Gold Market Diary (August 16, 2010)

Gold Market Diary (August 16, 2010)

For the week, spot gold closed at $1215 per ounce, up $10, or less than 1 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, declined 1.76 percent. The U.S. Trade-Weighted Dollar Index gained 3.15 percent on the week.

Strengths

• "The U.S. is in an untenable position – between a rock and a hard place – in an inescapable debt trap – where the options are, at best, dire – either hyperinflation or a deflationary depression. It would seem all that we can do is ride out the storm in a boat laden with gold," Jeff Nielson from Bullion Bulls Canada recently said.
• Following China’s move last week, India’s central bank is mulling a proposal to allow banks to trade in gold. If cleared, the move will only strengthen the bullish case for gold.
• Don Coxe noted "the gold story has been around for millennia, but is now attracting investment for thoroughly modern reasons. This month, we advance that none of the three major tradeable currencies will regain its role as a prized store of value. Gold is moving from the shadows, where economists and politicians had consigned it, to center stage."

Weaknesses

• China’s largest gold producing city halted output after a mine fire killed 16 workers. The fire is the latest in a series of Chinese mining accidents that left 61 people dead this month.
• The investment attractiveness of mining jurisdictions in Australia has suffered a large fall in rankings due to government regulation an annual survey from Fraser Institutes shows.
• Gold output in South Africa fell 5.3 percent in volume terms and total mineral production dropped 4.9 percent in June compared with the same month last year.

Opportunities

• Analysts forecast that the takeover deal announced by a major mining company could nudge other big miners looking to replace reserves back into the market. This means they could be more involved in merger and acquisitions.
• Jeff Nichols, MD of American Precious Metals Advisors, said fundamentals pushing gold higher are going to be operating for several years but the market will remain volatile. He told MineWeb "the market will remain volatile with big corrections like we’ve seen the past weeks and periods of consolidation. So how fast we move up remains a question but the directions and the magnitude are assured."
• The annual rate of growth of gold spending in China has been 23 percent this decade and the nation's gold purchases could see an additional 200 tonnes of consumption in the next decade.

Threats

• Numbers from seven of the world’s largest gold diggers show that gold miners are in the money but face headwinds in rising costs and scarce pure gold opportunities.
• The San Francisco Fed, who correctly talked about deflation risks last April and was the first Fed bank to discuss recession risks back in 2007, published a report experimenting with the components of the Conference Board’s Leading Economic Indicator Index and concluded that the odds of a recession at some point in the next two years are slightly below 50-50 that the economy slips into recession.