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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 the current period)

2003 (Jan.-June) WEEKLY GOLD MARKET COMMENTARY

23 June, 2003 - 27 June, 2003

Trading patterns
The prominent feature over the week was the strengthening of the US dollar, combined latterly with the approach of the quarter (and in some cases, financial year) end today (Monday June 30th). Gold has dropped to find support above $340/ounce. Once again the currency markets remain key in determining short-term trades, certainly among the more speculative elements and this has driven the liquidation over the past few days. From a broader perspective, the south-east Asian markets continue to provide physical support -- rallies in price tended last week to be concentrated in Asian hours and there was good physical interest again towards the end of the week -- but the market is also conscious of the seasonal slowdown in physical offtake in India and of the approach of the seasonally quiet summer period in the northern hemisphere.

Gold continued to suffer under long liquidation, and has come down to test support between $342/ounce and $345/ounce. After failing at $365/ounce the previous week, the market saw speculative selling develop and, with the physical market in India tailing off in the monsoon season, the speculative forces were stronger than the physical buying interest that has been evident in South-East Asia. The notable fall was last Tuesday, when the market shed approximately $10/ounce. The majority of the financial markets were at that point adjusting in anticipation of the FOMC rate decision and gold was no exception -- although the US consumer confidence figure, which was stronger than expected, contributed to sentiment. Conditions remained broadly the same over the whole of the week, with good buying interest appearing in the Far East and some scattered buying coming from European quarters, but US speculative activity has been largely concentrated on the sell side and there has been some suggestion of short-side trading to compound the liquidation.

The speculative activity on COMEX in the week to Tuesday June 24th, during which time gold prices had dropped from approximately $362/ounce to $348/ounce, showed good-size long liquidation among the large-scale speculators, along with a small degree of short-covering from them, while the small scale speculators increased their long positions very slightly but added to their shorts. The net impact was a drop in the combined net long position to 340 tonnes from 388 tonnes.

Market factors
The FOMC decision to cut rates by 25 points was almost unanimous. The markets had previously been almost evenly divided as to whether the cut would be 25 or 50 basis points, and the announcement of the smaller option saw an initial downward reaction in the equity markets. The FOMC statement that accompanied the cut, however, was comparatively encouraging.

The FOMC statement included the following; "The Committee continues to believe that an accommodative stance monetary policy, coupled with still robust underlying growth in productivity, is providing important ongoing support economic activity. Recent signs point to a firming in spending, markedly improved financial conditions, and labour and product markets that are stabilizing. The economy, nonetheless, has yet to exhibit sustainable growth. With inflationary expectations subdued, the Committee judged that a slightly more expansive monetary policy would add further support for an economy which it expects to improve over time". The Fed also iterated its concerns over the prospects for a further fall in inflation. The fed funds rate now stands at 45-year lows of 1%.

Background news
The latest clearing figures from the London Bullion Market Association show that a daily average of 15.9M ounces (495 tonnes) were transferred during May, an increase of 3% on April, although this was some 17.5% lower than in May of last year. The value of the transfers increased from US$5.1Bn to $5.7Bn. Note, as always, that this is clearing, not turnover.

The Al Ghurair Giga gold refinery, due to come on stream in Dubai by the end of this year under the auspices of the DMCC (Dubai Metals and Commodities Centre), will use technology from the South African organisation Mintek. Capacity will be approximately 100 tpa of gold at purity up to 99.99% via a hydro-metallurgical refining process. The products will be 100 gramme and kilo bars rather than the originally planned ten tolas, presumably reflecting the Indian government's budget decision of this year, in which import taxes were dropped substantially on metric bars (to Rp 100 per 10g) but maintained at their previous level on ten tolas (Rp 250 per 10g). TT business is fading away in India as a result, and substantial quantities of TT bars have been returned to refineries for melting down and re-casting.

The Malaysian Deputy Finance Minister Dr. Shafie Mohd Salej has said that his government is in early discussions with Iran over the possible use of the gold dinar as a method of settling trade transactions under the countries' bilateral trade agreement.

16 June, 2003 - 23 June, 2003

Trading patterns
Gold has spent the past fortnight trading between $352/ounce and $365/ounce. In the week to the 13th June, prices consistently found support around the $352/ounce level, although the market was regularly vulnerable to long liquidation, especially as the news came through from Newmont that its Yandal hedge book was more or less closed out. A degree of political tension mid-week prompted fresh fund-led buying interest and the week finished in a relatively constructive mood after a poor consumer sentiment figure from the United States. This pressurised both the dollar and equity markets and saw gold run up towards $357/ounce and close in New York on the highs. The US consumer sentiment figure for June came in at 87.2. Analysts had been looking for an increase from May's level (92.1) to 93.5, so the undershoot was doubly effective in that it registered a reversal of sentiment.

This week (to Monday June 23rd) has been volatile within the $355-365/ounce range, with varying trading patterns. In the early part of the week there was solid physical buying interest across most of the major time zones. Interest was certainly strong in Asian trading hours, with good steady two-way business in London also. On Tuesday, as expectations increased of a cut in interest rates from the FOMC this coming Wednesday (25th), there was very lively buying activity in New York. This followed through into the London afternoon fix on Tuesday, which saw heavy volume. It was suggested that some of this was technically oriented with a view to putting pressure on the upside resistance, but professional sales capped the move in the $362/ounce region. It would seem, therefore, that the buying in the early part of last week came from both genuine interest based on risk-management and also on technical considerations.

The market has remained nervous of its length, however. The latest Commitment of Traders figures from the CFTC show an overall net long speculative position of 293 tonnes, a small increase from the figure the previous week of 290t. While large-scale speculators added to both long and short positions, small-scale players liquidated some longs -- and closed more shorts. The failure to pierce resistance at $362/ounce resulted in steady profit taking over the rest of the week, although the appearance of nearby lending may point also to more short covering. The market remains nervous and while it traded up again to $362/ounce towards the end of the week, largely on speculative activity following good support at or around the $355/ounce level, conditions were relatively quiet and moves were whippy, largely governed by currency moves -- as is often the case when the market overall is indecisive.

The focus of attention this week is the FOMC meeting this Tuesday and Wednesday, and views vary as to whether the rate cut (there is unanimity that there will be one) is of 25 or 50 basis points. In a Reuters poll conducted last Friday, all 22 primary dealers expect a cut; of these, 12 expect a reduction of 50 basis points (to 0.75%) in an attempt to prevent deflation developing, with the balance looking for a 25 point cut, this allowing the Fed flexibility in the future.

17 May, 2003 - 23 May, 2003

Trading patterns
The past fortnight has been a period of consolidation for gold as it has built up a range of sideways trading between $358/ounce and $375/ounce. Short-term moves remain dominated by currencies, as the major indicators of market sentiment. After the early sharp sell-off, the underlying patterns have largely revolved around renewed investment interest from fund managers, with shorter-term traders taking profits towards the highs. The physical market has become quieter as India has moved out of the wedding season and into the monsoon season, which has just commenced.

The fortnight started quietly, with London and New York both closed for public holidays and with much of Europe closed later in the week for Ascension Day. Prices were at this point up above $370/ounce following the sharp rally of the previous week, and when the market failed to breach resistance at $375 on the Tuesday, it dropped by $15 as overbought conditions were unwound against a background of strong equities, an improvement in the dollar and better-than-expected US economic numbers. Rotation of assets into different sectors worked against gold until support developed at $358/ounce. There were also suggestions of selling from the trade, a theory backed up by tightening in the lease rates from six months out to at least five years. Since then there has been a gradual reappearance of the investor as a buyer, lease rates have slumped again and the market has, otherwise, been relatively featureless, although stronger-than-expected US jobs data on Friday June 6th prompted a drop of $5/ounce in a short time period, to test support at $363/ounce.

The London Bullion Market Association's annual conference was staged at the start of last week. The debate about gold as an investment drew comments from the manager of a large hedge fund that, on the basis of his fund's criteria for analysis, gold behaves more like a currency than anything else and that is how they treat it. While there was concern expressed about the outlook for the fundamentals of the market when the miners finish unwinding and delivering into hedges, equally the view about the economic and financial outlook and by implication the dollar meant that the overall sentiment towards the price was, as with most conferences, mixed, depending on each delegate's preferred criteria.

Market factors
The ECB rate cut of 50 basis point prompted a swift rally in the euro, with the dollar losing over two cents against the European currency, although subsequently there was a shift in sentiment in favour of sterling as the currency carrying the best yields. The Bank of England did not change rates, and the UK Cabinet has agreed with the Chancellor that the country's economy does not meet the five criteria deemed necessary for membership of the European System of Central Banks.

George Soros has said that he has a short position on the dollar and that he has been buying gold, among other assets.

Meanwhile in Switzerland, economic numbers this week have been poor. First quarter GDP was down 0.6% against Q1 2002 and by one per cent annualised against the fourth quarter of last year and despite the cut in rates from the ECB, funds are flowing from Switzerland into euro-denominated instruments on the expectation that local interest rates will remain very low for some time to come. The Swiss franc has now hit two-year lows against the euro.

Dr. Greeenspan said that the US economy should be able to rebound (modestly), but that such a rebound is not yet evident and that further rate cuts might be wise in an attempt to pre-empt deflation and economic weakness.

Background news
The latest financial statement from the European Central bank shows a reduction in members' gold holdings of ¤26M, which is equivalent to approximately 2.8 tonnes.

The New York Mercantile Exchange has merged the clearing operations of its NYMEX and COMEX divisions and taken out a $100 million default insurance policy, to be invoked if the default of a clearing member firm completely depleted the guarantee fund ­ which is unlikely (the combined guarantee fund of the clearinghouses is $130 million). NYMEX has an AA+ long-term counterparty credit rating from Standard & Poor's.

The Xinhua News Agency is reporting that the cumulative volume of gold traded on the Shanghai Gold Exchange reached 100t last week. Volume traded since the opening of full trading on the Exchange on 30th October 2002 has averaged 746kg daily.

17 May, 2003 - 23 May, 2003

Trading patterns
A lively week for gold, with the market building on its previous gains and, despite cautionary talk from dealers about the market being overbought, the upward momentum has been sustained. Early in the week the price's buoyancy was due partly to increased political tension, and then also to currency and technical (i.e. chart-related) conditions. After several attempts at breaking the $372/ounce resistance in the latter part of last week, the level has given way this morning (Tuesday 27th) with a London a.m. fix of $372.35/ounce. Last week was characterised again by professional dealings with the physical market generally quiet, although it was interesting to note that, despite the imminent end of the wedding season, Indian buyers had been drawn in again, stimulated by the upward trend in price.

The rally drew some profit taking in New York on Friday ahead of the long weekend in the US and the UK, which produced a small correction to the $368/ounce level, before again working higher. The change in range has to some extent become self-fulfilling for technical reasons, since COMEX options expire today and OTC options expire this Wednesday; the $375/ounce strike will now be in play as well as the $370/ounce strike.

President Bush has said that he will sign a $350 billion 10-year tax cut package that has been approved by both houses of Congress although it is smaller than he had originally wished and he has said that believes that it is not enough to boost the economy.

CFTC figures for the week to May 20th: a sharp increase in the gross long position held by the large-scale speculators was accompanied by a small degree of short covering, while the smaller scale speculators increased their positions on both sides of the market. The result was an increase in the combined net long position of 76t to 305t. The position of the large-scale speculators, at 204.5t, is just 3.3t below that registered in February this year.

Market factors
Although the physical gold market is reasonably quiet, Japanese investors will be taking note of the losses recorded by the country's big seven banks on Monday. Total losses amounted to approximately ¥4.6 trillion (US$39.3Bn) for fiscal 2003. This largely reflects the impact of bad loans although the details behind the figures suggest that these are being reduced and a crisis is not imminent. The memory is still fresh, however, of the capital adequacy problems at Resona Holdings, the country's fifth biggest bank.

In the US, the impression gained by a number of analysts from Dr Greenspan's testimony was that there was little chance of an interest rate cut in the near future -- although a cut at the FOMC meeting of 24-25th June was not wholly ruled out. He said that at this juncture it was unclear whether the US was at the "fulcrum of a fairly significant economic recovery" and referred to attacking some of the underlying forces "which are essential weak demand". It should perhaps be noted that he commented on the risks in deflation and implied that the Fed stood ready to cut rates again if necessary.

The euro rallied last week beyond its launch level of US$1.175 and then traded in excess of US$1.19 over the weekend although it subsequently corrected amid mounting expectations of a rate cut from the ECB this week.

Background news
The State Bank of Vietnam has proposed that the government lifts restrictions on commercial gold imports, which currently satisfy 98% of domestic requirements. The central bank controls all gold trading in Vietnam (which is one of the fastest growing economies in the world) and jewellery manufacturers (of which there are approximately 8,000) have to apply for central bank-approved quotas. Standard Merchant Bank is also proposing to build a gold depository in Ho Chi Minh City. Vietnam imported almost 60 tonnes of gold in 2002 and estimates suggest that official imports in the first quarter of this year were 16t.

There are press reports circulating about seizure by US forces of two hauls of gold bars in Iraq, near the Syrian border. Details conflict however, with the bars' reported dimensions not squaring with the quoted weight of the bars (too low, if anything). Further clarification is necessary.

The Indian press is reporting that the Multi Commodity Exchange (MCX) is planning to commence business before the end of July, offering a range of contracts including gold. HDFC Bank will act as the clearing bank for the Exchange.

The latest figures from the Swiss National Bank suggest that gold disposals in the 11-day period to May 20th amounted to approximately 8.2t, taking the cumulative sale for the programme to almost 785t. The disposals are part of a five-year 1,300t sale and fall under the auspices of the Central Bank Gold agreement. Swiss sales for the CBGA year-to-date amount to just over 181t.

12 May, 2003 - 16 May, 2003

Trading patterns
After consolidating in the $340s two weeks ago and then moving through $350/ounce at the start of last week, gold has bounced up by $5/ounce over this past weekend to $360/ounce this morning (Monday May 19th). The rapid move over the week-end was stimulated in part by an increase in terrorist activity and the refocusing of the markets' attention on the banking system in Japan, but the slide in the dollar was again the overriding factor. In light of a seeming policy of benign neglect adopted by the G7 Finance Ministers towards currency movements, gold rallied, and although gold gained almost $5/ounce between London's Friday p.m. fix and this morning's a.m. fix, in euro terms it actually weakened marginally.

While currencies have been the primary driving force over a number of weeks and we noted last week that the weakness in the dollar had allowed an improvement in the technical picture of the dollar price, economic factors have also been influential and political considerations have now re-entered the equation this time and are attracting investors' attention. This is demonstrated by the fact that gold in euro terms actually appreciated in price between May 7th and 15th before easing slightly.

The market is still tending to be dominated by professional activity, especially with Indian demand now slipping back as the wedding season passes its peak. The physical market in the Far East is also sluggish in the face of volatile and rising prices, with Hong Kong trading at a discount to London. It is perhaps of interest to note that analysts were suggesting towards the end of last week that there might be a producer buy-back going through. Long-term borrowing rates (five to ten-years) have eased, which could underscore this suggestion. The ten-year rate stands at 2.23% against 2.39% at the start of last week and 2.76% at the start of the year.

Speculators on COMEX in New York in the week to May 13th (during which gold rallied from the low $340s to clear $350/ounce) increased both long and short positions during the week, and the overall impact was to extend the net long to 132 tonnes; small-scale speculators did likewise, increasing the net long by two tonnes, giving a combined total net long of 229 tonnes.

	Large-scale speculators			Small-scale speculators			Combined position
(tonnes)	NEW	OLD	Change	NEW	OLD	Change	NEW	OLD	Change
Long	181	168	13	144	141	4	325	308	17
Short	49	45	3	47	46	1	96	91	5
Net	132	122	10	97	95	2	229	217	12

Market factors
The dollar remains under pressure in response to fundamentally and technically driven trading, with some houses now calling a target of $1.20 to the euro. Although the market had been expecting the G-7 Finance Ministers at this week-end's meeting to adopt a reasonably sanguine attitude to recent currency trends, the usual comment in the communiqué about keeping rates stable was omitted this time and this, coupled with comments from Secretary Snow that recent moves had been modest, reinforced the determination of the bears.

Equity markets generally are weaker at the start of this week, with the Nikkei shedding 78 points or almost one percent on Monday as the banking sector's problems were again highlighted with the reserves of Resona Holdings, Japan's fifth largest bank dropping below the capital adequacy rate (due to more stringent accounting rules) and prompting the government to say that it would bail out the bank.

Background news
The South African Treasury director general Maria Ramos, who was one of the architects of the first Central Bank Gold Agreement, has said that she is planning to embark on an exercise next year with a view to renewing the Agreement. The consensus of opinions, where voiced, is that the agreement will be renewed next year, although it may vary from that which is currently in place.

Gold Fields Mineral Services' latest hedge book analysis quantifies the reduction in the global hedge book at 4.6M ounces (143t) in the first quarter of this year.

The London Bullion Market Association has reported its clearing figures for April, which was the second quietest month on record. Average daily clearing volumes were 15.4M ounces. Note that this does not represent total turnover. As a rule of thumb, loco London turnover is in the region of three times the LBMA clearing figures. This does not include COMEX or TOCOM, or any gold traded that is not loco London.

The figures contain:
Loco London book transfers from one party in a Clearing Member's books to another party in the same Member's books or in the books of another Clearing Member.
Physical transfers and shipments by Clearing Members.
Transfers over Clearing Members' accounts at the Bank of England.

Excluded from the statistics are:
Allocated and unallocated balance transfers where the sole purpose is for overnight credit.
Physical movements arranged by Clearing Members in locations other than London.

5 May, 2003 - 10 May, 2003

Trading patterns
Gold spent the first part of last week in much the same vein as in the previous week, consolidating between $342/ounce and $345/ounce. Early buying interest came from the US, notably in the wake of the FOMC decision not to change interest rates, which contributed to economic uncertainty and helped to keep pressure on the dollar. The resistance at $345/ounce (the market noted selling in the fixes early in the week) gave way mid-week, prompting both short covering and fresh fund-led buying interest and generating a $9/ounce move on Thursday towards $350/ounce. The physical selling which had featured in the $345/ounce region was absorbed and the price moved up through $350/ounce this morning (Monday 12th) in early European trading. The technical picture has continued to improve, which is attracting some attention, although some fresh physical selling has also been in evidence at these higher levels. Much of the stimulus in the market at the moment is coming from Europe (although Asian activity is still steady), reflecting the fact that a good part of the interest in the market is currency-related, as the chart of the price performance in alternative currencies illustrates.

Market factors
Clearly the dollar's performance has remained an important driving factor in the market, with the price in euro terms more or less flat. Japanese interest has been augmented by concerns about intervention against the yen, something that the government has confirmed this week-end that it did earlier in the year. This gave more power to the rumour that the government had also been in the market last week.

There was no change in interest rates from the Fed, the Bank of England or the ECB last week ­ a stance that helped to keep the markets nervous, given the mounting evidence of poor economic activity. There is a broad consensus that a cut in US rates will be necessary in June (a view largely underpinned by the latest employment figures). This view encapsulates the markets' overall concerns about the state of the US economy.

Background news
The latest Commitment of Traders report from the CFTC for the week ended Tuesday 6th May, a period in which gold ran up from $331/ounce to $343/ounce, shows substantial short covering activity.

The latest figures from the Swiss National Bank show that in the ten-day reporting period to May 9th, the bank disposed of approximately 7.5t of gold, taking its cumulative sales to 775.9t. The programme, under which the bank is reducing its gold holdings by 1,300t, falls under the auspices of the Central Bank Gold Agreement and the latest sales take its disposals in this CBGA year (to September 25th) to 172.9t.

The Kuala Lumpur branch of the Malaysian Islamic Chamber of Commerce is to hold a one-day convention on July 1st on the use of the gold dinar as an alternative medium of exchange for international trade. The chamber has invited Prime Minister Datuk Seri Dr. Mahathir Mohamad to deliver the keynote address to the convention.

Russian central bank gold reserves increased very slightly in April. The central bank has reported that the value of its reserves on May 1st was US$3.736Bn, up from $3.735Bn on April 1st. The Russian government values its gold reserves at $300/ounce. Russian gold reserves (387t) currently constitute 6.25% of its combined gold and foreign exchange reserves. The First Deputy Chairman of the Central Bank of Russia, Oleg Vyugin, said in February that, subject to some extent to oil prices, he expects Russian gold and foreign currency reserves to reach approximately US$55Bn by the end of this year (they started the year at $47.3Bn). He also said that gold should account for a minimum of 10% of the bank's combined gold foreign exchange reserves and that "Basically we are satisfied with the amount of gold that we have now".

28 April, 2003 - 2 May, 2003

Trading patterns
Gold started last week trading in the same range as it had during the majority of the week before, i.e. between $330/ounce and $335/ounce. This period of consolidation was terminated on Wednesday, however, when continued dollar weakness and sustained concerns over the outlook for the currency prompted professional investment interest in gold. This interest was bolstered by the market's previous consolidation and the improving technical picture and the price has gained 8.2% in dollar terms since Monday April 7th, when it dipped down towards $318/ounce.

While gold has staged sizeable gains in dollar terms since the April 7th low, it has been flat in euro terms. It is up by 6% in yen and 2% in Swiss francs.

The market opened last week under some pressure. Gold sales were generated by wire-service headlines reports that during the tripartite talks between North Korea, China and the US, North Korea had offered to suspend its nuclear programmes and invite an inspections programme, and the market took out support at $332/ounce, thus triggering technically-driven selling - especially once the 200-day moving average ($334/ounce at that point) had been breached. Subsequent headlines, however, put a slightly different gloss on the matter, with reported comments from North Korea that offers were subject to the US changing its "hostile attitude". Once selling abated the price bounced on physical demand and short covering. This move initially encountered resistance between $335 and $336/ounce, but overhead resistance gradually weakened. The move through $340/ounce was initially met by steady selling towards the $340/ounce level, forcing prices down to support that developed at $336/ounce (compare the previous week when support was evident at $332/ounce), but once the $341/ounce level was severed, technically-driven buying came in to augment the activity already in the market. After a day of consolidation on Friday and quiet conditions on Monday (Tokyo and London both closed), prices have continued to work higher this morning (Tuesday 6th) as the dollar again comes under pressure.

Market factors
While the FOMC is not generally expected to cut rates this week, there is a broad consensus that a cut will be necessary in June. This view encapsulates the markets' overall concerns about the state of the US economy and the dollar is this morning (May 6th) at four-year lows against the euro and two-month lows against the Swiss franc. The euro is independently strong, while the Australian dollar is also benefiting, especially from Japanese funds, reflecting attractive yields in Australia.

Dr. Alan Greenspan, in his testimony to Congress, said that he believes that "the economy is positioned to expand at a noticeably better pace than it has during the past year, though the timing and extent of that improvement remains uncertain," and that it will take time for fundamental trends to become clear. The central bank remains conscious of the low level of business confidence, and that further disinflation would not be welcome. He also iterated his point that tax cuts should be accompanied by spending cuts. The market's assessment of his testimony was mixed, although his cautious stance did imply to a majority of observers that the Fed will cut rates again if necessary. The markets are watching this FOMC meeting for the tone of the Fed's announcement and its assessment of the risks in the economy.

The April US employment figures were poor, although in line with expectations. There was a third successive increase in the unemployment rate (to 6%), the first time that this has happened since 1945. Over and above this the figures showed that the average working week has dropped to a record low 34 hours, while the average period out of work is 19.6 weeks, the longest since early in the 1980s.

Background news
Gold Bullion Ltd has reported that sales of its "Gold Bullion" gold-backed securities exceeded A$15 million ($9 million), in the first month of trading on the ASX. Investors had purchased the equivalent of 28,143 ounces of gold via the securities, each of which is equivalent to 0.1 ounces of gold.

21 April, 2003 - 25 April, 2003

Trading patterns
Gold spent last week consolidating above the support now offered by the 200-day moving average (which today, Monday 28th April, stands at $330.40/ounce). Trading conditions have largely been quiet, with the market reflecting once more on the economic outlook and the possible impact of SARS thereon, although the political environment continues to play a role as the gold price has responded briefly to news items from the Middle East and to tension over North Korea. For example, the short-lived rumour at the start of last week of the capture of Saddam was enough to produce a wave of profit taking, while the tough talking at the tripartite meeting between China, North Korea and the US gave the market some support.

While support has been solid in the $331-32/ounce region, bolstered by pressure on the dollar and sizeable buying from Asia, notably India ahead of the peak of the wedding season, there has been some selling filtering into the market on any signs of strength (i.e. towards $335/ounce or above), and there are some suggestions in the market that this may be coming from trade-related sources operating largely during Asian hours.

This week is Golden Week for Japan, when the markets are closed for most of the week, and with May Day falling this Thursday, conditions are expected to remain quiet. The gradual return of speculators to the long side of the market has prompted some cautiously optimistic comments from some market observers, in the sense that it potentially reflects the fact that most markets remain caught amid a range of uncertainties. Other observers are looking at the recent developments in the Official Sector, with the announcement of more recent sales from Portugal, as the signal for the build-up to the potential renewal of the Central Bank Gold Agreement to begin in earnest. The results of our calculations and the implications for the next few months are shown below.

The Indian wedding season remains an important supportive fundamental factor, with traders reporting a rising trend in imports, ahead of the peak in the wedding season in May, a month that has many auspicious days for Hindu marriages. Imports in the southern state of Tamil Nadu, for example are currently 40% higher than this time last year, at 700 kg per day, while in Bombay imports are running at 500 kg per day, almost double that of this time last year. Last year was a poor year for demand by Indian standards as result of rising and volatile prices -- all-time highs were established in rupee terms -- along with price volatility and a weak monsoon season. Dealers are also saying that the February cut of 60% in customs duty, to Rp10/g (currently $6.60/ounce or 1.8%) has also bolstered demand.

Market factors
Adding [...] buoyancy to the equity markets early last week was the comment from President Bush to the press that Alan Greenspan should be offered another term as Chairman of the Fed, a post he has held since the mid-1980s. The new term does not commence for another 15 months, but the markets welcomed the indication that Mr. Greenspan would be invited to stay on. Dr. Greenspan responded to President Bush's comments on the Fed chairmanship with the following; "If President Bush nominates me, and the Senate confirms his choice, I would have every intention of serving the President and I have not discussed this but I greatly appreciate his confidence".

Background news
The Portuguese central bank has reported that it sold 45 tonnes of gold from its reserves in March and April. This ties in with our earlier calculations that around 40 tonnes was outstanding in plans of Central Bank Gold Agreement sales for this CBGA year (Sept-Sept). The Swiss announced that they would sell 283 tonnes during this year (and have been selling at their usual steady pace) while the Dutch sold 33 tonnes in October-January and then stopped selling. With their earlier sales of 15 tonnes at the end of 2002 and 30 tonnes in February this brings Portugal to 90 tonnes. Total CBGA sales for this current year (Year four of the Agreement) will therefore be 406 tonnes. Since the annual limit is "about 400" tonnes this does not leave scope for very much else; see table below.

The latest Commitment of Traders figures from the Commodity Futures Trading Commission shows a small increase in long positions among the large-scale speculators but a small fall in the long positions held by small scale speculators. Both categories showed some short covering activity with the result that the combined net long position on COMEX as of last Tuesday night was 164 tonnes, an increase of 12t on the week. Prices during the period had consolidated above $322/uonce and then jumped up towards $335/ounce.

The latest figures from the US Mint show that in the first quarter of this year the gold content of gold sold in the American Eagle programme amounted to 224,500 ounces, compared with 34,000 ounces in the first three months of 2002. In the first quarter of 1999, when Y2K fever was building, sales were 694,000 ounces. New sales in 2000 were badly affected by the re-sale of coins bought in 1998 and 1999 ahead of Y2K but in 2001 and 2002, full-year sales were 322,200 and 315,000 ounces respectively.

14 April, 2003 - 18 April, 2003

Trading patterns
After a period of consolidation in early-mid April between $320/ounce and $325/ounce, gold moved up smartly at the end of this past week to test $334/ounce before easing back towards support at $330/ounce. Although the move itself took place in thin conditions, with London and Europe closed for the Easter break, it looks also as if the previous long liquidation and other trade and fund selling have abated, as the froth of war has been blown off the markets. Physical demand remains healthy and although the Far Eastern markets have been comparatively light buyers recently, India has remained robust and this has been one of the supportive elements in the market. There have also been suggestions of some influential buying from other parts of the market, which has helped to produce the support in the low $320's. Speculative activity has crept up a little, as the CFTC figures show below, although the net impact of the changes in the week to April 15th (a period of consolidation) was for a small reduction in the net speculative long position on COMEX. Part of the selling of recent days had been technically-oriented; it will be of interest to see whether the clearance of the 200-day moving average over the week-end will prompt any further covering activity or whether this has already been done.

After spending much of last week constrained between physical support at around $322/ounce, and selling activity into any rallies, last Thursday prices worked their way up towards $328/ounce and managed to hold steady after London had closed for the week-end. New York snapped up towards $332/ounce yesterday (Monday 21st), triggering technical buying. Asian trading saw frenetic activity on TOCOM (although some of this was roll-over as spot expires on TOCOM on Thursday) with yen-denominated prices reaching one-month highs, and the rally then met some light selling in the Asian physical market, offsetting to some degree the sustained buying interest from India.

[T]he dollar has weakened to a one-month low against the euro and a two-week low against the yen and Swiss franc as investors continue to look at the medium to long-term and are shifting their geographical weightings accordingly.

Background news
The National Commodities and Derivatives Exchange in India (NCDEX), led by a joint venture including the ICICI Bank, the Life Insurance Company of India, the National Bank for Agriculture and Rural Development and the National Stock Exchange expects to start introduce cash and derivatives trading in bullion by June. NCDEX hopes to submit details of the relevant contracts to the Forward Markets Commission for approval within a month. NCDEX plans also to introduce a gold index and trading in the index at a later stage.

The latest Commitment of Traders figures from the CFTC for the week ended Tuesday 15th April, a period during which gold prices were consolidating between $320/ounce and $325/ounce, showed that there were small additions to all positions, but the increase in shorts outweighed the increase in longs giving a drop in the combined net long position to 151 tonnes from 164 tonnes.

The Swiss National Bank, meanwhile, in its latest abridged reporting season for the seven-day period to April 17th, implied a fall in gold holdings of 5.9t, to a cumulative total sale-to-date of approximately 760 tonnes. The SNB is disposing of 1,300t under a five-year programme that falls within the auspices of the Central Bank Gold Agreement.

7 April, 2003 - 11 April, 2003

Trading patterns
The past week has seen gold improve from its low last Monday of just over $318/ounce to trade up towards $329/ounce by the end of the week, before failing at the overhead resistance. The obliteration of the "war premium" among speculative players has now given way to tentative improvements in the price as the oversold position has been unwound, and physical investors have continued to feature as buyers. Market conditions have been relatively slow, as market participants of all forms absorb and assess the impact of the recent Middle Eastern developments on both the economic and political outlook, and this helped to bolster gold and Treasuries, while equities have been easier. For the majority of the week, each day saw gold register higher highs and higher lows (except Thursday), as the market consolidated above $320/ounce, but failed to clear the resistance that stands between $328 and $330/ounce. The recent convergence of the 20 day and 200-day moving averages at between $329 and $330/ounce will not pass unnoticed by those who look at chart patterns.

From a more fundamental standpoint, physical buying has been well-spread geographically (there have been some rumours of producer activity on this side of the market, but these are, so far, unconfirmed). Following the speculative liquidation and short selling that developed the previous week, some speculative activity has been seen from the buy-side, but the price action would tend to suggest that these are short term positions and that small turns are being taken while the market adjusts to changing investor attitudes.

With the war now taking less of a central role in global affairs, investors are focussing more on economic developments and this has re-kindled a measure of nervousness over the outlook for equity markets. This week is likely to be particularly tense as there is a large number of corporate results due for release.

Background news
Gold Fields Mineral Services has released its quarterly mine hedge book review, and reports a drop of 14% in the global hedge book last year, to 81M ounces or 2,509t, comprising 62M ounces (1,927t) of forwards sales and loans, plus 19M ounces (582t) of options transactions (delta-adjusted). The GFMS "Gold 2003" survey was also released last week, covering the market in considerable detail.

Following the China State Council's moves to deregulate the gold jewellery industry and to allow foreign companies to invest in the local industry, the local press is reporting that the People's Bank of China is to accelerate the drafting of the appropriate regulations. Wang Yongqing, deputy secretary general of the China Diamond Association, said that there are currently 450 businesses licensed for gold production, processing or wholesale in China and that this number is expected to increase.

China's current account deficit reached US$1.03Bn in the first quarter of this year with imports of $87.34Bn and exports of $86.32Bn. [Randy's note: despite this deficit in quarterly trade -- which was reportedly due largely to higher oil import prices -- the central People's Bank of China announced on April 14th that China's foreign currency reserves hit $316 billion at the end of March, the second largest in the world behind Japan. This is up nearly $20 billion from year-end figures of $286.4 billion, seemingly built on strong foreign investment interest.]

The Chairman of the Gem and Jewellery Export Promotion Council of India reported last week that India exported gems and jewellery worth $9.1 billion in the past year ended March 31, a 21% gain on the previous year. Exports of cut and polished diamonds were up 19% at US$7.11Bn, while exports of gold jewellery were up by almost 30% percent to $1.5 billion. To set this in context, the average dollar gold price for fiscal 2003 was $325.09/ounce, 17 % up on the average of $277.43/ounce for fiscal 2002. This implies an increase in tonnage of at least 10%. We have to assume that the figures given here are retail values rather than cost of gold content, but on the basis of the average gold prices, and assuming markup had not changed dramatically, then this is an order of magnitude approximation for gold tonnage increase.

The Dubai Metals and Commodities Centre (DMCC) will shortly start taking bookings for the manufacturing phase of its business. The refinery stage is already well underway. Units will be available to jewellery, diamond and precious stone manufacturers globally.

The latest abridged accounts from the Swiss National Bank, for the ten-day reporting period to 10th April, show that the bank's gold holdings dropped by almost 11 tonnes over the period, taking cumulative disposals to approximately 754t. The programme, which falls under the auspices of the Central Bank Gold Agreement, calls for the sale of 1,300t over a period of five years.

The latest Commitment of Traders report from the CFTC, for the week ended Tuesday 8th April, a period during which the gold price had dropped from $335/ounce towards $323/ounce, showed small overall changes among the speculators. Both shorts and longs were increased, but to a small degree, leaving a combined net long position at $323/ounce of 164 tonnes.

The latest London Bullion Market Association clearing figures for March show a drop from a daily average of 19.0M ounces to 16.8M ounces (591tpd to 523tpd), although the actual number of transfers was down from an average of 883 per day to 866. The number of ounces transferred was 3.5% lower than that in March 2002. Remember that this is clearing, not turnover.

31 March, 2003 - 4 April, 2003

Trading patterns
Much of the past week has revolved around liquidation (and some short selling) from the professionals in the gold market, while the regional physical buying areas have still been relatively busy as individual investors continue to buy into dips and the Indian wedding season is still underway. The price has dropped markedly, to fix in London this morning (April 7th) at $319.75/ounce, compared with the equivalent fix last week of $335.35/ounce, a drop of $15.60/ounce, or 4.7%. The markets have of course been responding acutely to developments in the Middle East, but once again the time zone in which the majority of gold's price moves have taken place has been Asia (as was often the pattern when the price was rising). This time the drops have been concentrated in this region, notably over the week-end when the spot price fell by almost $5/ounce from the previous New York close.

The price opened the week in the $335/ounce region and traded up to $338/ounce on Tuesday, where it ran into profit taking (once again the move was in Asia). The market then came under increasing selling pressure as the week wore on and the $330/ounce level was coming under attack by the end of Wednesday's trading. The technical picture was clearly deteriorating and this contributed to further selling once the 200-day moving average was pierced (at $329/ounce at that point).

All the financial markets are of course still highly sensitive to political developments and this is colouring both mediumterm sentiment and generating shorter-term "knee-jerk" reactions. Examples have included gold's rally in New York on Friday on reports that Baghdad was talking of "non-conventional" methods to oust US forces from Baghdad international airport; while earlier in the week the failure of Saddam to fulfil a plan to address the nation had produced a $4 drop in gold's price.

Background news
The ICICI Bank in India is planning the launch of a gold accumulation plan. According to press reports, the terms are that an investor may deposit Rs1,000 ($21 at prevailing rates this morning April 7th), for which the bank will deposit 1.5g of gold to the account. Once the amount deposited is equivalent to 10g of gold (at a pre-determined gold price), then the customer may take delivery of a 10g gold coin. The Bank has recently started selling 'ICICI Bank Pure Gold'- certified 24 carat (99.99%) pure gold coins at its branches in Mumbai and Delhi. Mr. Amitabh Chaturvedi, head of the bank's retail channels and liabilities group, is quoted as describing the programme thus "It'd work like a forward contract where gold will be priced at a pre-determined rate, that is, the day he starts depositing money on that count." He also told the press that "In the last three months since the launch, we've been able to sell 40 kg of gold. For the next year, our target is 3 tonnes, and we are confident of being able to make it".

In an historic development, the People's Bank of China last Monday (March 31st) abolished the Gold Licence System for gold jewellery manufacturing, both wholesale and retail, and from now on the People's Bank will only control import and exports of gold. This comes by order of the State Council. This marks the successful implementation of the second stage of reform of the gold market (the culmination of Stage 1 was the opening of the Shanghai Gold Exchange and associated changes). The implications are powerful and include the following:

The gold jewellery sector is fully opened to all trade, including overseas interests. Foreign operators may now invest in local gold jewellery businesses; although the gold feedstock for fabrication must be bought locally if the products are to be sold locally

This will intensify local competition in the jewellery sector as well as diversifying the range of products available for local purchase

This reflects a long period of work on deregulation of the Chinese market and potentially has significant implications for the development and enhancement of the local jewellery market (which is currently estimated at approximately 200 tonnes per annum), although there may be a long lead time involved as the market settles into a comfortable and workable routine.

The latest figures from the Swiss National Bank show that in the reporting period to March 31st the Bank reduced its gold holdings by approximately 7.5t, taking its cumulative sale under its disposal programme to roughly 743 tonnes. The Swiss Government is in the process of reducing its holdings by 1,300t over a five-year period. The Central Bank Gold Agreement takes account of this programme in its authorised disposal limits. The markets were slightly shaken when the figures first appeared, as they are quoted in Swiss francs and it did look as if sales had been more like 85 tonnes, but this is because the Bank revalues its gold reserves at the end of each quarter. The figure reflects a downward revaluation from SFr 15,286/kg ($347/ounce) to SFr 14,642/kg ($324/ounce at today's rate).

24 March, 2003 - 28 March, 2003

Trading patterns
Obviously the conflict in the Middle East has been uppermost in many people's minds recently and the financial markets are no exception. Gold spent most of last week in a narrow range. It has been supported in the $328/ounce region by physical interest, notably in Asia, (dollar prices tended to increase during the Asian day), plus some trade interest which materialised in Europe and North America, while the upside has been constrained largely by technical considerations (i.e. resistance levels, notably between $332 and $334/ounce) when upward moves lost momentum. Long liquidation was there to a small degree but this was early in the week when expectations were rising that the war would be short lived, and was nothing like the size that the market experienced the previous week. Because of the innate caution in the world's markets at the moment, trading volumes overall have been thin. Japanese players had liquidated positions last week as yen prices fell, but the mood has swung the other way this week-end and TOCOM closed at a six-day high at the start of this week (March 31st). There were suggestions in the market that some of this may have been year-end window-dressing ahead of the end of the Japanese fiscal year. Some year-end position­squaring, in this instance short-covering, was also in evidence. Overall, conditions remain thin and volumes low with few discretionary positions being put on.

The latest Commitment of Traders report from the CFTC, for the week ended Tuesday 25th March, shows some long liquidation and a lot of short covering among the large-scale speculators, while the small scale operators liquidated longs and added marginally to the shorts. Among the larger players, 20.8t of longs were closed out against a reduction of 46.0t of shorts, taking the position to 140.7t long and 48.8 short (net 91.9t long, compared with 66.6t the previous week). The smaller traders closed 23.5t of longs, to 138.0t, and extended the shorts fractionally to 52.7t (net 85.3t), giving an overall net speculative COMEX long position of 177.1t.

Among the regional physical centres, Indian dealers are reporting a partial return of local buyers. Local premia are high, reflecting the strength of local physical demand (which is expected to continue both for seasonal and political reasons), but also a supply constraint stemming from higher insurance premia and the reported withdrawal of some Swiss supplies because of perceived risks in shipping the metal from Switzerland to India at present. The premia may also have been enhanced by the switch to 100g and 1kg bars from TT bars following the change in import duty earlier this month, as new supply patterns fall into place.

Background news
Gold Bullion Ltd in Australia has listed gold-backed securities on the Australian Stock Exchange, and trading commenced on Friday 28th. The securities give investors the ability to buy an interest in bars of gold bullion through the purchase of Gold Bullion Securities on the ASX. Each Gold Bullion Security represents 0.1 ounces of gold. There is no minimum trading amount. The physical gold will be insured and held in London vaults by HSBC.

While discussing the Bundesbank 2002 financial results last week, Bundesbank president Ernst Welteke commented on the prospects for the renewal of the Central Bank Gold Agreement, which expires on September 2004. He took the view that it is currently "open" as to whether the agreement will be renewed. The general expectation within the market is that it will be, if in some modified form. Expanding further on his previous comments about the Bundesbank possibly selling some gold in future in order to invest the proceeds in interest-bearing assets, he said that if the Bundesbank had to transfer any profits from such sales to the government, as is currently the case, then the bank would be unlikely to back the idea of sales. To be allowed to invest in other assets would require a change in the law.

The head of the Project Coordination Department in the Mines Ministry of Ethiopia has said that approximately three tonnes a year of gold is smuggled across the borders into Sudan, Kenya and Somalia. His ministry is planning to organise artisanal gold miners into small-scale enterprises that would be permitted to sell their gold locally at international prices.

The Shanghai Gold Exchange is preparing to start trading spot platinum in the same way as it trades gold, with the same VAT exemptions applicable. No firm timetable has yet been published.

17 March, 2003 - 21 March, 2003

Trading patterns
Activity in all the financial markets is obviously closely bound up with military developments and the prognosis therefor. While longer-term fundamentals play their part, notably with respect to the economic outlook and the expectations for the dollar, bond, oil and equity markets, short term trading at the moment is closely geared to the action in the Middle East. Some market participants are looking back to what happened in the last Gulf war, and there are similarities in the way gold has behaved this time to the way it behaved in 1990 and 1991, but also there are important differences. Later in this note we review how the market behaved during the last conflict.

Turning to more recent matters first, however; after gold's drop towards $332 on Thursday March 13th, the price then bounced around between $332 and $340 through to the middle of last week. (While this early weakness was partly in response to the dollar's surge against the yen, it was also a fairly typical response in that gold will frequently build up on buying pressure in advance of a problem, and then let off steam as that problem crystallises. This may be due to distress selling, profit taking, speculative second-guessing, or a combination of the three. We have seen this both in intra-day trading recently and over the past few weeks, as the market ran up to $388/ounce with the final upward leg a clear response to political tensions, and then coming off as the political position became clearer). After this froth had been blown off, the price consolidated for a few days and then came under pressure at the week's end as the markets built up expectations that the conflict in Iraq would last only for a short period of time. The market has thus been characterised by liquidation from speculative longs and the implementation of some fresh shorts. The CFTC figures for the week to Tuesday 18th, by which stage gold was between $335 and $340/ounce, show that the net long position held by the large-scale speculators dropped from 104.3t to 66.6t, by virtue of the closure of 31.5t of longs to 161.4t, along with the implementation of 6.2t of fresh shorts to 94.8t. Among the smaller-scale players, longs were reduced by 7.7t to 161.4t, and shorts extended by 9.8t to 51.3t, giving a net position of 110.1t. After last Friday's action this speculative overhang is likely to be considerably reduced.

The start of this week, with the war looking likely to take longer than originally thought, has seen the financial markets go into reverse and gold bounce up towards $330/ounce after touching year-to-date lows of $325.50/ounce last Friday in New York. Conditions remain thin and nervous.

In the physical markets, Indian traders are reporting that a surge of buying interest started towards the end of last week and has so far been sustained, although there are still some areas that are holding off in the hope of lower prices yet.

1991
In the late 1980s and early 1990, unlike this time, gold had few friends, since the economic and financial environments in the late 1980s had been seen as relatively risk-free and there had been little gold investment activity from the professional sector. With governments using interest-rate policies to keep inflation contained, real interest rates were in positive territory, and inflation was not seen as an issue, and this was another feature that kept gold on the sidelines. In addition, developing financial problems in the Soviet Union raised fears of increased sales of metal from that source, along with some other central banks. The price dropped to below $350/ounce in the first half of 1990 and then started to build up from June onwards in anticipation of Iraqi / Kuwaiti problems. The invasion itself produced a $10 rally on the day (from $370/ounce to $380/ounce, August 2nd) and a small retracement thereafter, but prices then built further on concerns over potential disruption to the oil market and it was this latter factor which drove the rally to $415/ounce. The peace initiative at the end of August produced a fall in price under trade selling, accompanied by a drop in oil prices.

When the Allied attack on Iraq commenced on January 17th 1991, gold rallied from the $390/ounce area to touch $411/ounce, before trade selling came into the market in some size and the dollar started to strengthen on the expectation of a quick resolution to the conflict. The markets suffered also from some investor selling and prices retreated towards $370/ounce.

The War of 1991 was more protracted than had been expected and as a consequence the dollar, initially seen as the ultimate safe haven, weakened; gold's fundamental position as outlined here meant that it too suffered and towards the end of February, following Desert Storm and the cessation of hostilities it touched its lows for the year in both Deutschmark and Swiss franc terms.

Background news
The new South African Mineral and Petroleum Royalty Bill, released last Thursday, held no surprises for the gold mining industry. The bill outlines the royalty programme to be levied on mining companies and the 3% gold royalty was the level that the market was expecting. The platinum royalty, at 4%, is higher than some had been looking for, while diamonds will attract the top rate at 8%.

The latest Gold Hedging Indicator from Haliburton Mineral Services / Virtual Metals and N. M. Rothschild & Sons, reports that the net ounces hedged in to the global hedge book, calculated on a delta hedge basis, fell by 4.87M ounces (151.5t) in the fourth quarter of 2002 to leave 80.87M ounces (2,515 tonnes) outstanding. This compares with global mine production last year of 2,543 tonnes. The group calculate that the fall in outstanding gold hedge positions for the year as a whole was 14.76M ounces (459 tonnes). The estimates differ from other hedging surveys in that they take account of delta hedging into the physical market. The "delta" is the proportion of an options book that is actually hedged into the market on a physical basis by the grantor of the options. It embraces market volatility, overall changes in the spot price, time to expiry and the difference between the strike and the spot price. Thus for an option position which is way out of the money and has a long time to maturity, only a small percentage will be hedged. As the time to expiry diminishes, and especially if strike and spot start to converge, that percentage will increase.

New Chinese Premier Wen and Head of State Hu, who took office last Saturday, have vowed to maintain socialism within China with a view to helping the farmers and urban unemployed and thus they will continue to pump-prime the economy in order to maintain growth. They are also looking to extend the scope for the private sector within the economy.

The latest figures from the Swiss National Bank show that its "gold and gold lending" position dropped by approximately 9.2t in the ten-day reporting period to March 20th. This takes cumulative sales to approximately 736t. The SNB is disposing of 1,300t over a five-year period in a programme that falls within the auspices of the Central Bank Gold Agreement.

10 March, 2003 - 14 March, 2003

Trading patterns
Politics remains the key to the gold market at the moment with the market still largely dominated by the professionals, as the day-to-day physical buyers are still somewhat daunted by the volatility in the price. They were, however, drawn in as prices dipped towards $330/ounce and a volatile week saw spot gold drop, on balance, by approximately $15/ounce.

Gold started the week at around $354/ounce, and dropped towards $345 in the first three days in thin conditions, which exacerbated the market's volatility. In these nervous conditions, knee-jerk reactions were more or less the order of the day and the market was buffeted by press reports (as were other financial sectors) - initially a false report of the capture of Osama bin Laden, then news of the assassination of the Serb Prime Minister. Overall, however, business was thin.

Conditions changed on Thursday, when after days of drifting, reported sales from Australia combined with liquidation in Japan to put prices under pressure before London opened. Talk of negotiations being underway with a view to Iraqi capitulation generated more sales while bolstering the dollar and the equities, and New York duly opened on a weak note, testing $338/ounce. As the technical picture deteriorated (with the 100-day moving average severed), so technical sell orders were triggered, helping to force prices down towards $332/ounce, where physical support then emerged and prompted a bounce to $336/ounce. Sales continued in the Far East, but by the time London opened the majority of the liquidation had run its course and prices stabilised between $335 and $338/ounce.

Increased tension over the week-end meant that the price rallied sharply in Asia on Monday, reaching $345/ounce before settling in London this morning (March 17th) between $340/ounce and $342/ounce on a day of considerable political uncertainty, sandwiched between a hawkish Azores meeting and a UN meeting later in the day.

The market remains nervous and volatile, and while the overall tone remains constructive, few professionals or members of the day-to-day market are prepared to commit themselves in these conditions.

Market factors
Reports of Iraqi negotiations not only put gold under pressure but prompted a strong performance from the equities at the end of last week, with the Dow putting on 269.68 points on Thursday to register its biggest rally since last October. This was then consolidated to a degree with a small gain on Friday, leaving the market 1.5% higher on the week, although the increased political tension over the week-end has rendered the market nervous at the start of this week. Volume in the rally was heavy and the gains were widespread, with the market preferring to focus on the rumours of political advances rather than the retail data, which were weaker than expected.

The dollar, meanwhile, gained 2.7% against the euro during the week and 1.1% against the yen, in what was seen by some as a typical bear trap. The subsequent tensions at the week-end reversed these gains by up to 50%. Bonds remains strong, and although they mirrored the activity of the dollar and the equities towards the end of the week, at the start of this week ten-year notes were again yielding 3.65%, the 45-year low that had been scored early last week. A thirty-year bond was yielding 4.65%.

Background news
In a further move towards the liberalisation of the Chinese gold market, the People's Bank of China is to relinquish its monopoly on gold import and export. The bank will have the trade carried out on an agency basis by the Industrial and Commercial Bank of China, the Bank of China, the Agricultural Bank of China and the China Construction Bank. Gold that enters China in this way will be permitted to filter into the domestic market via the Shanghai Gold Exchange.

Meanwhile the People's Bank of China has said that individuals' domestic savings of foreign exchange in China reached US$90Bn at the end of February, up fractionally from $89.7Bn at end-January. Overall deposits (i.e. including corporate deposits) were $149.5Bn. The government is currently paying a one-year dollar deposit rate at less than half that paid on the yuan, which is believed to lie behind the slow-down in growth in private holdings of foreign exchange.

The latest report Commitment of Traders Reports from the CFTC, for the week to 11th March, a week of narrow ranges between $353/ounce and $356/ounce until a drop on the morning of the 11th in New York to $348/ounce, showed the following; a net increase in the large-scale speculative longs from 96.3t the previous week to 104.3t by close of business on March 11th. This reflected fresh buying of long positions (by 5.8t) and some short-covering (2.2t). The smaller-scale traders reduced positions on both sides. Long liquidation amounted to 0.33t, while 3.0t of shorts were covered, giving an increase in the long position to 127.7t from 124.3t. The combined net long was therefore 232 tonnes.

The latest clearing figures from the London Bullion Market Association (LBMA) for February show that the number of gold ounces transferred rose marginally to 19.0M from 18.7M, producing a small average increase in daily value, to US$6.8Bn.

3 March, 2003 - 8 March, 2003

Trading patterns
Gold has continued what, over a period of time, may be considered a consolidation, but the day to day reality is that prices have been swinging widely in thin and nervous conditions. Support is continuing to develop in the $345-$347/ounce area, while attempts on the $358/ounce region have failed to pierce the resistance. Clearly politics and the associated changes in currencies and equities are the driving forces for intra-day moves, with Asia tending to take prices higher, London generally broadly steady, and then New York generating the bulk of the volatility. On balance the market is relatively well bid.

Last week started with spot prices in London just below $350/ounce, and traded higher as the dollar weakened, and although there was some physical selling to be absorbed, largely through the London market in the early part of the week, it was well taken. Asia's keen sensitivity towards political development was highlighted on the Monday in response to the close call between US and North Korean jets over the previous week-end.

Financial developments had an influence midweek, with the market responding in part to the movements in the dollar on the back of comments from the US Treasury Secretary that he was "not particularly concerned about" the recent fall in the dollar, but latterly iterating the "strong dollar policy". The first came after COMEX had closed on the Tuesday, but caught the attention of the market and prompted a test of $358/ounce in Asian hours on Wednesday, with activity intensified by news of explosions at Davao airport and the town of Tagum in the Philippines, and by reports that the US was sending bombers to Guam in anticipation of heightened problems with North Korea. The price twice more tried $358/ounce, once on Friday in Asia in anticipation of the UN inspectors' report (subsequently deemed to be inconclusive) and then again early trading in New York after a solid physical performance in London, but on each occasion the market ran out of steam. Prices then took a battering in New York on Friday, when reports (later denied) that security forces were closing in on a caravan reportedly containing two of Osama bin Laden's sons prompted waves of liquidation with the price touching $348/ounce during the COMEX morning session. There was a rebound from this level soon thereafter, but $352/ounce proved difficult to overcome and prices again slipped towards $348/ounce before closing just above $350/ounce.

Market factors
The European Central Bank cut its interest rate by 25 basis points (to 2.50%) last week. The Bank underlined its intention to cut again if necessary and the majority of economists polled by the press are expecting at least one more cut this year. Euro Zone consumer price inflation is currently running at approximately 2.3%, so although European real rates are still positive, they are veering close to zero. German unemployment last month was at a five year high, at a seasonally-adjusted 10.5%.

There have been reports of some intervention from the Japanese authorities in favour of the dollar and against the yen, but the political and economic background continues to put pressure on the dollar. ... The Nikkei touched 20-year lows at the start of this week, dropping below 8,000 on geopolitical fears exacerbated by the approach of the financial year-end (March 31). Some of the losses were recouped, however, with the market closing at 8,042.26. The Dow remains volatile, and lost 1.9% on the week.

Background news
The latest Commitment of Traders report from the CFTC for the week ended March 4th, a period during which the market remained nervous and volatile, swinging broadly from $357/ounce down to $346 and then recovering to $353/ounce, showed a reduction on all sides. Positions were closed out among both the large scale and small scale speculators. Large scale speculators closed out more shorts than longs, with the net long position thus increasing by just over 12t to 96t, while small-scale traders closed out more longs than shorts, their net long position thus falling by five tonnes to 125t. The combined position thus increased from 214t to 221t.

The research firm Lipper has estimated that this January, US stock mutual funds suffered their first net withdrawals since 1990, with a net US$1.0 billion coming out. Bond funds, by contrast, had a net injection of $12.9 Bn. Money market funds suffered outflows of $3.4Bn. Value funds saw net inflows of $1.5Bn, while growth funds experienced outflows of $3.9Bn. Stock fund assets amount to approximately $2.6 trillion.

The Chinese government is to re-structure with a view to strengthening the banking and industrial sectors. It is to create a number of regulatory bodies, including a banking watchdog that will be formed from part of the central bank, the People's Bank of China. One intention is to try and reduce the bad debt burden that is currently causing a drain on the system. It is hoped also that the changes may lead to increased lending to the private sector.

The Canadian government continued its long-standing programme of gold sales last month, disposing of 90,588 ounces (2.8 tonnes). Remaining holdings are now just in excess of 500,000 ounces (15.6t).

24 February, 2003 - 28 February, 2003

Trading patterns
Gold started last week on a reasonably resilient note, but the market was nervous and it became increasingly liable to respond to rumours. Early in the week these tended to be hawkish as far as politics were concerned and prices pushed up to test resistance at $360/ounce, but as the week wore on the market became susceptible to waves of liquidation which then triggered technically driven sales. The price tested support at $345/ounce in New York on Thursday and then rallied to $351/ounce in New York on Friday. It often does rally, currently, on the approach to the week-end, given the political backdrop. The price then came under some pressure in response to news that Iraq was reporting the destruction of some of its missiles. The market remains jittery and nervous of rumours and therefore liable to wide swings in price. Dealers are therefore paying increased attention to the technical position, which apparently currently points to support at $340- 42/ounce and resistance at $358/ounce, a wide range in itself. The close proximity of the 20-day and 50-day moving averages, either side of $356/ounce is also likely to be attracting some attention, while the 200-day moving average stands at $327.43/ounce.

Having started the week, therefore, with professional traders looking to buy gold on dips in anticipation of heightened political tension, as the week wore on increasing market nervousness led to shorter-term considerations and positions were closed. The move towards $360/ounce started in New York on Monday in the wake of the Staten Island fire and in anticipation of the second UN resolution, and was extended in Asian trading thereafter when North Korea fired a test missile over the Sea of Japan and the markets were not initially sure whether this was a test or something with more substance. Tensions have remained high in Asia, notably with the news that North Korea had reactivated the re-activated the Yongbyon nuclear reactor, which has been suspended since 1994 under an agreement with the US.

Observers' views on gold are mixed, with some pointing to the potential transience of the easing in political tension and looking towards March 7th (next UN reporting date), and also to mixed economic data from the US acting as a continuing drag on the dollar and equity markets, while others point to the lack of conviction above $360/ounce and the consequent stale bull liquidation.

In the physical market there is evidence of some light bargain hunting in Asia towards the lows, but conditions are still thin.

The Bank of Portugal has announced that "during February 30 tons of its gold reserves were sold. As in the case of the previously announced sales, the objective of the operation is to continue the diversification of the external reserves of the country and the resulting profit will be retained by the Banco de Portugal, adding to the newly created special reserve. The sales were carried out in the context of the "Central Bank Gold Agreement". " The latest weekly statement from the European Central Bank states that there was a sale of 30t in the week ended February 21st.

The latest Commitment of Traders report from the CFTC for the week ended 25th February, a period in which the price rose from $354/ounce to $359/ounce and then eased marginally, shows a reduction in both long and short positions among the large scale traders, and a small increase on both sides among the smaller participants. Long liquidation among the largescale operators amounted to 27.7t, against minimal short covering of 0.16t, taking the net long position to 83.9 tonnes. Among the smaller-scale players, the long position increased by 0.3t and short covering was 1.3t. Their net long position was thus marginally increased, to 129.7t. The combined speculative long on the Exchange fell from 242.0t to 213.4t. This may seem paradoxical given that the price rose over the period, but reflects the market's nervousness and the way in which it has been trading wide ranges in thin conditions.

Market factors
The State Statistical Bureau in China has reported that the economy grew at 8% last year, ahead of expectations of 7%. The government has also said that the economy is robust and, subject to the risk of external shock, should grow at approximately 7% this year.

Background news
The Indian Finance Minister has reduced the customs duty on "serially numbered bars, or. gold coins" from Rs 250 per 10 grammes to Rs 100 per 10g. At today's rates, this is the equivalent of a cut from US$16.3/ounce or 4.7%, to $6.5/ounce or 1.9%. The move, which is accompanied by a reduction in customs duties on diamonds, notably on some rough and half-cut stones, is designed to enhance India's already important role in the world's jewellery industry. It does not encompass ten tola bars; the bars in question should have their weights expressed in metric form. This latter stipulation would tie in with the emphasis on the jewellery manufacturing industry with feedstock in the form of metric bars (kilos), rather than the ten tolas that are favoured for investment purposes.

In a further stage in the deregulation of the gold market in China, the government is to allow private investment in one of the country's major gold producers. Zhongjin Gold Mining Co. Ltd., which is currently 89% owned by the National Gold Corporation, is to issue an IPO (Initial Public Offering) of up to 700M yuan (US$85M). The company is hoping to move with all speed, and a spokesman has told Reuters that the listing could be as early as May. Zhongjin's gold output is approximately 10 tpa (compare the national total of approaching 190t) and annual earnings in the three years since it was established are reported to have ranged between 50 and 60 Million yuan (currently equivalent to $6.1-7.3M).

The latest balance sheet from the Swiss National Bank shows that in the eight-day reporting period to February 28th, gold and gold lending fell by approximately 6.8t to 1,873.0t. The cumulative sales under the Bank's disposal programme, in which, under the Central Bank Gold Agreement, it is reducing its holdings by approximately half (1,300t) over a period of five years, now stand at approximately 720t.

17 February, 2003 - 21 February, 2003

Trading patterns
Gold spent the first couple of days of last week probing support between $340/ounce and $345/ounce, before rallying to the $350-355/ounce range. The pattern of trading has been similar to that in the early weeks of the year (when prices were at similar levels to those now prevailing), in that while the physical market is quiet, there has been a renewal of interest among professional money managers, notably in North America, and it is this that has propped up the market above $340/ounce. Some speculative elements have however been seen selling far forward dates on COMEX, notably futures contracts for December 2004.

The sustained uncertainty in the political arena has given gold something of a fillip, with Asia continuing to monitor the position with respect to North Korea as well as the Middle East, but trading activity overall has been comparatively quiet.

The overall feeling in the market at present is that we have now sustained the correction that was inevitable after the sprint to $388/ounce, the froth has been blown off (see graph), and that the uncertainties in the outside world merit a renewed look at risk hedges. Most investors who started building positions last year and in 2001 remain unshaken while some of the more recent market participants are again looking for value. Prices are expected to remain volatile while the political position remains uncertain because the markets overall are extremely nervous. This was illustrated on Friday when gold rallied swiftly (and the Dow dropped rapidly) when the markets heard news of an explosion at a fuel storage facility on Staten Island, New York. Once it became clear that this was an accident rather than anything more ominous the markets settled.

The latest Commitment of Traders Report from the CFTC, for the week ending 18th February, a period in which the market continued its sell-off, dropping from $363/ounce towards support at $345/ounce, showed, unsurprisingly, continued long liquidation among the speculative fraternity. While speculators were reducing positions on all sides (shorts as well as longs), commercial players were noted as buyers. The net long position among the large-scale speculators dropped again, to 111.4t while the small-scale position was reduced to a net long of 130.6t. Among the commercials, there was a reduction in shorts and an increase in longs, taking the net position to a net short of 242t, thus balancing the speculative position.

Market factors
The US trade deficit for December was a record US$44.2 Billion, substantially ahead of the forecast $39Bn. Exports were down by 2.5% to $81.2Bn, while imports were up by 1.7% to $125.4Bn. These figures took the wind out of the dollar's sails, as did the explosion in New York on Friday although it has staged a small recovery since and as we write is trading at just less than 1.08 to the euro and just under 1.37 Swiss francs. The yen is showing independent strength partly as a result of the appointment of the new Governor of the Bank of Japan, Mr. Toshihiko Fukui. The view from the Japanese market about Mr. Fukui is that he is of conservative bent and that, while there may be a shift in policy over a period of time, there will be no radical changes in the immediate future.

Meanwhile at the G-7 meeting over the weekend, US Treasury Secretary John Snow iterated his strong dollar policy, while underscoring support for the President's tax-cutting package of US$695 Bn and forecasting that the US twin deficits (i.e., govt budget and intl trade) will be reduced over the years to come and that the US is committed to balancing budgets over a full business cycle.

Background news
The Iranian Commerce Minister Shari'atmadari said Feb. 16th that Iran's gold reserves stand at approximately 500t, while the local domestic market is approximately 50tpa. At the same seminar, the Director of Bank Note Issuance and Treasury at Central Bank of Iran (CBI) Seyyed Jalal Jalilian said that import procedures for gold and silver bullion imports are to be eased.

The South African Department of Mineral Resources has released details of the "scorecard" system under which black empowerment will be progressed in the mining industry. The purpose is to facilitate the implementation of the Charter that was drawn up under last year's Mineral and Petroleum Resources Development Act, converting "old order" rights into "new order" rights, aiming to achieve a minimum of 26% black ownership in the industry within a 10-year period. The scorecard concentrates on human resource development, employment, migrant labour (discrimination), mine community and rural development, housing and living conditions, procurement, ownership and joint ventures, beneficiation and annual reporting on progress.

The latest abridged balance sheet from the Swiss National Bank suggests that in the ten-day period to February 20th, the bank sold, under the auspices of the Central Bank Gold Agreement, just over eight tonnes of gold, taking its cumulative sales to approximately 713 tonnes. The bank is disposing of 1,300t over a five-year period.

The European Central Bank has reported that in the week ending 14th February there was a fall of ¤1M in gold and gold receivables as the result of coin sales by a member bank. (At $350 gold this equates to approximately 3,000 ounces).

10 February, 2003 - 14 February, 2003

There was no weekly report for this week. The following were daily highlights:

Dr. Greenspan's second day of testimony had little direct impact on the equity markets, although his positive comments on the elimination of double taxation on dividends were taken well. His comment about gold, which suggested that much of the recent price increase was geo-politically related (and given in the context of comments on inflation), broadly coincided with the selling on COMEX. It is arguable that technical selling was already underway, but it did attract the attention of some participants in the market.

A Bombay Bullion Association official has told Reuters that any Indian states which are not currently in line with the 1% sales tax on gold are expected to fall into place within the month. States used to levy their own individual taxes and this led to competition for business which meant that the market flows could tend to shift dramatically from region to region. A uniform tax is expected to smooth this out. Indian rupee gold prices hit all time high of 70,350 rupees per ten tola bar last Wednesday (approximately just over $390.ounce; this morning they were quoted at 68,400 rupees, or $382/ounce.

The latest abridged account from the Swiss National Bank show that in the 10-day period to 10th February, the bank reduced its gold holdings, under the auspices of the Central Bank Gold Agreement, by approximately 6.5t, taking its cumulative sales to almost 705t. The programme is for the disposal of 1,300t over approximately five years, of which roughly two years remain.

The London Bullion Market Association has reported its clearing statistics for January. The average daily amount gold ounces transferred in the month was 18.7 Million, an increase of 5.5% in December and of 8% on January 2002.

3 February, 2003 - 7 February, 2003

Trading patterns
Last week was a volatile one for gold, with a plethora of conflicting forces having an impact on the market. The price action was choppy and rapid. After consolidating the previous week in the $365-373/ounce range, the price broke upwards in Asia on Tuesday to test $376-77, and then on Wednesday, again in Asia, prices ran smartly up towards $390/ounce before retracing. By Thursday the move had swung down to $367/ounce in New York and then conditions became calmer and we closed the week again trading largely between $367 and $373/ounce.

The rapid upward moves in Asia reflected very heavy turnover on TOCOM and, in addition, after-hours COMEX trading through the Exchange's electronic ACCESS system. The initial focus of the market was Secretary of State Powell's address to the UN Security Council on Tuesday, although as this unfolded and the markets adjudged it to be maintaining the status quo, gold weakened in price. Underlying uncertainties came to the fore again before long, however, and with Asia acutely conscious also of the problems with North Korea, buying activity was frantic in Tokyo in the early part of the week. In an unusual move, Japanese buyers were prepared to buy into a rising market, contrary to their usual habit of bargain hunting. TOCOM sustained record turnover, exceeding 500t mid-week; open interest currently stands at 483t.

The trading patterns in the market were interesting in their contrasts over the week. Whereas the (predominantly physical) market in London had, in the main, been trading broadly sideways in the previous week, (and usually encountering some light selling activity), sustained "professional" interest had been buoying prices in New York and then frenetic activity in Tokyo produced the quantum leaps in price. By Wednesday, however, London was encountering good buying interest and very little by way of sellers and the $390/ounce level was approached again. Once this proved impenetrable, the market turned, and rapidly, and staged what the majority of participants would say was a much-needed correction. Profit taking and stale bull liquidation took the market down, but was met by professional risk-averse investors. In addition, for the first time in days, some bargain hunting at grass roots level from the physical sector of the market appeared on each visit to the $370/ounce level or below. Friday was a mixture of all these factors.

By the end of the week, therefore, the gold market was characterised by some physical bargain hunting and continued buying from those concerned about political risk, offset by profit taking and liquidation when buying momentum ran out. The North American markets continue to look to the Middle Eastern tension; the Far East is possibly putting slightly more emphasis on North Korea, while elements of the Middle East itself and the South Asian continent are also noting increasing tension between India and Pakistan.

An interesting development concerns gold in Swiss franc terms. A bullion dealer sent us a chart this morning (Feb 5th) pointing out how the price in Swiss franc terms looks as if it is breaking out of the downtrend that has been in place since 1987. The Swiss franc is the other safe haven currency -- money continues to pour into Switzerland from the Middle East -- clearly the flight to quality is as yet unabated and gold for the moment has the upper hand. On the other side of the market, some of the important buying regions, notably India, continue either to stand aside or to redeem gold for cash.

The latest Commitment of Traders report from the CFTC, for the week ended 4th February, a period during which the price opened close to $370/ounce, dipped and then ran up to $376/ounce as Tokyo in particular picked up steam (and just before the price lurched up towards $390/ounce), showed interesting patterns. The large-scale speculators increased both their gross long and gross short positions, although the longs had the upper hand and the overall net long rose to 207.8t (from 176.9t); the smaller-scale players, however, reduced both their long and short positions, with more shorts covered than longs liquidated. The smaller-scale net long position thus also increased, to 185.7t from 174.1t, although overall market participation from the smaller-scale traders was reduced.

Randy's note: Although not covered in this WGC weekly report, the following changes to the way of business on the NY Commodities Exchange went into effect this week, as announced by Reuters...
NEW YORK, Feb 6 (Reuters) - The New York Mercantile Exchange will raise the amount of collateral required to trade gold futures contracts at its COMEX Division as of the close of business Thursday. Margins on COMEX gold futures will be increased to $1,500 from $1,000 for members, member firms, and hedgers; and to $2,025 from $1,350 for speculative customers, the exchange said in a release issued late Wednesday.

Market factors
Overall the Dow's loss on the week was 2.3%. US Treasury Secretary John Snow, stated on Friday that his top priority is the implementation of the President's US economic stimulus package. In the background, meanwhile, G-7 nations are reported to be considering economic contingency plans in the event of military conflict. A G-7 source has told Reuters that finance ministers from the G-7 countries will discuss progress at a meeting scheduled for the end of this month in Paris. This follows on from a piece in Der Spiegel, which says that if necessary, governments would launch co-ordinated spending initiatives, financed by new borrowing.

Background news
The First Deputy Chairman of the Central Bank of Russia, Oleg Vyugin, said last week that, subject to some extent to oil prices, he expects Russian gold and foreign currency reserves to reach approximately US$55Bn by the end of this year (they started the year at $47.3Bn). He also said that gold should account for a minimum of 10% of the bank's combined gold foreign exchange reserves and that "Basically we are satisfied with the amount of gold that we have now". At the start of the year the value of Russian gold holdings was reported as $3.74Bn, implying 387 tonnes (Russia values its gold at $300/ounce), unchanged from earlier in the year; this figure amounts to 8% of total.

The investment banking arm of Dresdner AG, Dresdner Kleinwort Wasserstein, has announced that it is to extend its web-based trading platform to offer online spot trading for non-physical gold, against US dollars, the euro and the Australian dollar, during London, New York and Sydney hours. [Randy's note: NON-physical gold. Why bother calling it gold at all? If you are interested in this, I've got a non-physical bridge to sell you, too.]

ICICI Bank in India is about to launch a range of gold bullion products, including ICICI Bank gold accumulation plans, gold accounts for private investors, lending facilities for local manufacturers, and spot and futures trading. The bank expects to have 200 branches with gold retail facilities by the end of this year. The bank is already selling ICICI gold coins, which were launched last December and are the first retail gold investment products to be sold by a local Indian bank.

27 January, 2003 - 31 January, 2003

Trading patterns
Last week was effectively a week of consolidation with the market trading in a $10 range, failing to breach $373/ounce, but finding support in the $363/ounce region. Much as with the previous week, trading was dominated by professionals, partly as the physical market remains cautious about dipping its toes into these swirling waters, and partly also because the Chinese market was winding down ahead of the New Year celebrations. The physical demand side of the market can be expected to return once it feels comfortable with an established trading range; it does not seem quite ready yet to do so, however.

The professionals have therefore been the dominant players in the market once again and gold has tended recently to trade according to its own momentum. The dollar and the equity markets have continued to have something of an influence, but there have been times when they have been far less important than in the past. This was notable in mid-week when gold eased despite some weakness in the Dow, and latterly when gold maintained its strength despite a stronger dollar. Political pronouncements did tend to produce the appropriate short term reactions. The tone overall was that in the current environment the appeal of gold as a risk management tool remains unsullied, although the upward momentum above $368-370 is weak and has, as a result, generated some profit taking and selling from the trade.

As the week drew to a close the market's trading ranges narrowed, and in New York on Friday the price effectively oscillated between $368 and $370/ounce, although it was then propelled higher on Monday by hefty activity on TOCOM, where political concerns again brought buyers into the market. The $373 resistance held good again, however, and the market opened this week (February 3rd) trading between $368 and $370/ounce, a fraction lower than the week previously. By the week's end selling was coming from speculative profit as well as some elements of the trade; while buying was still dominated by those still looking to manage risk.

The Commitment of Traders report from the CFTC for the week ending Tuesday January 28th, a period in which gold prices had worked higher from $355/ounce to test $371 and then eased towards $366, showed evidence of some profit taking from the large scale non-commercial long-side players and the addition of fresh shorts; among the smaller-scale participants, however, the longs were quite substantially increased and the shorts only marginally so. Overall the net long position among the larger traders fell by 15t to 176.9t, while in the smaller-scale sector the net position increased from 144.9t to 174.1t.

The Hong Kong market will be closed Thursday 30th through to Tuesday 4th for the celebration of the Lunar New year and the Shanghai Gold Exchange will be closed for Thursday 30th through to February 7th. New Year's day is this Saturday and this year is the year of the goat (or sheep, ram).

Background news
The Swiss National Bank has continued its programme of disposal under the auspices of the Central Bank Gold Agreement; the latest mini-balance sheet shows that in the 10 days to Jan 31st, gold and gold receivables dropped by approximately 11 tonnes, taking the cumulative sales to date to just under 700t. A total of 1,300t are being sold over a period of roughly five years. Meanwhile the weekly statement from the European Central Bank reports the disposal of two tonnes by a European central bank, under the auspices of the Central Bank Gold Agreement.

20 January, 2003 - 24 January, 2003

Trading patterns
After starting last week at $356-357/ounce gold fixed this morning (Monday 27th ) at $370.80/ounce, a gain of 4% on the week and of 8.4% since the start of the year. In other currencies the price has also touched long-standing highs; in sterling terms the price is at its highest point since April 1996, in Swiss franc terms since May 1997 and in yen terms since September 1997. The performance so far this year in the other major currencies has been less dramatic than in the dollar, as dollar weakness is one of the driving forces currently behind the market, stemming from longer-term factors than just geo-political concerns.

There is doubtless a substantial war premium in the gold price at present and a number of dealers are warning of a retracement if as and when the situation is resolved. The foundation for the increase has been laid since as far back as 1999, however, when the bear trend came to a close and the market embarked upon a period of consolidation and then into a bull phase (not just in dollar terms). The proliferation of elements of doubt in the financial and economic arena as well as political tremors have underpinned gold's performance and it is probably fair to say that had investors not been returning to gold over the course of 2001 and 2002 for these other reasons, then its recent performance would have been less robust.

Dealing has been dominated largely by the professional side of the market in the past week, with geo-political considerations at the forefront of participants' minds, as well as currency movements. The equity markets have been less of a direct influence, which makes sense since the majority of financial and currency markets are price takers at the moment, not price makers, and it is politics that, for now, is in the driving seat. Equity market nervousness has nonetheless been a part of the equation.

Any weakness in price during the course of the week was absorbed by professional buying activity. Although the physical market had once again withdrawn to the sidelines at the end of last week (at around $355 after re-appearing below $350), the market's persistent upward momentum drew professional players again into the arena at prices in the $356-$358/ounce region. Among the price-responsive purchasers, the man-in-the-street in India in particular has been seen as a recent seller, while Asian physical demand has been quiet. The general pattern is that these purchasers return to the market once the new range has become well established ­ whether higher or lower than its predecessor; for now the physical side of the market is subdued. It is also worth noting that the recent rally has taken potential sellers to the sidelines also as they wait to see how things pan out.

The commitment of traders report for the CFTC for the week ended January 21st, during which the price fluctuated with an upward bias between $348 and $354/ounce, showed an increase in interest on all sides in the speculative sector, both short and long, large-scale and small-scale. There was, however, a reduction of long positions among "commercial" participants. Among the large-scale speculators, the net position increased from a long of 188.7t to 191.9t; among the small-scale speculators, the position increased from 137.8t to 144.9t. The overall speculative position therefore stands at a net long of 336.8t.

Market factors
The dollar is again weaker at the start of this week. The $:¤ rate exceeded $1.08 on Friday in New York, and the $1.09 level is in sight, another three-year low. Fresh four-year lows have been plumbed against the Swiss franc, and a three-year low has been scored against sterling.

Elements that contributed to the dollar's drop last week included comments from the Russian central bank that it is now over 50% invested in dollars within its gold+foreign exchange reserves and that it intends diversifying as a result, as did Bundesbank President Welteke's comments that he does not believe that the dollar is too weak and that he sees no need to support it. Equally, the new director of the Japanese Finance Ministry's international bureau Mr. Hiroshi Watanaba has said that the government will act as necessary to smooth any "extremely irregular and rapid" swings in the currency markets.

Background news
The Indian press is reporting that the State Bank of India has cut its interest rate on gold deposits to 1.25% from 4%. The gold deposit scheme was launched in 1999 with a view to tempting members of the public to deposit their gold at the banks, but the strong preference for keeping it at home, especially in the form of high-grade jewellery, has meant that the scheme has had limited success.

The Dubai authorities have implemented the Good Jewellery Trading Practice (GJTP) certificate. The system, which is to be known as "Bareeq", will apply to licensed jewellers operating in Dubai and each certificate will be valid for one year, renewable thereafter. . The scheme is designed to underpin quality and reliability; each retailer will consistently have to meet minimum standards.

13 January, 2003 - 17 January, 2003

Trading patterns
Gold continued to swing in a range between $348 and $359/ounce last week, with physical support eventually re-appearing, much as dealers had projected, on price dips below $350/ouce in the middle of the week and thereby helping to prompt some trade support later on at levels closer to $355/ounce. Upward moves ran out of steam on approaches to $359/ouce, however, and the week ended, under a bout of profit taking in New York, albeit with the tone still relatively upbeat. Today (Monday 20th) is Martin Luther King day so some US operators were looking to reduce positions ahead of the long weekend, although the rest of the market is also tending to stand off in the absence of strong US influences.

The primary drivers remain political, financial and economic ­ all three of which are of course intertwined and although the market is still taking in terms of a "war premium". The longer prices stay at these higher ranges the more the physical buyer at the retail level becomes accustomed to them, and hence the build-up of support below $350/ounce. The market has outperformed the major currencies so far this year, as the political premium continues to play a part with professionals still looking for methods of risk management. The physical market remains relatively quiet and certainly, while the support is there towards the lows, it is tending to fade away towards the highs as the market is still trying to come to terms with its new-found volatility.

The Commitment of Traders report to the CFTC for the week ended January 14th, a period during which the price had moved up from $346 to test $356 and then held above $352/ounce, showed some small liquidation of longs and an increase in shorts among the larger-scale speculators; in the smaller category both sides increased their positions, with the shorts having the larger gain. The net large-scale position dropped from 197.7t to 188.7t, still a substantial size; the smaller-scale positions decreased from 142.5t to 137.8t.

Background news
The Bank of Portugal announced last week that it had sold 15 tonnes of gold in late 2002. The transaction looks very much like the exercise of options purchased some four and five years previously, in which case the bank was either called away on a short call position or exercised a put. The disposal falls within the auspices of the Central Bank Gold Agreement. Portugal's gold holdings were previously reported at 607 tonnes so this transaction clearly reduces this to 592t, approximately 47% of total gold+foreign exchange combined.

The European Central Bank, meanwhile, reported that in the week to 10th January its gold and gold receivables dropped as a result of the disposal of 3.5t of gold by a member of the ESCB. This sale was also within the auspices of the Central Bank Gold Agreement.

The Dubai Islamic Bank (DIB), ABN-Amro and Dubai Metal and Commodities Centre (DMCC) have announced a strategic alliance that will provide bespoke Islamic financing programmes to companies that specialise in the gold and diamond markets. The DMCC was set up last year as part of the Dubai government's plans further to enhance Dubai's role as a pivotal centre in the physical gold market (and to build its diamond presence) and this is another phase in the programme. The ABN-Amro country representative for the UAE packages, which will be fully compliant with Islamic Shariah, will cover full corporate services, including working capital, and project and real estate finance.

The Indian press is reporting that Indian exports of gold jewellery in 2002 were 32.88% higher in dollar terms than in 2001. This suggests an increase in market share globally, as dollar prices were up on average by only 14% and a discrepancy of this size cannot solely be accounted for by selling into periods of price strength.

As of January 15th, the Shanghai Gold Exchange has extended its trading session by half-an-hour to close at 15:30.

An official for the Bank of China has said that the bank has recently been given approval by the central bank (People's bank of China) to import and export gold. Other permits, notably those necessary for the purchase of foreign exchange, have yet to be secured.

6 January, 2003 - 10 January, 2003

Trading patterns
Gold has had a volatile week, with the market trading in a range between $345 and $357/ounce and opening this morning (Monday 13th) in mid-range in the $352/ounce region. The market has fixed at fresh six-year highs; with the high fix for the week, $356.10/ounce, registered last Monday morning, although the high trades for the week, in the region of $357ounce, were on Monday in London, Wednesday in New York, Thursday in London and Friday in New York.

Conditions in the professional market have in fact been relatively thin and this has helped to add to the volatility in price. The physical market, unsurprisingly, has been choked off in most of the price-responsive buying centres (e.g. Dubai, Far East), and the return of the consumer, while inevitable, will not develop in size until the market is accustomed to this new trading range (and quite possibly also to the increase size of short term price swings), or has dipped into the previous range. Dealers are seeing in Asia that the would-be purchaser is awaiting prices at below $350/ounce, but equally, history would suggest that if prices did not re-visit $350/ounce then the buyers would return once the new range was clearly established. Japan is the exception here; physical purchases in January are reported to be going well.

The week started in London at just over $352/ounce and the price ran up smartly to fix at $356.10/ounce. Early upward momentum was driven by the intensification of political nervousness, notably in the wake of the Israel / Palestine developments, the threatened attack on the ECB in Frankfurt and continued tension between the US and North Korea, along with a weaker dollar. After running into resistance and some profit taking towards $357/ounce, the market corrected towards $345, with dealers citing the fact that Monday's equity performance in New York was steady, oil was on the retreat and that the dollar had steadied. Support developed on Tuesday between $345 and $348, and held good under test both on Tuesday and again on Thursday. Equally, resistance at $357/ounce has been effective and the market is swinging within this range.

The speculative length in the market is not causing undue concern to dealers - which is of itself a reflection of the change in sentiment; in times past the existence of a speculative overhang has caused some tension in anticipation of long liquidation. For the time being, however, the market seems reasonably sanguine, pointing more to the political, economic and financial environments. The latest Commitment of Traders report from the CFTC shows that in the week to January 7th, during which prices had run up from $342/ounce to $357 and then started correcting, there was another increase in the net long positions. Among the large-scale traders, the outright long grew to 291.3t and shorts increased to 93.6t; among the smaller-scale traders the long position increased marginally to 196.4t while shorts were slightly reduced at 53.9t. Overall then the large-scale speculative position rose from a net long of 185.1t to 197.7t; the smaller scale position increased from 139.7t to 142.5t.

Background News
The Swiss National Bank's latest sight deposit report suggests that in the reporting period to January 10th, the Bank sold 8..3t of gold under its disposal programme. Cumulative sales under the programme, which fall within the auspices of the Central Bank Gold Agreement, now amount to approximately 681.8t. The total programme, which runs through the next two years, is 1,300t. The figures suggest that in calendar 2002, the bank sold 283t.

The Chinese central bank has registered an increase in its reported gold reserves. At end-2002, reported reserves were 19.29M ounce (600t), 3.21M ounces or 100t than the 500t reported at the end of the third quarter.

A spokesman for the Shanghai Gold Exchange said last week that it is preparing the way for overseas bullion dealers and individual investors to trade on the Exchange. In an interview with Reuters, Mr Yin Po said that since Chinese gold demand exceeds locally mined supply, there should be scope for foreign members, thus allowing direct sale to consumers. Previous consignment contracts held by the People's Bank of China with UBS Warburg, Investec and HSBC Holdings were terminated on October 28th last year - the exchange opened on October 30th. The Exchange is also working towards allowing deferred settlement - currently all transactions are spot - with a view to other derivative instruments thereafter.

The Canadian government continued its gold disposal programme through the course of 2002, and in December its sales amounted to 83,399 ounces (2.6t), taking its gold reserves to approximately 599,000 ounces or 18.6t (value at this morning's fix is US$209M). A spokesman for the finance ministry commented that sales are not closely related to price but that there may be some sale in to strength on occasion.

Taiwan's imports of gold bar and coins in December were 4.26t, a 43.8% increase n December of last year. The total for the year as a whole, however, was down by 23% to 40.29t.

Incorporating year-end developments through 6 January, 2003

Trading patterns
After a period in the middle of last week when gold tested support at the $342/ounce level, it regained its upward momentum in New York on Friday against the sustained backdrop of political tension and an easier dollar. Although the equity markets closed on a reasonably firm footing in the US last Thursday and Friday, the gold market is currently more attuned to the geo-political backdrop. After holding steady between $344/ounce and $346/ounce in London on Friday morning, despite some selling pressure out of Asia on the back of stronger equities, the market rallied in New York as the funds showed as buyers in the wake of the comments from the Pentagon about troops deployment. This then prompted buy-stops, which propelled the spot price through the $350/ounce level before the move fizzled out on the approach to $350/ounce. Although conditions in the professional market were comparatively thin, giving rise to expectations that prices would ease thereafter, values have held above $350/ounce over the week-end as political nervousness has intensified, notably in the wake of the Israel / Palestine developments, the threatened attack on the ECB in Frankfurt and continued tension between the US and North Korea. Gold fixed at $356.10/ounce in London this morning, with the situation further underpinned by a dollar that is exhibiting weakness against all the major currencies.

Background News
A spokesman for the Shanghai Gold Exchange said today that it is preparing the way for overseas bullion dealers and individual investors to trade on the Exchange. In an interview with Reuters, Mr Yin Po said that since Chinese gold demand exceeds locally mined supply, there should be scope for foreign members, thus allowing direct sale to consumers. Previous consignment contracts held by the People's Bank of China with UBS Warburg, Investec and HSCB Holdings were terminated on October 28th last year - the exchange opened on October 30th. The Exchange is also working towards allowing deferred settlement - currently all transactions are spot - with a view to other derivative instruments thereafter.

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

2002 (July - Dec.) 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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