Hi Bill. I'm shure you've seen this report, what do you think? They seem to be holding a lot more gold in reserves than previously stated according to this.
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1/8/99 Early Indications
Current
Change
Gold
291.00
-.60
Silver
5.23
nc
Euro*
1.1639 (MarCME)
- .11¢
* Due to the large number of requests, we have decided to put indicated opening
U.S. euro prices on the board. We will quote the change in cents, or fractions
thereof to avoid confusion.
MARKET UPDATE (1/8/99) Gold gave up some of yesterday's gains
after trading nearly a dollar higher near the open. The yellow seemed to
be accompanying most currencies, including the euro, to the downside
this morning. The U.S. Treasuries market fell precipitously after the jobs
report showed non-farm payrolls surging an unexpected 378,000.
Expectations were for a 212,000 gain. One of the factors not being
picked up by the stock market in this latest frenzy is that the Fed has
been quietly reversing its loose money policies. After a string of many
days adding to bank reserves, the Fed has recently opted to refrain from
open market operations. If the trend continues, it could signal a reversal
in the stock market.
As for gold as we mentioned yesterday short-covering was the dominant
feature in yesterday's market and there could be good reason to think
that short-covering will play a role in the future. Please read on. Reuters
reports that "they expected bullion to remain quiet in London after
jumping late in New York after European Central Bank vice-president
Christian Noyer said on Thursday the ECB did not plan to either buy or
sell gold to maintain it as a percentage of its overall reserves. The
comments saw short-covering by New York trade houses followed by
fund buying which pushed gold to around $292.00 but the yellow metal
slipped back in Asia on a firmer dollar."
What Reuters failed to report, though it was covered thoroughly in
continental Europe, could have major long term implications for the gold
market. The European Central, as part of its monthly accounting
procedure, published its current reserve levels in both foreign currency
and gold in the form of a press release which I reference as follows:
"The item gold and gold receivables forms part of the foreign
reserves of the Eurosystem. It consists of physical gold and
non-physical gold in the form of gold deposit accounts."
"According to the opening financial statement of the Eurosystem
on 1 January 1999, the most important single item on the asset side
of the Eurosystem's balance sheet was external assets. The net
position in foreign currency... amounted to EUR 227.4
billion,whereby assets of EUR 237.0 billion were opposed to
liabilities of EUR 9.6 billion. These figures refer to non-euro area
currencies, since euro area currency denominated foreign exchange
positions held on 31 December 1998 were transformed
automatically into domestic positions through the transition to
Stage Three... In addition, the stock of gold (asset item 1) of the
Eurosystem amounted to EUR 99.6 billion."
"The consolidated opening financial statement of the Eurosystem
reflects the initial valuation of the assets and liabilities of the
Eurosystem. According to the harmonised accounting rules for the
Eurosystem, gold, foreign exchange, security holdings and
financial instruments of the Eurosystem will be revalued at market
rates and prices at the end of each quarter."
Though it will take awhile for analysts, commentators, traders and
investors to sort out the full implications of this press release, there are
certain policy statements inferred in the financial statement that literally
jump off the page. Prior to this statement by ECB, few understood that
reserves would be presented as a consolidated balance sheet of all the
respective national central banks. This symbolically signals a uniformity
and centrality in the economic structure and policy making that comes as
a surprise. Prior to the release of this ECB statement, the best work I
had seen done on how reserves, particularly gold reserves were to be
handled, was published by the World Gold Council. In that they
assumed a gold allocation of 784 tons and said that that would be the
15% allocation frequently discussed. Now we find that because of the
consolidation, the ECB has upped the component to over 12,000 tons
and that it comprises 30.45% of a very large overall number. The Wall
Street Journal reported this morning a figure of 15% but this is incorrect,
and they totally missed what appears to be the most important aspect of
the ECB's action, i.e., they have included all national reserves in ECB
reserves including all the gold in Europe. Beyond the numbers, as I infer,
as investors we must also consider the implications of the sheer size of
this reserve and what message Europe is trying to deliver in presenting
their financial position in this way.
We will leave that for further consideration as the euro process moves
ahead. Suffice it to say, that this blows a hole in the theory that Europe
will be divided over gold and that the national central banks can
somehow undermine the gold price. Policy clearly resides with the
central bank and the central bank has been very clear about is opposition
to gold sales despite what those on the short of the market are telling us.
Though I doubt the mainstream press will give up on this idea in the
months and weeks ahead, my view is that is that the ECB announcement
is a very strong opening volley in the upcoming monetary wars and
perhaps yesterday's strong move was the first indication how
Euro-policies could affect the gold market. To put the matter in terms of
physics, the Europeans have converted the weak force to a strong force
binding those countries. We should not underestimate what that might
mean to our portfolios.
I would like to thank Goldfly at the USAGOLD FORUM! for helping
me source this report.
I am going to leave up Wednesday's report for the weekend for those
who missed it. Have a good weekend, fellow goldmeisters. We'll update
if anything significant happens. I encourage all to visit and participate at
the FORUM. I can only open the door with this report. To get a fuller
understanding, it accomplishes a great deal to share your ideas with
others -- both for your own intellectual growth and understanding of this
new world monetary system as well as the same for the people you
address. See you at the FORUM!
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