Gold Market
For the week, spot gold closed at $1,130.93 per ounce down $7.32 or 0.64 percent. Gold equities, as measured by the XAU Gold & Silver Index, fell 4.93 percent rise for the week. The U.S. Trade-Weighted Dollar Index slid 0.34 percent.
Strengths
- Gold Fields Mineral Services has said in its latest gold survey that official central bank sales declined 90 percent in 2009 as they shifted onto the buy-side of the market during the second quarter and have remained there since.
- Central bank gold sales for the year were only 157 tonnes, significantly lower than the Central Bank Gold Agreement’s quota of 500 tonnes.
- World investment tonnage more than doubled last year, rising by 482 percent to 1,375 tonnes, as investors piled into bullion-backed exchange traded funds and other investment vehicles that track the price of gold.
Weaknesses
- China’s decision to raise reserve requirements by 50 basis points for banks hurt commodities and caused gold to erase earlier gains in the week as risk-averse trades strengthened the dollar and Greece’s fiscal crisis dented investor confidence. Analysts see the tightening in China as a weakness because it is believed it will curb demand for raw materials.
- Peng Junming, an investment strategist at China’s sovereign wealth fund has said the U.S. dollar has most likely bottomed as there will be very limited space for the dollar to drop further, and has said that there is no urgent need for China to increase gold buying for now because of high prices.
- Reports from the U.S. Treasury calculated $15 billion profits from the Capital Purchase Program for banks and another $4.4 billion in profits from other bank investments and lending programs. However, the figures are miniscule when compared to the estimated net losses on its $700 billion bailout program which totaled $68.5 billion for the fiscal year ended in September 2009 primarily due to the continued weakness from AIG, automaker bailouts, and mortgage payment losses.
Opportunities
- The World Economic Forum (WEF) has expressed that sovereign credit risks are rising and has said that unsustainable debt levels ranked among the top three risks for the year ahead. WEF has said debt levels have risen from 78 percent in 2007 to 118 percent of GDP in the G-20. Continued weaknesses in Dubai, Greece, and Ukraine may entice investors to seek refuge in gold.
- The World Gold Council has said that gold sales across the countries in the Middle East will considerably pick up in 2010 thanks to better market conditions and rising demand for gold as an alternative asset.
- Notable gold investor, Rob McEwen believes gold prices may increase to $5,000 an ounce between 2012 and 2014 and maintains his forecast that gold will rise to $2,000 an ounce by the end of the year.
Threats
- Governor Schwarzenegger is refusing to consider tax hikes and is relying mostly on $8.5 billion in expenditure cuts from medical insurance programs, among others. He is also counting on the U.S. government contributing nearly $7 billion to plug the budget deficit gap. As a result, Standard & Poor’s cut California’s debt yet again citing “severe fiscal imbalance and the impending recurrence of a cash deficiency if the state’s revenue and spending trajectories continue.”
- The chairman of the Commodity Futures Trading Commission said that the agency’s planned meeting in early March to discuss possible position limits on metal futures and options contracts will focus on gold and silver contracts.
- Inflation fears in Venezuela have risen after President Hugo Chavez decided to devalue the bolivar by 50 percent to benefit the largest state-owned oil producer after margins fell due to the fall in crude prices last year. It will raise cash for social projects and will increase wages ahead of parliamentary elections in September. Chavez has warned businesses that raise prices ahead of the devaluation will be seized by the government.
