Gold Market
For the week, spot gold closed at $1,081.28 per ounce, down $11.92, or 1.09 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index (XAU), fell 6.83 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) climbed 1.52 percent.
Strengths
- Investment demand for gold continued to be robust. The World Gold Council said investors bought 30 metric tons via exchange-traded funds in the fourth quarter of 2009, contributing to an overall total of 1,762 metric tons of ETF holdings for the year.
- The China Gold Association said China's gold output jumped 11.3 percent to a record of 314 metric tons in 2009, securing its position as the world's largest gold producer for the third straight year.
- India started the year on a positive note by importing 35 to 40 metric tons of gold during the first 27 days of January, up from 9.8 metric tons last January. Stable prices have given 2010 a good start to gold demand, the Bombay Bullion Association said.
Weaknesses
- Gold was negatively impacted during the week by offloading of positions based on sluggish global cues.
- President Obama's spending freeze for several federal departments, and the Commerce Department's announcement that the U.S. economy grew at a 5.7 annual rate in the fourth quarter of 2009, were also supportive in a market environment where sovereign risk and financial imbalances are key concerns.
- The Office of Fair Trading is conducting a probing investigation on several companies in the "cash for gold" industry after complaints from customers show they were not offered fair values for their mailed-in jewelry.
Opportunities
- Research from Cormark Securities shows that global gold production peaked in 2001 at 2,600 metric tons. World output has been steadily declining from that point because of lower grades and higher capital costs that are making it uneconomic for producers to bring new gold onto the market.
- A bullion analyst in Beijing said the high price of gold is not deterring investors from the yellow metal as it does in India and the Middle East. Global investors Jim Rogers and Marc Faber have said that falling Chinese equity markets present good gold-buying opportunities.
- The U.S. Federal Deposit Insurance Corporation is planning to securitize more than $36 billion in assets from failed banks, and auction them off in a bond offering to help cushion the ailing mortgage backed security market.
Threats
- Bank of America-Merrill Lynch analysts believe that policy risk and government intervention remain the largest two risks to the economic outlook in 2010.
- Economist Nouriel Roubini said he is pessimistic on the eurozone and that Spain poses a serious threat because of its fiscal imbalance. Spain is the region's fourth largest economy with the unemployment rate of 19 percent, double the EU average. Rising sovereign risk may cause a flight of capital into the refuge of the U.S. dollar.
- The World Bank said commodity growth will be restricted for the next two years as a result of a low-growth economic environment. It has forecast global GDP growth of 2.7 percent this year, followed by 3.1 percent in 2011.
