Gold Market Diary (June 21, 2010)
For the week, spot gold closed at $1,256.80 per ounce, up $30.10, or 2.45 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 5.88 percent. The U.S. Trade-Weighted Dollar Index fell 2.24 percent.
Strengths
- Eurozone troubles persisted as Spain’s debt problems came into the spotlight. This helped to spike the gold price to an all-time high of $1,260.90.
- Gold is up roughly 14 percent so far in 2010, while the S&P 500 is up 1 percent.
- In the opinion of David Baker, manager of Baker Steel Capital Managers, people are “seeing what’s happening in Europe with the issues in Greece and now Spain and potentially Portugal and they’re looking for an alternative. Gold’s the safest port of call.”
Weaknesses
- An effort is under way in the Democratic Republic of Congo’s government to approve a contract that would allow the state to hold a 35 percent stake in all future mining joint ventures. This contract also demands that companies pay a 1 percent signing-on bonus on the total value of the deposit and a 2.5 percent royalty on gross sales.
- Pentagon officials and American geologists say they have discovered in Afghanistan an abundant amount of minerals reported to be worth $1 trillion.
Opportunities
- Gluskin Sheff asserted this week that if its prediction of the gold price rising to $3,000 per ounce holds true, the long-term ratio established over the last century between the gold price and the Dow Jones Industrial Average would imply a trough of 5,000 for the Dow.
- Ian McAvity, author of “Deliberations on World Markets,” supports the forecast of the gold price rising to $3,000 within the next two years due to gold drivers such as currency turbulence, currency credibility and the monetary aspects of gold.
- John Embry, chief investment strategist at Sprott Asset Management, supported his belief that gold is extremely undervalued by noting if gold had followed the rate of U.S. inflation since its peak price in 1980, the gold price would be only be trading at about $2,300 per ounce.
Threats
- Pimco cut its gold exposure in half and predicted the U.S. AAA rating could see a “lot of stress” within three years.
- Respected investment strategist company Oppenheimer proclaimed “Current inflation adjusted gold price levels are now more than two standard deviations above the mean, something that has happened only once before in the past 40 years (in the 1980s). Prices continued to increase as this occurred in the past, but once a peak was established, the decline in gold prices was sharp, which we believe will prove to be the endgame for gold in the current cycle.”
- Nevada’s proposed gross proceeds mining tax will not receive enough signatures for this year’s ballot, but supporters of the bill announced they will campaign even harder to ensure the bill to be voted on in 2011.
