Roundup: Gold Market

Gold Market

For the week, spot gold closed at $1,136.60 per ounce, up $39.28, or 3.58 percent. Gold equities, as measured by the XAU Gold & Silver Index rose 8.02 percent for the week. The U.S. Trade-Weighted Dollar Index fell 0.51 percent.

Strengths

• According to statistics compiled by Commodity Online Bullion Research, investor holdings in the major global gold exchange-traded funds increased as gold spiked 39 percent for the year. The value of the total daily investment flows at the end of 2009 was $61.3 billion, a gain of 84 percent for the year.
• The Bombay Bullion Association said India imported 300 to 350 metric tons of gold in 2009, higher than the previous estimate of a little over 200 metric tons. Also noteworthy is that a recently stronger rupee has ignited gold buying in India, causing several physical dealers to report declining levels of stocks.
• The Ministry of Industry and Information Technology said China’s gold output in the first 11 months of 2009 was around 282.5 metric tons, a 14.6 percent increase over the same period in 2008. However, the estimated demand for gold in China was 450 metric tons, up 13.8 percent over the prior year.

Weaknesses

• Gold fell after a week of healthy gains mainly due to profit taking after the Labor Department announced 85,000 jobs had been lost in December. The U.S. dollar also fell after being pushed up by speculators on hopes that the much anticipated jobs report would be positive.
• The world’s largest bullion-backed ETF witnessed reserves decline by 5.25 metric tons, or 0.47 percent, to 1,123.5 metric tons.
• Treasuries were the worst-performing sovereign debt market in 2009 as the U.S. sold $2.1 trillion of notes to fund stimulus packages. According to Bank of America-Merrill Lynch, investors in U.S. debt lost 3.5 percent on average through December 30, the biggest annual slide since at least 1978.

Opportunities

• According to the Sovereign Wealth Fund Institute (SWF), there are a total of 55 SWFs globally, half of them being investment funds linked to the United Arab Emirates. Western economies have expressed concern during Dubai’s debt crisis because of neighboring Abu Dhabi securing a $10 billion bailout package. The issue going forward is that sovereign wealth funds may withdraw from their overweight investment positions in the U.S. and Europe in order to raise cash for ailing businesses domestically, which may cause weakness in those currencies.
• Zimbabwe's mining secretary expects mining production in the state to increase 30 percent this year following the reopening of various mines that were forced to shut down during the nation’s decade-long recession.
• Gold may rise as New York gold futures command a greater weight in the Dow Jones UBS Commodity Index in 2010. The new weighting is 9.1 percent, up from 7.86 percent.

Threats

• BNP Paribas analysts expressed concern that the heavy level of investment demand for gold seen in 2009 will need to be maintained for prices to keep gaining, unless other sectors such as jewelry can adjust to these high prices.
• Venezuela has begun rationing electricity use in businesses aimed to save power amid a power drought. Breitbart has reported the new regulations came into effect on January 1, which requires businesses to comply with reduced consumption limits. Authorities have warned of forced power cuts and rate hikes if measures are violated.
• The U.S. Commerce Department said the U.S. has imposed duties of 43 to 289 percent on imports of more than $300 million worth of Chinese steel. Following the news, the United Steelworkers union and several U.S. companies filed a new petition asking for duties of at least 109 to 274 percent on Chinese-made drill pipes.