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Gold/Mining/Energy : A to Z Junior Mining Research Site -- Ignore unavailable to you. Want to Upgrade?

To: 4figureau who wrote (4219)	4/25/2003 9:46:33 AM
From: 4figureau	Read Replies (1) \| Respond to of 5423

Minesite: Gold Field Mineral Services Takes Bullish View On Gold Through Into 2004. Why the dollar should have strengthened when George Bush sent his ill-disciplined troops into Iraq is difficult to understand. Now the inevitable has happened and the citizens of that country want nothing to do with an American administration led by a redundant general. Moreover the other countries of the world such as Russia, who were not convinced by any of the various reasons given for war, are going to make sure that America does not get its hands on Iraq’s oil. Our two heroes, George Dubya and Tony Bliar, now have to face up to the fact that they have problems on the home front which temporary euphoria over a war best forgotten will not obliterate from the minds of electors. The Congressional Budget Office estimated recently that the US deficit over the next ten years would reach US$1.2 trillion. That is big bucks and equates to around US$15,000 for every family in the country. The Financial Times seemed to think that this was on the low side and Goldman Sachs came out with an estimate nearly three times higher. Maybe it factored in that wars no longer have a simple end and may simmer on for years. Until now the population has felt no particular pain from this deficit as it has not affected the Federal budget. As the Federal governor Ben Bernanke explained last summer: "We have a technology called a printing press..." The individual States have no such technology and have to try to close the gap between revenue and expenditure. The only way they can do this is by cutting back on police, libraries, roads, medicare, education – everything that Joe Soap expects as his due. “State governments are under siege,” says the President of the National Conference of State Legislatures. New York faced a “doomsday budget,” say the press reports. Commentators are now starting to point out that it makes no sense for Congress to ratify ever more spending when the money does not get through to the people. Everyone outside the US understands this, which is why the steady switch from US dollar to Euro has knocked 20 per cent off the value of the dollar. Just think how this trend could accelerate once US investors come to appreciate the yawning hole that Congress is digging under the US dollar. There was clear evidence of it this week when the dollar fell sharply and gold rose by US$6.30/ounce in a single day. In this context it is interesting to take a look at the other factors which will affect the price of gold one way or the other. First and foremost has to be supply and demand. Just before Easter Gold Fields Mineral Services released its Gold Survey for last year which showed that primary supply and primary demand all but matched bar 5 tonnes. On the supply side mine production fell marginally to 2,587 tonnes as a result of lower grades at Grasberg and lower productivity in Nevada. This was more than counter balanced by an increase in scrap to give an overall boost of 2.7 per cent to supply at 3,422 tonnes. On the demand side fabrication was hit by world economic problem and lower demand from India, but de-hedging came to the rescue with 423 tonnes in 2002. Interestingly GFMS reckons that de-hedging and investment demand will more than offset weak fabrication demand this year as well. The trend away from hedging is not expected to change as interest rates are at such low levels that contango rates are rendered unattractive. Investment demand is more difficult to predict, but without doubt the Chinese are squirreling gold away and the war will certainly have helped to promote the idea of an Islamic gold dinar. The flotation of Gold Bullion Securities in Australia offers investors a simple way of investing directly in gold, but the take-up has been slow. Maybe this year the World Gold Council will actually be able to announce its new gold investment instrument, but don’t count on it. What is in no doubt is that in times of stress and strain the natural instinct is to hoard a bit of gold and as long as George Dubya is in charge there is bound to be plenty of stresses and strains. Those who find gold a problem usually trot out the old question “What happens when the Central Banks are released from Washington Accord and can sell gold again next year.” This is probably best answered by asking first if it would be politically wise for them to sell while gold continues to perform (Chancellor Brown’s opponents miss few opportunities to remind him that he sold UK gold assets at a low point) and, secondly, into what currency they would switch. While they ponder their answers they may be interested to know that GFMS is looking for an average gold price of US$375/oz at the end of this year. This is predicated on interest rates remaining low, the US dollar falling and increased investment in gold. Achievement of this level would have the chartists looking towards US$450/oz gold in 2004. minesite.com