Gold Market Diary (July 26, 2010)
For the week, spot gold closed at $1,189.65 per ounce, down $3.30, or 0.28 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 3.6 percent. The U.S. Trade-Weighted Dollar Index was essentially flat on the week.
Strengths
- University of Texas Investment Management Company (UTIMCO) is investing $500 million in gold futures as a hedge against inflation. UTIMCO notes the move is a hedge against the lack of confidence in financial assets due to a lack of government fiscal and monetary discipline.
- China’s gold output surged by roughly 6 percent in the January-to-May period to 127.34 tons as compared to the previous year.
- Dennis Gartman, author of the Gartman Letter, believes gold is quietly becoming a reservable asset. He says that within the next twenty years, the U.S. dollar, the Renminbi and gold will be the major reservable assets of the world.
- The Gold Anti-Trust Action Committee (GATA) recently said that if the government returned to a gold-backed dollar policy, it would mean a gold price in excess of $50,000 per ounce if every dollar was convertible into gold.
Weaknesses
- New Zealand’s mineral exploration was set back this week when the government backpedalled on a proposal to open a selected part of the conservation territory for exploration.
- Commerzbank stated the doldrums have struck gold and expects this trend to last due to a loss of urgency in the events that have drawn investors to gold in the past.
- Congo’s mineral industry was dealt a blow when the U.S. financial reform bill was passed recently. Companies that use gold, tin, tungsten or tantalum (coltan)—minerals used in just about every electronic gadget—are now required to disclose to the SEC whether those materials originated in Congo or neighboring countries. The purpose is to show proof of whether their supplies are sourced from conflict mines or not.
Opportunities
- BMO raised its long-term gold price by 18 percent to $1,000 per ounce with key drivers indicating “an eventual move towards higher inflation environment amid massive western world fiscal imbalances and improvements in fabrication demand as the world continues to pull out of recession.”
- Standard and Poor’s also raised its 2010 gold price forecast to $1,100 per ounce and 2011 to $900 per ounce, due to investors seeking a safe haven protection against uncertainty and inflation.
- Canadian Imperial Bank of Commerce (CIBC) increased its long-term gold price as well from $1,000 to $1,200 per ounce on rising investor fears of a double dip occurring in the economy.
Threats
- Paul Walker, CEO of Gold Fields Mineral Services, predicts strong demand for gold in the near term but says an increase in interest rates will likely be the main reason gold demand slips. Walker said, “I haven't seen an asset class where investment flows are only up. Take that investment demand away and you've got a good argument for gold going down. Will people continue to buy gold for the remainder of this year? Yes, they will. But there is a juncture coming, in 2011 or 2012 where the tide starts to turn. The single economic factor that will influence investment flows is interest rates.”
- While Russian, Venezuelan and Indonesian central banks are continuing to absorb gold, the rest of the sector is largely remaining inactive. So far this year, the change in net tonnage positions has been minimal.
- Analysts are expecting North American gold miners to benefit from record high profits, but weakening prices of byproduct metals like copper and zinc and higher mining costs could chip away the profits.
