hit new highs against the Swiss franc, euro and yen, taking its cue largely from the equity markets, although it has weakened as we go to press after failing to follow through on its gains of last week.

As well as the political tensions between the US and parts of the Middle East, economic problems remain firmly in the picture, with July Leading Economic Indicators for the US registering minus 0.4% (in line with expectations) after a reading of zero for June.

The June trade deficit, which, although still the second largest on record, was better than expected at US$37.2Bn, with imports increasing to SU$119.2Bn, the sixth consecutive monthly increase. This was interpreted as indicating improving consumer confidence.

By contrast, however, the unemployment figures for the US in the past week showed a fall in claims of 2,000, to 389,000. This undershot economists' expectations by 4,000. The four-week moving average was at a monthly high of 388,250 in the week to Saturday August 17th, and this is underpinning concerns that the economy is not improving at the pace that some would wish.

Strategists at UBS Warburg and at Salomon Smith Barney also released studies in which they have reduced their earnings expectations for the S & P 500. UBS Warburg has cut its 2002 forecast to US$49 per share from $51, and the 2003 estimate to $54 from $58.40 ( a reduction in the latter case of 7.5%), citing slower economic growth prospects and higher unemployment, leading to slower consumer spending than that seen in the 1990s. The Salomon estimate for the S & P 500 earnings per share for 2003 has been reduced to $54 also, albeit from a lower prior forecast of $55.25.

An official at the Japanese Financial Services Agency said last week that its special task force is looking, inter alia, at the possibility of maintaining full state guarantees on bank deposits, provided those deposits are not interest-bearing accounts. At the start of this fiscal year (April 1st) the government reduced its state guarantee on deposit accounts to ¥10m (approximately US$83,000 or £50,000) and was proposing to reduce the guarantee on ordinary accounts to the same limit next April. This would now appear to be a topic of debate at senior level as banking reforms come under re-consideration, but there has been no decision as yet and there is much left to discuss.

Japanese trade statistics show that imports of gold in July was 7.03 tonnes, a gain on 105.5% in the 3.42t of last year. This takes cumulative imports for the year to date to 60.53t against 18.52t for the first seven months of 2001.

Official Sector
Following a budget committee meeting in Berlin last week, the German Finance Minister Hans Eichel ruled out the possibility of gold sales in order to finance rehabilitation of flood-hit areas, saying "This would violate international agreements and moreover it would lead to a fall of gold prices which is not in the interests of the government". The Government is, however, delaying previously announced cuts by one year in an effort to fund repairs.

Meanwhile Vladimir Rybkin, Deputy Head of the state precious metals Depository, said yesterday that Gokhran plans to buy 25-30t of local Russian gold production this year gold for the state gold reserve. He also said that Gokhran expects 2002 gold output to increase by 13% on the year to 175t, of which local industry will consume another 20-22t, leaving about 125t for export.

The latest figures from the Swiss National Bank, in the reporting period to 20th August, show that the reduction in gold and gold lending over the period was approximately 7.9t, taking the amount sold under the disposal programme so far to be just under 571 tonnes. The programme calls for the disposal of 1,300t through 2004 and falls under the auspices of the Central Bank Gold Agreement.

The South African Treasury Director-General Maria Ramos said last week that implementation of legislation stemming from the new mining charter (which was the subject of high level discussion last week between the representatives of the government with Anglo American and De Beers) is unlikely to be implemented this year. A Bill that is due to determine royalties for South African mining operations (existing and future) is unlikely to be fully drafted before the end of 2002 and the associated Minerals and Petroleum Resources development bill will not be given to the President for enactment until the other Bill is also fully prepared.

Of interest
Another prehistoric body, believed to date from approximately 4,300 years ago, has been found at Stonehenge , an historic Druid site of worship in Wiltshire, England. Although his grave was essentially empty, it contained the sharpened tusk of a boar and a pair of basket-shaped gold ear-rings.

12 August, 2002 - 16 August, 2002

Trading patterns
Gold has passed a reasonably quiet week in terms of trading volumes and this has contributed to the comparative volatility in price, although the overall trend has been sideways within a $310 - $318/ounce trading range. Equities and the dollar have again been important driving forces, although the readiness mid-week of Indian consumers to enter the market at the lower end of the range has contributed to dealer short covering and some fresh speculative interest. The market has been quiet in the forwards, with borrowing rates broadly steady; the12-month lease rate remains between 0.50 and 0.55%.

The week started with spot trading in London between $314 and $315/ounce. The rally that had developed the week before was consolidated with the aid of a weaker dollar and the majority of financial markets held their fire at the start of the week ahead of the announcement from the FOMC on Tuesday evening in New York.

In the event the FOMC held rates steady, and gold improved in New York while the equity markets and dollar declined accordingly.

This is an interesting example of how individual rules cannot be strictly applied to this market. Traditional wisdom has it that gold moves in the opposite direction to interest rates because of the dual implications with respect to inflation and opportunity cost. (In fact, gold tends to lead the long bond yield and has done for years although the relationship has broken down to a degree since 1998). The markets' responses to the Fed's decision Tuesday reflect economic concerns. The fact that the Fed warned of possible further economic deterioration probably helped to undermine already flagging confidence in equities and put some pressure on the dollar. Gold gained in value in response to both of these issues, themselves born of investor uncertainty. Varying parameters apply according to different market conditions and at present gold is primarily asserting its role as a safe haven. The fact that interest rates at the end of the day were higher than the markets had been expecting thus had the reverse impact from that which older theories would have suggested.

Although gaining in the wake of the FOMC announcement (which had prompted some fund interest), gold failed to penetrate resistance at the $318/ounce level and this prompted some selling in New York. Professional buying interest was nowhere to be seen at this point and prices fell rapidly to the $311 level, which generated physical buying interest out of India on Thursday as prices dropped towards the $311 level. (The previous day the funds had been active buyers and the physical market was sidelined). The readiness with which Indian purchasers were prepared to enter a volatile market suggests either that the $310-311 level is perceived as good value (it did provide both support and resistance in recent trading weeks), or that there is a need to fill demand requirements and merchants felt that they could wait no longer.

Trading dropped away thereafter and although there was some light speculative activity in New York on Thursday and Friday the rest of the market was in the typical summer doldrums and the market closed in London at broadly the same level at which it had opened, in the region of $315/ounce.

Market factors
The FOMC announcement saw gold and the treasuries both gain in value (although gold only improved marginally), with Treasury yields now at 40-year lows, below 4%. Equities were generally strong over the course of the week and there has been some suggestion that believed that part of the increase in interest in the stocks stems from yield gap considerations given that the yield on 10-year Treasuries is now below 4%. The historic yield on the Dow Jones is still below that of the ten-year note, at just over 2% but the yield on the two-year note is roughly on a par with that of the Dow's historic yield. On an earnings basis, the Dow is offering 4%, but earnings do not equate to dividends and different observers use different yardsticks.

Economic news has been mixed and taking this into account, along with the fact that the Fed referred to the possibility of further economic deterioration, Eurodollar and fed funds futures are now pricing in a 25 point cut in fed funds at some stage between December and April.

The LBMA clearing statistics for July show a drop of 17.5% in the number of ounces transferred between June and July, although the LBMA comments that this is seasonally typical. By comparison with July 2001, transfers were up by 7.5%. Average daily transfers amounted to 17.3M ounces, or 538 tonnes, taking the number of tonnes transferred so far this year to approximately 86,000 tonnes.

Anglo American and De Beers last week met with the [South African] Minerals Minister Phumzile Mlambo-Ngcuka, Finance Minister Trevor Manuel, Labour Minister Membathisi Mdladlana and Industry Minister Alec Erwin to discuss the mining "charter" that had been proposed as a point of embarkation for negotiations with respect to new mining legislation. Included in the charter were suggestions that control of all new mining projects would have to be in the hands of black-run business within 10 years, and that up to 30% equity in existing operations should be transferred to black-run interests prior to the issue of any licences to expand those projects.

The meeting was followed by a statement to the effect that the government would not nationalise any part of the mining industry, nor would it specify target levels for black ownership in the mining industry. This is a more pragmatic stance than some observers had initially feared when the proposed mining charter was leaked to the press a few weeks ago -- although the government had made clear that it was merely a starting point for negotiation. The joint press release from the government and the mining companies refers to the need to transform the industry, but equally that it is important "to offer investors complete security and competitive returns". The full press release of the joint statement following the meeting may be found on Anglo American's website.

29 July, 2002 - 2 August, 2002

Trading patterns
Last week saw gold open just above $302/ounce and move higher towards the $306 level before meeting resistance and subsequent renewed stale bull liquidation, and the market dipped below the psychologically important $300/ounce level on Thursday, before a healthy bounce on Friday to close in New York at the week's high of $307.15-7.65/ounce. At the start of the week the dollar, equities and gold all showed small gains as a degree of confidence returned all round and asset allocation activity saw some bargain hunting in a number of sector. Gold, however, met resistance at $306, which prompted fresh professional sales. Renewed safe-haven buying developed in the professional gold market towards the week's end as the dollar and equities again showed weakness in the wake of poor US economic numbers.

The physical market was consistent in its buying interest through the week, although the Asian markets did slow down towards the week's end as buyers in the region waited for the professional selling to dry up before again looking to pick up bargains. Sentiment in the market is still reasonably sanguine, citing the support that was provided at $300 and by the 200- day moving average ($297), while the volatility in surrounding financial sectors continues to generate interest. The nervousness among professionals remains apparent, however, with some readiness to job the market in comparatively narrow ranges.

The Commitment of Traders report from the Commodity Futures Trading Commission for the week ended Tuesday July 30th, during which prices slid from $324/ounce towards $305/ounce, showed a major change with substantial long liquidation during the week. The gross outstanding long position held by large-scale speculators dropped by 43% or 64.5 tonnes to stand last Tuesday night at 85.4t, while the gross short position increased by 4.3% or 15.9t to 84.2t. The net outstanding long position among the large-scale speculators therefore stood at a mere 1.2 tonnes, reflecting a substantial shakeout. Among the smaller-scale traders, there was also a sizeable fall, with the gross outstanding long position falling by 40.2t to 122.2t, although some shorts were also closed out, with the short position dropping by 12.6t to 23.2t, giving a net long among these traders of 99.1 tonnes.

Market Factors
The equity markets started last the week in reasonably confident mode, with the Dow staging its third largest gain in history (measured in terms of points) on Monday, adding 447.5 points in one session in heavy volume. This fizzled out as the week wore on, however, with the Dow barely changed over the week as a whole, dropping by 51.93 points, or just over 0.6%.

Background News
The Saudi Arabian government expects to privatise its biggest mining company Maaden during the next two years, according to an official of the company. A new mining code is expected before the end of this year, and is likely to liberalise the current law, under which a foreign company must form a joint venture with Saudi partners in order to operate locally. Maaden operates the Madh adh Dhahab mine, with production of approximately 100,000 ounces per annum.

Valery Braiko, the chairman of the Gold Industrialists Union has said that Russia's primary gold mine production in the first half of this year was up by 35% to over 51t, with an additional six tonnes produced from by-product mine output or from industrial scrap. The equivalent figure for the first half of 2001 was 44.3t.

Japanese imports of gold in June were 4.6t, against 1.09t in June 2001; cumulative imports for the first half of the year amounted to 53.78t against 14.12t in Jan-June 2001.

The unique 1933 Double Eagle was sold at auction at Sotheby's in New York last week yesterday for US$6.6 Million, which after 15% commission, plus the $20 face value, meant a total outlay to the bidder of $7.59M. The US Double Eagles had a face value of $20 and were of 0.9675 ounces gold content, although they were "nominally" one troy ounce in weight. The difference came from the seignorage granted in 1837, under which the statutory troy ounce, then worth US$20.67, was exchanged for $20 in coin with the "profit" allowable to cover minting expenses.

This is the only remaining coin from the 1933 Double Eagle issue as President Roosevelt abandoned dollar:gold convertibility during 1933 and the 1933 issue of Double Eagles (445,500 coins) were melted down, but ten had gone astray, Nine were recovered, but this one got away. Through a bureaucratic oversight it was allowed to be exported to King Farouk, and then came up for auction after his fall from power in 1954. It re-appeared when a UK coin dealer tried in 1996 to sell it to agents from the US secret service, who were posing as coin dealers, and after protracted legal wrangling it has been agreed that the coin may be sold at auction and the proceeds split between the dealer and the US Mint's enterprise fund.

22 July, 2002 - 26 July, 2002

Trading patterns
The drive for cash has been the primary factor behind the gold market this past week, as some of the professional investors who had previously moved into the market on a hedge-risk basis, in a bid to preserve value, came to the market to raise funds. The dollar price lost $22/ounce or 6.8% on the week, steadying over the week-end at between $302 and $303/ounce.

The sustained turmoil in the equity markets prompted, in the main, three kinds of selling. After a steady day on Monday in the $324/ounce region, with $325 providing effective resistance, heavy sales developed on Tuesday, when spot prices dropped to $314/ounce. This may have been in part prompted by dollar strength, but was largely attributable to

a) profits being taken in advance of bargain hunting into an oversold equity market and
b), more importantly, distress selling in an effort to raise cash ahead of margin calls (as we have noted before, gold has regularly been used as an insurance policy in anticipation of problems in the equity markets and the fact that it settles on a 48-hour basis, at least one day shorter than the vast majority of equity markets, is an added benefit).

In addition, the fact that gold equities had sustained sizeable falls on the previous trading day was not lost on the market, as the equities frequently lead the underlying commodity.

The fall on Tuesday was exacerbated by the third element, i.e. technically driven trading, with stoploss orders triggered once the $316 level (basis spot) had been severed.

The pattern continued on Wednesday, and while Thursday was quiet around $310/ounce as the market paused for breath, sales resumed on Friday. The $310 level had been important in early July when it had attracted aggressive bargain hunting from the major price-elastic physical consuming regions, and the fact that it gave way on Friday prompted additional selling, much of it technical. Whether any notable new short positions were established is not yet apparent, but clearly there was substantial long liquidation and stale bull sales. Physical purchasers did venture forth from time to time during the week, but the weight of professional funds rendered the market top heavy.

On balance, then, a week in which some of those who had turned to gold as a safe haven had good cause to use it, while some moved out of the sector in search of low-priced equities and others liquidated through disappointment or on a technically-driven basis, either protecting profits or containing losses.

The Commitment of Traders report from the Commodity Futures Trading Commission for the week ended Tuesday 23rd July, during which time the price had been broadly stable on Wednesday and Thursday, rallied smartly to $325 on Friday and then tumbled the following Tuesday, showed that over the period the net long position held by large-scale traders on COMEX had increased from 23,911 lots (74.4t) to 26,238 lots or 81.6t. Gross large-scale speculative long position on COMEX had increased by 1,134 lots (3.5t), to 48,196 lots (149.9t), while large-scale shorts were reduced by a similar degree (1,193 lots or 3.7t) to 68.3t. Non reportable positions (i.e. smaller-scale holders, of less than 100 lots in any one month's contract) stood at a net long of 40,715 lots or 126.6t. It is likely that this Tuesday's figures, reported next Friday, will show a substantial reduction in the net outstanding longs.

Market factors
The equity markets' volatility was the main feature of the week, allied to a strengthening of the dollar as the week progressed. This latter was partly due to unwinding oversold conditions, while in Asia the weakness of the technology sector helped to put local currencies under pressure. The dollar and the euro have been flirting with parity for much of the week, while the dollar:yen rate has strengthened to between ¥119 and ¥120 as we write. This has helped to keep gold under some pressure, but the movement of funds has been the more important feature.

After heavy losses at the start of the week, the Dow's hefty rally on Wednesday was followed by further smaller gains, leading to a change on the week of 245 points, or 3.1%. Views are mixed as to whether the Dow is bottoming out, but the rapid passage through Congress of the legislation to tighten market regulations was, to some extent, a soothing factor (although it did little to mollify a determinedly bearish NASDAQ market). The bill will bring self-regulation in the accounting industry to an end, with the establishment of a new board with authority over the industry, while also establishing new criminal penalties for fraudulent corporate officers. Concerns over the banking relationships between Enron with Citigroup and J.P.Morgan were a cause for volatility, as was the news that the SEC is involved in a "factfinding" mission at AOL TimeWarner.

Sentiment in the US equity markets had also been unsettled by a 3.8% fall in June durable goods orders, against market expectations of a rise of 0.7%. Excluding transport the fall was 3.1%, and excluding defence, it was -4.8%. The Dow was subsequently helped by the employment and housing figures, which were both healthy. Although sales of existing homes were down 11.7% in June, this was from record levels and the market took the figures well, noting also that new home sales were up by 0.5%. The weekly jobless figure dropped to a 17-month low. In addition, while the University of Michigan's final consumer sentiment index fell in July to its lowest level since November 2001, to 88.1 from 92.4 in June, its mid-month level of 86.5 and gave the market a further small fillip.

A highly volatile week in the equities, therefore, and one which has generated mixed views from observers. While some are arguing that the very heavy volumes typify the bottom of a market, others are still concerned that there is more weakness to come.

15 July, 2002 - 19 July, 2002

Trading patterns
The steady interest from the professional market that started a fortnight ago, following on from the keen bargain hunting from the retail sector, has been sustained in the gold market over the past week, and despite some early stale bull liquidation, the participation has been sufficient to generate a change of range, with trading commencing this week in the $324/ounce area. Equity market pressures were once again a driving force, and Friday's weakness in New York and the subsequent nervous ness in Asia over the week-end are helping to support gold's price at the start of this week.

Last week saw a little bit of steam let out of the pressure cooker as gold, having spent most of the week in ostensibly calm conditions, rallied by $5 (from $319 to $324 /ounce) in a very few minutes just after the opening on Friday in New York. For the majority of the rest of the week, prices had traded between $315 and $321, and on each foray towards $321 the market had met good selling and had run out of momentum. Physical demand remained solid at the lower levels, while the fortunes of the dollar and the equity markets remained critical to short term moves. In addition, over the course of the week there were increasing numbers of comments coming from the market about political tensions, both in the Middle East and in Kashmir.

At the start of the week the market's inability to clear the $321 barrier saw some fund liquidation develop, although given the sustained weakness in the equity markets, it did look also as if some of the selling, as well as the stale bull liquidation, was done in an effort to raise funds to offset equity losses -- and possibly to meet margin calls,. It is common practice, and indeed we have commented on it before. It is perhaps worth iterating that gold's settlement period is two trading days, whereas the vast majority of equity markets are longer; NYSE, for example, being three. A gold sale will therefore settle before an equity trade executed on the same day and the funds are therefore available more quickly.

Once the sales had dried up the market retreated into the background, with volumes light during the middle part of the week, with professionals jobbing the market and some retail demand coming in at the lower levels. The tone did pick up towards the end of the week, however, and as the market opened in London on Friday morning, where was a more buoyant feeling in the air. This was duly fulfilled in New York when poor economic numbers put the dollar under yet more pressure, the resistance at $320 was no longer in evidence and the price pushed through key resistance at $321. While the market was demonstrated an innate strength, there was the added frisson of some professional players trading aggressively from the long side in an effort to trigger short covering.

The Commitment of Traders report for the week ended July 16th, during which gold worked gradually higher with in a $314-$319 range, showed a small increase in the outstanding net long position among large-scale speculative traders, from 22,628 lots from 23,911 lots (70.4 tonnes to 74.4 tonnes).

Market factors
Mixed-to-poor corporate earnings figures, disappointing economic numbers and sustained equity and currency market nervousness were the themes last week, with the result that the Dow lost another 7% over the course of the week, with notable weakness on Friday. There was a market correction mid-week, which saw most of the equity market around the world score some gains, but gloom settled once again and new lows were scored. Fed Reserve chairman Alan Greenspan's testimony to Congress ... emphasised the underlying strengths in the economy, but did make clear that the air of scepticism over corporate accounting was having a deleterious effect, and commented also that those found in breach of the rules would face stiff consequences. He also, on behalf of the FOMC, said that the US economy would probably grow at between 3.5% and 3.75% this year and 3.5-4% next year, with inflation remaining below 2%. He did point out that the current fed funds rate of 1.75% is too low to be sustainable in the long run, which would not have surprised market participants.

Economic numbers over the week had been mixed but the catalyst for the spike in gold, on the back of a falling dollar and weak equities, was the May trade gap, which registered a record US$37.64Bn.

Background News
India is planning to build another souk. This is to be a US$12.93M market in Gurgaon, near Delhi, and is described by the managing director of Aerens Group, the promoter of the project as "conceived as the ultimate wholesaling and retailing platform for the jewellery industry in the country". The market is due for commissioning in April 2004 and is expected to have 70 retail windows carrying hallmarked gold and other precious jewellery, both locally made and imported.

1 July, 2002 - 5 July, 2002

Trading patterns
In a week in which gold market trading was curtailed to some extent because of the two-day Independence Day holiday in the US on Thursday and Friday, prices traded in a narrow ange. The week started in the $312/ounce region, traded up towards $315 by Wednesday in New York hours, and slipped over the rest of the week to finish broadly unchanged. Once again the dollar and the equity markets were uppermost in dictating short-term price changes, but it was of interest to note that the dip towards the $310/ounce level has generated some good physical market interest from the Middle East, India and Asia. Trading in the early part of the week largely reflected weakness in the Dow Jones, but was also coloured by a small bounce from the dip in gold prices that had happened in rapid (and relatively thin) conditions the previous Friday in New York. As the Dow rallied on Friday 5 th July, there was some talk of prospective weakness in gold, but the dollar and the equity markets eased thereafter in the wake of further reports of corporate accounting problems. This combined with physical interest to support the market at $310.

News after Friday's close of reported bogus energy trades at Reliant Resources, along with reports that drug company Merck had over-stated revenues, unsettled the equity markets thereafter and was part of the reason for gold's improvement between Friday and Monday (8 th July) when the market opened in the $313 region after testing $310 on the Friday.

The other predominant factor was the reported comment from the Japanese Finance Minister Masajuro Shiokawa on Saturday, after a meeting of European Union and Asian finance ministers, to the effect that a number of his counterparts consider that the dollar may fall towards ¥115 (the dollar is currently trading at around ¥118.50).

Background News
Indian traders are reporting that the recent fall in gold prices has rejuvenated the local market, with daily imports of ten tola bars, the favoured investment product, rising to 12,000-15,000 in the past few days. In early June imports had fallen to between 1,000 and 2,000 bars per day with demand being fed by locally recycled supply. The average in June and July 2001 was approximately 16,000 bars per day.

A jewellery hallmarking system is to be implemented in Abu Dhabi. A committee consisting of representatives from the Abu Dhabi Municipality, the Food and Environment Control Centre (FECC) and the Abu Dhabi Chamber of Commerce and local authorities are looking froward to a knock-on stimulus to the local jewellery industry and trade.

The Swiss National Bank has revalued its gold reserves to reflect market prices (this is common practice at the end of each quarter), dropping to SFr 15,217/kg to SFr 16,372/kg, a reduction of 7.1%. The latest figures from the bank imply gold sales between Jun 20th and 28th of 7.7t, taking the cumulative disposal under the programme (which is under the auspices of the Central Bank Gold Agreement) to 529.7t. There is thus approximately 760t still to come.

2002 (Jan. - June) Archive for The Week in Gold

2001 Archive for The Week in Gold

2000 Archive for The Week in Gold

1999 Archive for The Week in Gold

Editor's Note: Reprinted with the permission of the World Gold Council/New York. Market Commentary is a review of the major events shaping opinion in the gold market during the past week. It is compiled by Council staff in London and New York based on contacts in the market and a network of WGC offices around the world.

If you have any questions or comments on this input, please address them to Rhona O'Connell in the London office, Tel. +44 207 930 571, Fax. +44 7839 6561, E-mail: rhona.oconnell@wgclon.gold.org

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