From Minesite.com:
Date : October 4, 2002
Jim Sinclair And Thebulliondesk.com Lock Horns Over Gold’s Future.
>>Ross Norman of Thebulliondesk.com has tried to analyse why gold is not moving in the direction everyone seems to expect and comes to the conclusion that the gold market itself has failed to attract the attention of the investment community – and this despite the fact that leading investment advisers such as Ewan Cameron-Watt, the chief strategist at Merrill Lynch Investment managers, has recommended that institutions shift 5 per cent of their risk positions into gold related assets.
Another reason for stagnation appears to be that every time the price rises it encourages more selling and has a disproportionate impact on demand from the jewellery market, particularly in India. Added to this, it is not easy for investors in many countries to buy gold or gold related investments. What is needed, says Ross Norman, is an efficient trading service over the internet like that offered by Charles Schwab and other online brokers for equities. And thebulliondesk.com is going to come up with a solution for this in a very short time.<<
Jim Sinclair, currently chairman of Canadian listed Tan Range Exploration which has a portfolio of highly prospective projects in Tanzania and before that chairman of Sutton Resources which sold out to Barrick for US$325 million a couple of years ago based on its discovery of the world class Bulyanhulu gold deposit in that same country, is a man unafraid to give his opinion on gold. In some places he has been given the title ‘Mr Gold’ which is not altogether surprising as he has never been just an explorer. Before joining Sutton he was an international commodity expert and had headed one of the largest precious metals trading firms on Wall Street.
At a time when a lot of people are starting to worry why gold is not performing better, given the political and economic background, he still clings to his opinion that the price will go up. Just for the record, Sinclair is said to have made US$15 million back in 1980 by selling gold when it hit a high of US$887.50. He then predicted it would languish in a 15-year slump, but is at pains to point out that his decision was not based on fear or psychology, but on a series of measuring sticks. “The only reason to invest in gold is that there are five market fundamentals," says Sinclair. These include:
1. The U.S. current account (the broadest measure of the economy's competitiveness with the world) must be in deficit and growing ever larger. The U.S. current account deficit is 4.5 percent of the gross domestic product. Markets traditionally become nervous about the deficit when it hits 5 percent.
2. The U.S. dollar must have hit a high and be on a downward trend.
3. The prices of general commodities must be going up.
4. Confidence in paper assets must be falling.
5. The bond market must have hit a high and be on the way down.
Sinclair said in an interview with Miami.com that all five conditions must be in place to be assured of a bull market for gold. "Of the five requisites, four are there," Sinclair said, noting that the only one still absent is falling bond prices. At this point Minews would like to make the point that there is not too much evidence that commodity prices are going up either, and for good reason as Rob Davies has been pointing out in his weekly commodity articles.
Sinclair then goes on to claim that the gold market has changed from earlier times as big banks and to a lesser extent mining companies have large derivative positions in gold. Mining companies routinely sell unmined metal forward at fixed prices to protect themselves against further price drops and banks have huge gold derivatives, ranging from deferred-sales contracts to hedged instruments, swaps and futures-linked devices that were devised during the 1990s to generate extra income while gold prices descended. Basically this leaves them short of gold and, as Sinclair points out, this should stimulate them to run for cover whenever the gold price rises. This should accelerate the upward movement, but for some weird and wonderful reason it does not seem to be doing so.
Ross Norman of Thebulliondesk.com has tried to analyse why gold is not moving in the direction everyone seems to expect and comes to the conclusion that the gold market itself has failed to attract the attention of the investment community – and this despite the fact that leading investment advisers such as Ewan Cameron-Watt, the chief strategist at Merrill Lynch Investment managers, has recommended that institutions shift 5 per cent of their risk positions into gold related assets.
Another reason for stagnation appears to be that every time the price rises it encourages more selling and has a disproportionate impact on demand from the jewellery market, particularly in India. Added to this, it is not easy for investors in many countries to buy gold or gold related investments. What is needed, says Ross Norman, is an efficient trading service over the internet like that offered by Charles Schwab and other online brokers for equities. And thebulliondesk.com is going to come up with a solution for this in a very short time.
What thebulliondesk.com cannot do is persuade the gold industry to spend more on marketing its own products. According to Ross Norman it spends only 0.18 per cent of its revenue on promotion compared with a much, much higher figure for diamonds. This is the big problem facing Chris Thompson now that he has taken over as chairman of the World Gold Council. The answer suggested by Sir John Harvey Jones, formerly chairman of ICI, is that producers should go in for vertical integration by buying up traders, refiners, and jewellery fabricators. Chris Thompson also has to improve consumers’ conception of quality and value in gold. And here Minews stands shoulder to shoulder with thebulliondesk.com in saying that 9 carat gold has to be eliminated. It is not gold; it is a con foisted on the public by jewelers; and it debases the gold brand.
As long as the producers are pawns in the hands of the downstream operators; as long as they are unwilling to spend sufficient on promotion and marketing; as long as gold is not easy to buy for investment purposes, the price may well stagnate. The eye of the gold industry and millions of consumers is now on the World Gold Council to take the initiatives. Provided they do so Jim Sinclair’s forecast could come true.
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