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<DIV><FONT color=#000000>RTs,</FONT></DIV>
<DIV> </DIV>
<DIV><FONT color=#000000>This is a fundamental analysis note so if it doesn't
interest you pl delete it coz I don't predict gold wiggles for the next few
trading sessions! </FONT></DIV>
<DIV> </DIV>
<DIV><FONT color=#000000>Here's what my data suggests:</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV>Conclusions:</DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>1. Individual and institutions in Asia are net gold
sellers thru the crisis period of 4Q 1997.<FONT color=#000000> To answer BobR's
question, ground reality is that f<FONT color=#000000>alling local currency
makes it more expensive to buy gold because the world's retail markets price
gold in USD.</FONT></FONT></FONT></DIV>
<DIV><FONT color=#000000>2. Europeans are net sellers due to EMU Reserve
requirements; and believe other assets yield higher returns.</FONT></DIV>
<DIV><FONT color=#000000>3. Consumer demand grew in Europe and USA and fell
everywhere else in 1997, esp the 2nd half of 1997.</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>Analysis:</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>1. Gold is a "system hedge" - i.e. if
financial system collapses, then gold becomes an important store of value; else
remains, in economics jargon, sequentially, "basic goods with total price
elasticity" and "luxury goods" for use in </FONT></DIV>
<DIV><FONT color=#000000> a. industrial purposes as a cheap
substitute for other metals due to low price and better conductivity/corrosion
resistance and</FONT></DIV>
<DIV><FONT color=#000000> b. jewelry making. </FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000></FONT>We should see the Sonys and Toshibas start using
gold plated electrodes in their DVDs and VCRs soon - as opposed to other
non-ferrous metals, for example.</DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>As recent years' history has demonstrated, the
"system" has shown a tendency of being self-healing. So even though
gold is everyone's asset and nobody's liability, nobody perceives that asset to
have value in today's times and therefore that system hedge is not needed as
much as before.</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>2. EMU "pools" central bank balance sheets if
you will, effective Jan 1999. This synergy effect leads individual banks to hold
lesser Reserves. Central Banks therefore want to get rid of gold, one of the
more precious items on those Reserves that ALSO won't upset the system
applecart.</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>Borrowing from corporate finance, this Reserve
balancing happens through asset sales and through asset revaluations. Hence we
see, for e.g., conservative bastions and traditional gold bugs like France
revalue DOWN their gold balances on their last 2 semi-annual balance sheets by
as much as 8%. We also see, Belguim and Netherlands sell approx 300 tons of gold
each year in 1996 and 1997; and since EMU was decided back in 1989, approx 800
tons each. To put this in perspective, South Africa is the biggest gold producer
with annual production of just over 450 tons. The Swiss announce sales of 800
tons in 1997, but that is just under 33% of their gold reserves - so we can
expect to see some more here. These countries are CONSERVATIVE. There are
Australia (sold 67% of gold reserves in 1997) and Argentina (sold 124 tons or 5%
of world output in 1997). </FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>This seems to indicate that the world's financial
"system minders" - ie central banks - no longer believe gold is
a necessary system hedge - and when it does become important, gold derivatives
will take care of gold price hedging. Copper set a precedent here back in 1996
after the Sumitomo plunge by 40% which recovered in 2 months? Its like tigers
tasting human blood.</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV>The big 4 gold reserve holders - US, Germany, France and Italy in that
order - are all carrying gold ABOVE present market prices on their balance
sheets - and only France just devalued - so if these are not revalued down in
their next annual reports, we will see some more selling at the very least.
Watch Germany for clues here.</DIV>
<DIV> </DIV>
<DIV>Net gold balances were as follows for 1997:</DIV>
<DIV> </DIV>
<DIV>Sales: 825 tons by central banks and Institutions</DIV>
<DIV>Purchases: 432 tons by Institutions </DIV>
<DIV> </DIV>
<DIV><FONT color=#000000>Net sales: 393 tons.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT color=#000000>3. Asia: I'd like to break this down into China, India
and the ASEAN Tigers coz I think the dynamic is different in each.</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>a. China:</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>According to government controlled 1997 stats released
thru Xinhua, China INCREASED production 37% to 166 tons. China pays producers
$330 per ounce as opposed to present market price of about $281. </FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>Seasonal demand exists due to Chinese New Year and
other than that all gold I suppose goes into Reserves or Industrial
production.</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>b. India:</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>Retail consumers DID NOT BUY gold as a hedge against
currency depreciation (Rupee fell about 10% in last 4 months). Only source was
traditional jewelry buying due to seasonal factors - Diwali and marriages during
Oct-Jan. However, unlike ASEAN citizens, Indians were NOT SELLERS of gold.
</FONT></DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000>Falling local currency makes it more expensive to buy
gold because the world prices gold in USD. </FONT>As an aside - I know that a
lot of private Indian gold is hoarded and "off the books" anyways - so
net new sales are merely a drop in the asset creation ocean.</DIV>
<DIV> </DIV>
<DIV>c. ASEAN:</DIV>
<DIV> </DIV>
<DIV>i/ First 2 days in Korea's collection drive raised 1775 kilos of gold
on loan basis and 16 kilos as donations.</DIV>
<DIV>ii/ Thais were net DISINVESTORS by about 15 tons even before the recently
announced a-la-Korea collection drive. Same logic as EMU - companies and
individuals sold god at market prices to protect intrinsic asset value by
selling gold and buying dollars as a hedge against Baht. This net divestment was
a first in recorded Thai history.</DIV>
<DIV>iii/ Data for other ASEAN countries is not current so irrelevant.</DIV>
<DIV> </DIV>
<DIV>Obviously these have been boom times for fixed income markets. Isn't it
amazingly ironic that everyone SOLD bonds when they yielded 7% just a few months
ago and are now BUYING when yields are 5.7%? Wonders never cease...</DIV>
<DIV> </DIV>
<DIV>Hope this helps.</DIV>
<DIV> </DIV>
<DIV>Gitanshu</DIV>
<DIV> </DIV>
<DIV><FONT color=#000000></FONT> </DIV>
<DIV><FONT color=#000000></FONT> </DIV></BODY></HTML>
</x-html>From ???@??? Thu Dec 11 09:39:58 1997
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Date: Sun, 11 Jan 1998 11:28:37 -0800
Reply-To: RHunt.066@xxxxxxxxxxxxxxxx
Sender: owner-realtraders@xxxxxxxxxxxxxx
From: Bob Hunt <RHunt.066@xxxxxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Subject: Swing Machine - Keep it Coming
References: <01BD05C9.DDEB6980@xxxxxxxxxxxxxxxxxxx>
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Status:
I agree with Bill's comment. Those that don't understand the value of what
Clyde is providing don't understand the concept on which it is based.
Please don't try to silence someone in this forum just because you don't
understand what they are saying.
I actually wish Clyde would post much more often!
Bob Hunt
****************************************************
Bill Shumake wrote:
> With reference to the post below, I respectfully disagree. Clyde, I look at your "Swing Machine" posts every day and enjoy them. Please keep them coming!
>
> All the Best!
> Bill
>
> >.Dear Clyde . . . Lighten up please . . . We do not suppose your program is
> >any more prescient that that of Ed Kasanjian, whose hand is light.
>
> >Don't you think we have all heard of the swing_machine by now ?? . . .
> >Must you PUSH it all the time ??
>
> >Thank you.
>
> >Richard Harrisson
> >Aegina, Greece
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