ANALYSIS OF THE DOMESTIC AND INTERNATIONAL GOLD MARKETS IN Q3 2004

Performance of the global and domestic gold markets

In the third quarter of 2004, the global market price of gold has fluctuated between US$385 to US$420 per ounce, with a high of US$418.25 on September 30 and a low of US$386.2 on July 28. The gold market movement in the quarter took on a W shape, with two lows between US$390 and US$400, and highs between US$405 and US$420. This year, the domestic price of gold is no longer higher than the global market price. Compared with the second quarter, especially April and May, there was a significant increase in both trading days and the extent to which the domestic gold price was lower than the global price.

Analysis of movements in the price of gold

First, the impact of the changing world economic situation: Gold prices are influenced to a large extent by the movement of the USD. Lower than expected data on U.S. employment, manufacturing, trade, and retail resulted in a weak dollar and strong gold price in early July. The optimistic comments from Chairman Greenspan of the Federal Reserve and a rebound in the consumer confidence index made the dollar rise and gold price fall in late July. However, in early August the numbers for U.S. GDP growth rate and new job opportunities did not match expectations, bringing about USD depreciation and gold price appreciation. Gold prices experienced a slight drop in late August as investors waited for signals from the Fed. The September data showed that U.S. economic growth was continuing to slow, and the market predicted the suspension of restrictive monetary policy. All these fundamental factors supported the gold market in the medium run.

Second, the impact of the global oil prices: The soaring price of oil increased investor worries about inflationary pressure and a slow-down in the world economy, which increased the attractiveness of gold's hedging function.

Third, the impact of the global political situation: There was no improvement in geopolitical stability in the third quarter. As the U.S. presidential election draws closer, worries about a potential terrorist attack have also risen. All of these events have increased investor interests in gold.

In the fourth quarter, the author predicts that the international and domestic gold price will continue to rise.