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AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.


3/1/2004: Currency intervention pressures gold

Source:

Greeting from American Gold Exchange. In this brief issue of Gold Market Commentary:

Currency intervention pressures gold
Excellent buying opportunity!
Lower bullion-related gold coin prices

Since our last update gold has been pushed back on its heels by Bank of Japan intervention against the yen on behalf of the dollar. The euro, too, is being “talked down” against the dollar by speculation of an upcoming ECB interest rate reduction. After weakening to a low of $390.20 last Wednesday, gold firmed up to close last Friday at $396.60. This morning gold is stronger, hovering right at the $400 mark in active trading.

The other metals continue their solid performances. Silver remains strong, closing Friday at $6.73 and pushing higher this morning in New York at over $6.90. Platinum is gaining aggressively, closing at $885.00 on Friday and crossing over the $900 mark today, and palladium, pushing higher again, is back at $242.00. Oil, too, is escalating in price, so keep an eye on it.

Currency intervention pressures gold

In our last issue we warned about the likelihood of Central Bank intervention on behalf of the ever-weakening dollar. Well, intervention has begun. The Bank of Japan has clearly signaled its intent to intervene in the currency markets to defend the yen from rising further against the dollar. According to Derek Halpenny, currency economist at Bank of Tokyo-Mitsubishi, "The tactics of the Japanese authorities have clearly changed. There is a widespread belief that the Bank of Japan has been active in supporting the dollar at the Y108 level." (See Economy Watch, 2/25: Yen higher as BoJ hardens intervention tactics.”)

In addition, it’s been widely reported that the ECB may discuss reducing interest rates in their meeting of March 4, an action that will hold down the rapidly rising euro and effectively prop up the tumbling dollar by default. Last week, news of the possibility of the rate reduction fueled the dollar’s rally from all time lows against the euro. The dollar has rebounded from 129 euros to about 124 to the dollar in the last week, and the gold price has fallen in response. (See Economy Watch, 2/26: “Dollar rally extended on ECB rate view.”)

So the intervention we anticipated has clearly begun, and will impede the rise of the gold price in the short-term. But as we said last time, such attempts to artificially strengthen the dollar are like fingers in the dyke: ultimately they just cannot hold back the tide. In our 24 years as gold traders, almost every instance of currency intervention has ultimately failed. Like water, money seeks its natural levels, and the dollar will sink lower despite its temporary support. Gold’s rise will continue because of natural market fundamentals.

Our economy remains sluggish at best. U.S. debt of all kinds is already at record levels, yet continues to grow unabated. Joblessness continues to haunt the workforce and consumer confidence, the backbone of our hopes for economic recovery, dropped again in February. (See Economy Watch, 2/24: Consumer confidence drops in February.”) The dollar’s decline in value is far from over, and might continue in a far less orderly fashion. Based on these financial facts alone we remain extremely bullish on gold and bearish on the dollar.

Our target projections of gold attaining $500 to $550 remain intact, but our 12 to 24 month time line may need to be expanded a bit to accommodate the artificial resistance gold is now encountering.

Excellent buying opportunity!

As gold market analysts, following a bout of market weakness — especially artificially-induced weakness, like we’ve seen this week — we want to see a solid up-movement in the market before we have confidence that the weakness has passed. Gold is clearly weakened by the recent “strength” in the dollar, and will continue to be influenced by daily gyrations against the euro and the yen. Because of governmental influence (the proverbial 50 ton elephant in the room), the dollar is behaving abnormally right now, and so is the gold price.

It’s important to keep in mind that the motive behind this week’s currency intervention is to slow and regulate the dollar’s decline. Central bankers hate precipitous changes in currency values. But they cannot stop the dollar from ultimately finding its natural level in the market.

We saw heavy physical buying at $391 to $392, which is normally a positive sign. And gold has firmed up in price in the last two trading sessions. However, this is an election year and we have both the Bank of Japan and the ECU protecting the dollar right now. Remember, anything is possible in the short run.

But the long-term prospects for gold are just as bullish as before. Once again, we expect gold to reach the $500 to $550 level. It might take a little a longer, that’s all. Today’s weakness in the gold market is an unexpected buying opportunity that should not be overlooked! We urge you to take advantage of this dip and buy gold now, while the price is artificially reduced. If necessary, buy incrementally over a period of time to average your costs.

Lower bullion-related gold coin prices

We also strongly recommend that you exploit this temporary market weakness to purchase whatever you can afford in the classic U.S. gold coins sector. Already in short supply, classic U.S. coins will only diminish in availability and rise in price as gold continues to surge in the future. Prices have dropped a bit for the more gold related coins, but demand is already rising, spurred on by gold under $400.

Prices are lower on our more bullion-related European coins as well. French 20 franc “Angels” and British gold sovereigns are both excellent choices for bulk gold today, with reduced premiums and excellent leverage against a rising market.

Common date U.S. gold coins are an excellent value right now, offering relatively low premiums and greater leverage than bullion coins. We have a small window of opportunity available now for savvy buyers. Please take advantage of it!

That’s it for now. As always, thanks for your time!

Sincerely,

Dana Samuelson, Owner and President
Dr. Bill Musgrave, Vice President

  

Metal Ask      Change
Gold $1,476.94           $0.00
Silver $17.01           $0.00
Platinum $934.12           $0.00
Palladium $1,946.20           $0.00
In US Dollars