For the week, spot gold closed at $1,179.20 per ounce up $21.60 or 1.87 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index rose 3.82 percent. The U.S. Trade-Weighted Dollar Index gained 0.63 percent.
Strengths
- Central banks have turned into buyers of gold for the first time in two decades. Gold sales by central banks remain very low and have helped support the price of gold. Central banks have only sold 7.2 tons of gold over the past six months under their current selling agreement.
- The SPDR Gold Trust reported a record high in terms of tonnage this week after increasing its holdings by 6.09 metric tons. If you compare this jump with the combined sales of global central banks and the IMF over the past six months it basically comes out a wash.
- The gold price hit a 2010 high of $1,180, fueled by investors continuing to embrace gold’s safe-haven qualities as uneasiness over eurozone sovereign debt levels increased.
Weaknesses
- Major Western Australian mining companies have warned that their profits are facing a multi-billion dollar hit from the introduction of a resource rent tax which is likely to be imposed on top of existing state royalties.
- However, the legislation could be a boon to exploration companies as some experts believe this legislation will include the introduction of "flow-through share schemes" which allow junior exploration companies to pass on their tax losses to shareholders.
- Mongolia’s president has ordered a halt to the issuance and transfer of mineral exploration licenses until the government can enact a stricter law on mining investment.
Opportunities
- CPM Group expects investment demand for gold to remain extremely high during 2010 and in the years to come.
- CPM also predicts gold could rise to as much as 1-2 percent of global financial assets. This would represent a significant shift in investor preferences.
- The world’s supply of diamonds is running low according to De Beers. The miner will reduce capacity in order to extend the life of its mines and that diamond prices could rise by 5 percent a year for the next five years.
Threats
- Venezuela’s president, Hugo Chávez, has threatened to nationalize gold-mining operations, claiming concerns over the environmental impact on Venezuela’s ecosystem.
- The Colombian gold-mining industry has voiced concerns over the country’s recent rule change in access to certain high-altitude mining environments. However, there is a history of working out solutions to economic development in Colombia.
- Nouriel Roubini, a New York University professor, said “rising sovereign debt from the U.S. to Japan and Greece will ultimately lead to higher inflation or government defaults. While today markets are being worried about Greece, Greece is just the tip of the iceberg.”
