Gold Market Diary (August 2, 2010)
For the week, spot gold closed at $1,181.05 per ounce, down $8.15, or 0.69 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 2.13 percent. The U.S. Trade-Weighted Dollar Index decreased 1.03 percent.
Strengths
- The U.S. unit of ETF Securities, a global ETF issuer specializing in commodities, filed papers with the SEC to market a gold exchange-traded fund that would be the first to store its bullion in a Singapore vault.
- A poll of 55 analysts and traders showed expectations for gold prices in 2011 have risen by nearly 7 percent to a median of $1,228 per ounce, and 2010 gold expectations have risen 4 percent to a median of $1,197 per ounce.
- Jamie Sokalsky, the CFO of the world’s largest gold producer, recently noted the concerns that pushed the gold price to record highs above $1,200 per ounce have not been addressed despite the weakened gold price within the past weeks.
Weaknesses
- A congressional subcommittee has been asked to investigate the growing backlog in foreign procurement of U.S. bullion and collectors’ precious metals coin blanks manufactured by the U.S. Mint.
- The gold price fell to a three month low on Tuesday to around $1,160 per ounce due to fear abatement, central bank tightening, and ETF liquidation.
- Seasonally, the next natural catalyst for gold will be the return of jewelry manufactures as we close out the summer. In the mean time, the gold market may be relatively flat.
Opportunities
- UBS recently stated “We believe that ongoing pressure on sovereign debt markets, combined with persistent concerns over private sector credit contraction will raise the spectre of debt monetization repeatedly over the next few years. We expect that this background will remain very supportive for gold prices over the period.”
- Earnings reporting season for gold companies is in full swing. What is interesting is the number of companies that have established a dividend or raised their dividend payout, which should give these companies greater appeal to mainstream investors.
- The attraction of dividend payments along with gold companies starting to be compared on other fundamental valuation metrics such as PE ratios is not a sign that there is “bubble in gold company valuations”.
Threats
- The debate around the nationalism of South African mines has created “great uncertainty” with investors, and could even see the development of some projects essentially be put on hold, until after the ruling the African National Congress’s policy review conference in 2012.
- Deutsche Bank believes the “gold price weakness has been driven more by a liquidation in a net length among the investor community than a structural change in market fundamentals, and history suggests investor de-leveraging can persist for another month.”
- St. Louis Federal Reserve Bank President James Bullard commented that the economic outlook was unusually uncertain. He further noted, “The U.S. is closer to a Japanese-style outcome today than at any other time in recent history…”
