Gold Market
For the week, spot gold closed at $1,238.01 per ounce, up $10.13, or 8.3 percent, for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 3.4 percent. The U.S. Trade-Weighted Dollar Index was essentially flat.
Strengths
- The World Gold Council released it Gold Demand Trends publication for the second quarter of 2010 and highlighted the massive growth in investment demand, including a 414 percent jump in gold ETFs compared to the same period last year. Gold demand also rose 36 percent higher than the same period as last year.
- The gold price was propelled to a seven-week high due to a U.S. government report that showed weaker-than-expected data in orders for durable goods and a record low pace sales of new homes.
- India’s consumption of gold rose 94 percent in the first half of 2010 compared to the same period last year. The total demand for gold jewelry in the country in the first half of 2010 increased 67 percent compared to the same period last year.
Weaknesses
- “The world may well have lost its optimism over the global economic outlook, but the two key drivers for the price of gold—anticipation of higher inflation and lack of risk appetite—are little more than shifting sands,” according to Renaissance Asset Management.
- Investors withdrew $33 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute. If that pace continues, more money will be pulled out of mutual funds in 2010 than any year since the 1980s, with the exception of 2008, when the global crisis peaked.
- It was hoped the numerous festivals in India at the end of August would revive gold buying in India, but the high price appears to have trimmed volumes and caused consumers to opt for cheaper imitation gold.
Opportunities
- Van Eck Associates forecasts a new record gold price as of $1,400 as we move through the fall of 2010 and into 2011.
- Amid the likelihood of a hung Parliament, Australia’s Association of Mining and Exploration Companies is pushing for the government to remove all uncertainty and scrap a planned mining tax. The AMEC points out that Australia’s reputation has been damaged, and that dropping the tax would “announce to the world that Australia’s doors are open for business again.”
- An analyst at the Gold Forecaster stated that “gold will not enter a bear market by falling as equity markets are to do today. It is not an item whose demand will fall away.”
Threats
- U.S. Representative Ron Paul plans to introduce a new bill next year that would allow for an audit of U.S. gold reserves.
- Many real estate experts now believe that home ownership will never again yield rewards like those enjoyed in the second half of the 20th century.
- Dean Baker, co-director of the Center for Economic and Policy Research, estimates that it will take two decades to recover the $6 trillion of the housing wealth lost since 2005.
