For the week, spot gold closed at $1,177.10 per ounce down $56.08 or 4.55 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index fell 9.62 percent. The U.S. Trade-Weighted Dollar Index slipped 0.78 percent.
Strengths
- Japan’s largest trust bank, Mitsubishi UFJ Trust, is expected to develop the country’s first precious metals ETF that will be backed by physical metals stored in Japan.
- Holdings in gold ETFs have touched record highs recently with asset levels approaching $50 billion.
- Peruvian mining GDP has risen 260 percent in the last two decades. In 2010, Peru will receive $14 billion in foreign investment for mining projects which will likely catapult them into the top five gold producing countries.
Weaknesses
- Dennis Gartman, author of The Gartman Letter and hedge fund manager, urged investors in gold to “rush to the exits” as bullion hit new highs. Due to the steeper and quicker than anticipated fall in the gold price, Gartman did suggest investors reconsider entering back into the gold trade later in the week.
- Gold tumbled more than $50 for the week and inflation data presented by the government that was absent of any price gains for April did not help.
- Spain approved its first public wage cuts, the deepest for at least 30 years, in response to the latest EU rescue package. If strikes similar to those in Greece occur the austerity proposals may lose political support.
Opportunities
- There seems to be no end to governmental opinions that more regulation is a certain way to improve the economy. German Chancellor Angela Merkel encouraged global economic powers to send a “signal of strength” by agreeing to more forceful financial regulation. In the U.S., similar financial reform bills are being debated.
- Policymakers have cited the failure of capitalism as a need for new rules but none of these measures mandate confidence from investors. We’re approaching a situation where the cost of regulation exceeds the economic benefits it was intended to create.
- Ken Gerbino highlighted on MineWeb.com this week many of the above mentioned concepts in his article “Gold and Greece: Not what you think”. He says investors accumulate 5 to 10 percent of their assets in gold and not be too concerned about the price.
Threats
- Recent sales on Akshaya Tritiya, the second-largest gold buying day in India, the world’s largest gold market, were significantly low which could foreshadow subdued demand for the year if prices remain steady.
- Evy Hambro, manager of BlackRock Investment Management’s $14.3 billion World Mining Fund, said “resource nationalism” is an important risk miners are faced with in the near future. Countries such as Brazil, China, Mongolia and Africa are likely to follow in the foot steps of Australia and raise their nation’s mining taxes.
- California’s largest public pension fund has asked for a $600 million injection from the state—already $19.1 billion in the hole—to shore up their shortfall in funding. Illinois’ state pension plan, which has $78 billion in unfunded liabilities, is also hoping their state can put $4 billion into the plan in 2011. However, the state has a $13 billion budget deficit of its own.
