Gold Market
For the week, spot gold closed at $1,093.38 per ounce up $27.08 or 2.54 percent. Gold equities, as measured by the XAU Gold & Silver Index gained by 3.47 percent for the week. The U.S. Trade-Weighted Dollar Index fell 0.16 percent.
Strengths
- A filing with the Securities and Exchange Commission shows that Chinaâs sovereign wealth fund has been accumulating stakes in gold bullion and resource firms, spending billions of dollars on mining and energy related investments.
- Gold overcame earlier weakness and was boosted during the week as investors once again embraced risk after the European Union brokered an agreement to help Greece withstand its national debt crisis.
- Goldâs rally late in the week may have stemmed from Greece reaching a preliminary deal with the European Union in order to avert a default. Greeceâs 112 tonnes of gold reserves, which make up 71 percent of total reserves, may have been on the table as a means to temporarily fund their budget gap.
Weaknesses
- Treasury Secretary Geithner countered Moodyâs Investors claims that U.S. governmentâs bond ratings may be subject to a downgrade in the future by saying that the U.S. will "never" lose its Aaa debt rating. The statements further buoyed the U.S. dollar as investors sought refuge from policy and sovereign credit risk in the Euro zone area.
- Bloomberg reported fewer Americans than anticipated filed claims for unemployment insurance last week. Initial jobless claims decreased by 43,000, the lowest level in 5 weeks. Australiaâs labor market has also notably improved as employers added the most workers in three years, rising 52,700 from December.
- However, according to ADP, the worldâs largest payroll processor, small businesses continue to cut capital spending and dismiss workers, hurting the prospects in contributing to a sustainable economic recovery.
Opportunities
- Instead of reducing its trade surplus through the appreciation of the yuan, China is more inclined to raise workersâ wages, which would send labor costs higher, cutting Chinese export competitiveness. Higher wages will boost domestic consumption and will reduce reliance on exports. Also, higher wages will increase Chinese buying power when it comes to gold jewelry consumption.
- South African miners continue to step up against illegal mining as some have been cited saying that average grades have improved and production in older mines have increased as a result of the eradication of illegal mining.
- The recent correction in the gold price may be supportive of further central bank purchases wanting to add reserves at depressed prices.
Threats
- Canaccord Adams has said that more than a quarter of last yearâs total private placements for mining related companies on the TSX Venture Index closed in November 2009. The four-month trading restrictions on the private placements will expire in March 2010 and may increase selling pressures on the Venture Exchange this spring.
- U.S. government officials are seeking an alternative way of funding the nationâs massive deficit by considering removing tax exemptions from gold bullion sales, possibly raising federal tax receipts by $2.6 billion.
- Risk trades, which are supportive of U.S. dollar weakness and gold strength, have started to diminish as traders and hedge funds have bet nearly $8 billion against the euro, amassing the biggest ever short position in the single currency on fears of a euro zone debt crisis.
