Gold Market
For the week, spot gold closed at $1,115.40 per ounce down $46.00 or 3.96 percent. Gold equities, as measured by the XAU Gold & Silver Index lost 5.23 percent for the week. The U.S. Trade-Weighted Dollar Index gained 0.84 percent.
Strengths
- The Moscow Times has reported that the Russian central bank plans to continue to increase gold reserves to diversify the structure of its reserves, and to seek alternatives to a weakening dollar. Analysts at Renaissance Capital in Moscow estimate that Russia’s gold reserve probably rose by $790 million to $23.1 billion in the week ended Nov 27.
- BullionVault has reported that Sri Lanka, whom has already purchased 10 tonnes of gold from the International Monetary Fund, is keen to buy more gold to increase its gold reserves.
- Zhu Min, vice-governor of the People’s Bank of China, has said that China is experiencing a clear V-shaped recovery and added that the economy was well on track to meeting or possibly exceeding the government’s target rate of 8 percent growth this year.
Weaknesses
- Gold fell during the week as risk-averse investors sought the safety of the U.S. dollar amidst rising credit problem concerns in Greece, Spain, Italy and Dubai. Fitch ratings lowered Greece’s credit rating one step to BBB+. Similarly, Standard & Poor’s cut Spain’s credit rating outlook, sustaining the selling of currencies in favor of the U.S. dollar.
- Also contributing to the resurfacing of risk-aversion are intentions from both Japan and the United States to expand quantitative easing aimed at preventing the economy from tipping back into recession as deflation persists. Treasury Secretary Geithner has decided to extend the Troubled Asset Relief Program until next October and the Japanese government has unveiled an additional $81 billion economic stimulus package.
- The world’s largest bullion-backed exchange-traded fund has shed almost 14 tonnes of its reserves in the first few trading days of the week as the dollar strengthened but its holdings was stable thereafter.
Opportunities
- David Rosenberg, Gluskin Sheff Chief Economist & Strategist, sees gold going as high as $2,623 per ounce if China follows through on its plans to begin stockpiling the precious metal and sees increased jewelry demand in the country being a further driver in the gold price.
- Billionaire investors John Paulson recently spoke at a luncheon presentation at the Japan Society and noted his concern about high rates of inflation in the future and his concern about holding assets denominated in U.S. dollars, “So I looked for another currency in which to denominate my assets in. I feel that gold is the best currency.”
- Bloomberg has reported that Russia is considering an easing of mining laws designed to attract foreign investors by offering tax breaks and increase compensation should the state decide to take back assets.
Threats
- Due to the recent agreement between the United States and Colombia permitting the U.S. to increase its military presence within the state to subdue narcotics, Venezuelan President Hugo Chavez has raised border tensions with neighboring Columbia on assumptions Washington and Bogota are working together to engage in a military offensive against Venezuela.
- Politico has reported that Democrats are preparing to raise the federal debt ceiling by as much as $1.8 trillion before New Year’s rather than having to face the issue during election season and has also added that the legislation sets no specific targets for deficit reduction.
- According to the Tax Foundation, one-third of those filing tax returns in 2007 paid zero income tax, while about half of those received money from the government. This translates into almost 62 million workers that paid no income tax in 2007.
