Gold Market Cheat Sheet (September 12, 2011)
For the week, spot gold closed at $1,855.70, down $27.18 per ounce, or 1.44 percent, however the gold stocks tacked on gains. The U.S. Trade-Weighted Dollar Index jumped 3.29 percent for the week.
Strengths
- The gold mining equities, as measured by the NYSE Arca Gold Miners Index, ended the week with a gain of 1.42 percent, despite the weakness in gold prices.
- This rise is significant in that for most of the trailing year gold bullion has been beating the performance of the gold stocks.
- As we have recently highlighted, precious metal investors appear to now recognize that the mining company’s valuations have lagged the price performance of bullion and are rotating money out of bullion into shares of gold and silver producers.
Weaknesses
- Overall the economic data being reported as of late paints a somber picture.
- Not only was gold bullion down this week, but silver, platinum, palladium, and copper all decreased.
- The immediate beneficiary of the market turmoil was the U.S. dollar which rallied significantly despite the recent downgrade of our credit rating.
Opportunities
- The Swiss government policy change to peg their currency value to the euro is a game changer which should benefit gold and precious metals investors.
- No longer will the Swiss franc be a haven for a worried investor as the franc’s future has been anchored to the mask of a sinking ship.
- Another spike in COMEX futures margin requirements may prompt an abrupt sell off in bullion. Precious metal stocks seem to be the clear beneficiary for investors who want a continued exposure to gold.
Threats
- A recent study by the Federal Reserve Bank of San Francisco titled “Boomer Retirement: Headwinds for the U.S. Equity Markets?” outlines a less positive view on equity returns in the broader market.
- Essentially, the study notes historical data which suggest a strong link between age distribution and stock market performance. A key demographic trend is the aging baby boom generation that will likely shift from buying equities to selling equities to fund their retirement.
- The Fed noted that their statistical models on this relationship suggest this shift in asset allocation could hold down equity valuations of the general market for the next two decades.
