Leonard Kaplan:
>>And now we have the German Central Bank considering selling their gold reserves to perhaps place the funds in the stock markets of the world, which are most decidedly in vicious bear markets. I guess the lesson learned is that diplomats and economists may wrongly be the choice for the heads of Central Banks of the world.<<
GENERAL COMMENTS:
With US stock markets accelerating their downward trends, with the USD continuing to plumb new lows against all major currencies, and with excellent physical demand for gold now apparent, gold and silver rallied sharply today. Prices have moved to technical resistance levels where, I believe, any further gains will not come so easily. At least, not immediately. But, it will be the fortunes, whether good or bad, of the stock market and the USD that will determine the gold price over the next few days.
The rally in silver is being driven by speculative forces at present, and it would appear that the technical resistance level of $5.10 could fall as prices move higher. Recently, it was generally thought in the market that the $5.00 price level would be insurmountable unless gold prices made a substantial upward movement. However, such expectations were dashed as silver prices had very little difficulty at that level and have moved to within 10 cents of their recent highs. Silver is a much smaller market than gold, and just a bit of speculative buying interest can have an outsized effect on prices. While current price levels of about $5.06 or so seem a bit dear, I would have no difficulty buying dips in this market to perhaps just under the $5.00 level.
The technical indicators that I follow show the platinum and palladium markets to be dramatically oversold, and I look for rather significant rallies to occur. Such bullishness must, of course, be tempered by the negative outlook for a global economic recovery as portrayed by global share indices. Since these metals are almost strictly industrial in nature, and rarely see any benefit from "safe haven buying, the market tends to price these metals in relation to economic expectations.
For the third or fourth time this year, Bundesbank president, Mr. Ernst Welteke, repeated that the Central Bank was considering selling some of its gold reserves in the future. Please note that such sales could not take effect until late 2004, when and if, the Washington Accord is renegotiated. While no decision has been formally made, it is now more than clear that Germany does indeed plan to at least carve out an allocation for sale. As Germany is the second largest holder of gold reserves in the world, this presents a definitive threat to the bulls in the market. In a show of complete foolishness, in my opinion, Mr. Welteke mentioned that the proceeds of any gold sales could be used to buy stocks.
I find it hard to believe that Germany wishes to repeat the abject failure of all the recent sales of gold by Central Banks. In the most recent historical case, Britain sold over half of its gold reserves, at the bottom of the market, to place the funds in various currencies, such as the USD, which immediately entered a bear market. They sold the gold at the lows, to buy the USD at its highs. And now we have the German Central Bank considering selling their gold reserves to perhaps place the funds in the stock markets of the world, which are most decidedly in vicious bear markets. I guess the lesson learned is that diplomats and economists may wrongly be the choice for the heads of Central Banks of the world.
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