For the week, spot gold closed at $1,101.90 per ounce down $32.75 or 2.89 percent. Gold equities, as measured by the XAU Gold & Silver Index (XAU) fell 2.79 percent for the week. The U.S. Trade-Weighted Dollar Index (DXY) also slipped, losing 0.77 percent.
Strengths
- Hedge fund managers John Paulson and George Soros both made significant investments, at discounts to market, in a potential gold-mining company with significant mineral assets. These transactions point to an expectation of future economics in the gold mining sector which are deemed to be more attractive.
- John Embry, chief investment strategist at Sprott Asset Management, was recently interviewed on Mineweb.net and noted the public is becoming increasingly aware of the looming sovereign debt crises. He noted that historically they would counsel investors to have 5 to 10 percent of their assets in the precious metals sector, but now that suggestion is above 20 percent.
- A recent IMF Staff Position Note âRethinking Macroeconomic Policy," released this quarter, is making the argument that traditional inflation targeting of 2 percent may not be optimal and opens the discussion of inflation targets at 4 percent.
Weaknesses
- Some of the recent weakness in gold was attributed to liquidations of long position related to an upcoming hearing by the Commodity Futures Trading Commission to investigate speculative interest in the precious metal market.
- South African has fallen to the worldâs fourth largest gold producer behind China, Australia and the United States. Falling production is partly being driven by declining ore grades, down 8 percent over the past year. Reportedly, China is very active within South Africa trying to secure supplies of industrial metals, but likely would not rule out opportunities to obtain production interest in the precious metals sector.
- The prime minister of Greece has been busy trying to find governmental allies to create regulations that would limit the use of credit-default-swaps in financial markets, which he blames for driving up the borrowing costs of issuing debt.
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Opportunities
- Last year was the first time union membership in the public sector rose above private sector membership. The average hourly wage of public employees last year was $39.66, about 45 percent higher rate than the average hourly wage of $27.42 paid in the private sector. According to U.S. Bureau of Labor Statistics, businesses have cut 8.5 million jobs while government job losses are almost nil. Public spending to support these jobs could contribute to massive deficits that could weaken the dollar and benefit gold.
Threats
- RBC recently highlighted that the South African rand could rise 10 percent in the next three months as the country prepares to host soccer's World Cup. Unless the gold price rises an equal amount, some of the miners could see a margin squeeze.
- Several reports have highlighted whether the days of big gold companies is over. While this can be an opportunity, uncertainty is more prevalent in the near term.
- The worldâs biggest gold miner is planning to list its African assets as a separate company in London. In another case, the worldâs third largest gold miner hinted the company could rationalize assets.
