For the week, spot gold closed at $1157.60 per ounce up $20.20 or 1.78 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index rose 2.23 percent. The U.S. Trade-Weighted Dollar Index gained 0.65 percent.
Strengths
- The above chart shows the relative performance of copper and gold prices. Since January 2009, copper prices have moved up faster than gold. Included on the chart is the relative performance of a basket of pure gold producing companies versus a group of gold producers that largely rely on copper or other base metals as a byproduct to add to their revenue.
- Official Chinese trade data for March disclosed the strongest-ever recorded inflow of platinum imports for the last decade. The rise is probably due to increased industrial demand, such as in oil refining where platinum is used as a catalyst for the cracking of petroleum.
Weaknesses
- An online commodity poll documented that 93 percent of investors believe the gold price will fall in the near term due to a recovery in global equity markets.
- Despite the perceived belief of recovery, the U.S. Treasury is expected to increase debt by issuing a record $128 billion in notes next week.
- A rallying U.S. dollar after the Moodyâs downgrade of Greece was a headwind to the gold price this week. Another headwind was speculation that some of the larger holders of the gold ETF might see some investor redemptions due to the recent fraud case brought by the SEC against Goldman Sacs.
Opportunities
- The worldâs 10 major gold miners have produced a negative $2 billion free cash flow throughout the last three years. This can be measured up against a positive $8 billion free cash flow from the U.S.âs largest copper miner. Recently, a number of these large gold companies have signaled they intend to pursue building copper mines that have byproduct gold potential. These require $3 to $4 billion a piece to build so donât expect a bunch soon but this brings up an interesting question: Will the copper miners allow their markets to be disrupted by gold miners? These byproduct producers would look to sell all the copper they can so they can tell the world they are the lowest cost gold producers. Not likely, copper miners could crush these marginal projects through temporary price weakness.
- Colombia offers investors vastly unexplored areas rich in gold deposits. A recent article highlighted that gold companies are expected to invest up to $400 million in exploration and production this year and $4.5 billion over the next decade in Colombia.
- Respected investment strategist John Embry noted he would not be surprised to see a $500 rise in the gold price within the coming six months. Embry concludes the rise could be caused by the accelerated increase in Western nationâs sovereign debt and a potential for paper claims on gold ownership to exceed what can reasonably be delivered in the physical gold market.
Threats
- The Bank of America-Merrill Lynch economics team doesnât anticipate broad-based inflation pressures until 2012.
- However, they noted if interest rates for the 10-year Treasury bond were to reach 5 percent or higher in the near term, this could change the outlook for inflation to accelerate sooner.
- Two global taxes on financial institutions recently proposed by the IMF would likely raise costs for consumers. The taxes would be imposed on bank liabilities and equity.
