Gold Market Radar (April 9, 2012)
For the week, spot gold closed at $1,631.23 down $37.12 per ounce, or 2.2 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, fell 6.8 percent. The U.S. Trade-Weighted Dollar Index jumped 1.3 percent for the week.
Strengths
- Following the release of Fed minutes that indicated sentiment towards renewed stimulus programs was not immediately pressing, the pullback in bullion prices stimulated strong physical demand from India on Wednesday. Dealers reported that buying demand was the strongest since March 14. Historically, Indian buyers have been fairly price-sensitive to buying when they perceive pricing is at bargain levels.
- Randgold Resources, Mali's largest investor, and AngloGold Ashanti, Africa's largest gold producer, said on Wednesday they had enough supplies of fuel to sit out any immediate changes in the way they do business with respect to the coup d’état in Mali.
- Mark Bristow of Randgold Resources said the company, which sources two-thirds of its gold from Mali, had no problem bringing in fuel and shipping gold despite border closures by the 15-state Economic Community of West African States designed to squeeze Mali's economy. Gold companies with mines in Mali are playing down the risk of border closures and fallout from sanctions imposed on the West African nation after a coup last month.
Weaknesses
- Gold’s recent decline has also been based on India’s nationwide jeweler’s strike to protest a tax on non-branded ornaments. The strike is in its 19th day today. The country was the world's second-largest bullion consumer in the fourth quarter.
- Gold imports into India tumbled more than 55 percent in March. The president of the Bombay Bullion Association notes that the country imported just 15 to 20 tonnes of gold in March as compared to the 45 to 55 tonnes that is usually imported on a monthly basis. He added that the high price of the precious metal also deterred fresh purchases in the first quarter.
- The combined jewelers strike in India plus the comments that the Federal Reserve was unlikely to provide more stimuli for the economy, sent many gold stocks to 52-week lows this week. In addition, this situation was exacerbated by a large fund complex in Canada that had a change in ownership, with the new management instituting wholesale changes for many of the firm’s portfolios, dumping millions of shares of gold-mining and oil stocks.
Opportunities
- An upcoming Hindu festival, Akshaya Tritiya, held on April 24, may be the catalyst that brings the jeweler’s strike in India to an end and moves gold prices higher in April. In terms of important festivals, the Akshaya Tritiya festival and Dhanteras are the two biggest gold-buying events in the Hindu calendar. These are essential buying occasions that jewelers won't want to miss, especially after the strike-inflicted drop in revenues in March.
- According to an analysis of the Chinese gold market, growth in aggregate demand from jewelry buyers, private investors, and the People's Bank of China will continue to outpace growth in total supply from mine production and secondary sources. Furthermore, it suggests that the country's gold production and consumption are both far higher than figures suggest, but also that this gold will not find its way back on to the global marketplace.
- With both domestic supply and demand relatively price inelastic, the market will require a growing stream of imports, which will be available only at higher prices. Despite bullion prices having moved up from $300 to more than $1,600 over the last decade, world gold mine production is essentially unchanged.
Threats
- The Mozambican government is seeking to guarantee that the sale of shares in mining companies whose assets are in the country should bring financial benefits to the country. A team of officials from the Ministries of Mineral Resources and of Finance has been set up to work on how to tax these sales. The new law, which is expected to be submitted to the country’s parliament, will stipulate that the transmission of mining rights and titles must obligatorily take place in Mozambique and any public offer of shares must be announced in the Mozambican press.
- Ongoing conflicts in Eritrea and the threat of additional sanctions pose significant risks to the country’s mining sector and those companies operating within the borders. The country is currently the target of U.N. sanctions, its hostilities with neighboring Ethiopia have reignited in recent months, it faces serious infrastructure issues (particularly with regards to water), and its authoritarian government’s military and geopolitical ambitions are unsustainable. So while Eritrea’s mineral deposits are attractive, it will remain one of the riskier mining jurisdictions in Africa for the foreseeable future.
- A Romanian court annulled a zoning plan that further delayed the development of Gabriel Resources’ Rosia Montana project. The project has been a favorite for a number of non-governmental organizations to rally around to prevent the development of the mine. Reacting to the news today, Gabriel’s share price plunged 23 percent.
