For the week, spot gold closed at $1137.40 per ounce, down $24.60, or 2.12 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 4.71 percent. The U.S. Trade-Weighted Dollar Index slid 0.39 percent.
Strengths
- In the prior week, the holdings in worldâs largest gold-ETF hit an all time high of 1,140 metric tons
Despite the strength in the U.S. dollar, investors are increasing giving a higher weight to sovereign risks and are choosing gold as a means of storing value. Jason Toussaint, managing director of World Gold Trust Services, noted that gold is increasingly being used as a long-term portfolio asset, particularly among institutional investors and pension funds.- Global gold output has been falling at about 5 percent a year since 2000-2001. The worldâs largest gold mining company recently presented a study showing that North American gold production from 1998 to 2008 fell 60 percent.
Weaknesses
- The above chart shows U.S. real disposable personal income rising about 1.8 percent over the last two years. However, as CLSA notes, if government payouts to consumers are excluded, real personal income has fallen by about 6 percent. The media portrays the economy as being on a steady footing now, so it will be very difficult for the government to withdraw stimulus funding in the near future.
- Goldman Sachs lowered its gold price forecast by $100 an ounce for 2010 to $1165, citing expectations that real interest rates would rise this year.
- Consumer confidence unexpectedly fell to its lowest level in five months, but the same survey, consumers also upped their inflation expectations from 2.7 percent to 2.9 percent for the next 12 months.
Opportunities
- The World Gold Council forecasts that gold imports into India may match or exceed last yearâs estimate of 480 to 500 metric tons and that gold prices could advance to as high as $1,300 per ounce in the coming year.
- The worldâs largest platinum producer also noted that it could see stronger demand this year.
- If China revalues its currency higher, as some expect, gold and other precious metals will become cheaper in their domestic market. However, this does not mean the U.S. will see an expansion in manufacturing jobs as Congress and others expect.
Threats
- With the U.S. health care reform bill passed, business-related measures could be the next legislative priorities for the Obama administration and Congress. Efforts to tighten capital market operations could have a negative effect on the economy on the whole, which could affect gold.
