Gold Market
For the week, spot gold closed at $1,119.20 per ounce, up $25.82, or 2.36 percent. Gold equities, as measured by the XAU Gold & Silver Index (XAU) gained by 3.03 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) gained 0.41 percent.
Strengths
- The World Gold Council said China was the only emerging country to record growth (22 percent) in investment demand in 2009. Also, strong investment demand in developed markets offset weaker emerging-markets demand.
- Gold, at more than $1,100 per troy ounce, has been supported by concerns over the outlook for the currency markets. VM Group Analysts say the only feasible solution to the debt crisis in Greece is either through a devaluation or inflation, both of which are gold-supportive.
- Contrary to earlier reports, India retained its position as the largest gold-consuming nation in 2009 primarily because of higher consumer demand in the fourth quarter of the year. Indian festivals and weddings created demand, and jewelry dealers offered year-end promotions to strengthen sales.
Weaknesses
- The Federal Reserve raised the discount rate by 25 basis points to 0.75 percent, causing the U.S. dollar to strengthen across a basket of currencies as risk-averse investors flock to where monetary tightening is evident in efforts to avoid market turbulence.
- The World Gold Council has said that total identifiable gold demand fell 11 percent to 5,386 metric tons in 2009.
- The U.S. Labor Department said core consumer prices fell 0.1 percent in January, signifying that the outlook for inflation remains low. Bonds linked to inflation are losing ground globally as investors see little need to protect against price increases as the dollar rallies and banks restrict credit growth.
Opportunities
- The chart above, courtesy of Pimco, marks the countries in red that have the potential for public debt to exceed 90 percent of gross domestic product within a few years, making sovereign credit risk a greater threat. Bullion stands to benefit as the economies of countries in the “ring of fire” experience anemic growth rates that weaken their currencies.
- The most recent Treasury capital flows report showed that China sold a record $34.2 billion in American debt in December 2009, in the process relinquishing for the first time in many years its position as the top U.S. debt holder. China has been marginally diversifying its reserves into other currencies and other assets.
- South African President Jacob Zuma silenced the African National Congress' Youth League, which earlier called for nationalization of mines, by reiterating that nationalization is not government policy. Gold miners firmed upon Zuma’s comments.
Threats
- The International Monetary Fund announced it will start selling 191.3 metric tons of gold in the open market, after already selling 212 metric tons to central banks in India, Sri Lanka and Mauritius.
- Greece's prime minister said Greek workers and companies have evaded more than $42 billion in taxes, more than 10 percent of GDP. Repairing the country’s fiscal imbalance by lowering debt levels to acceptable European Union standards may be more difficult than initially expected.
