Gold Market Diary (August 23, 2010)
For the week, spot gold closed at $1,227.90 per ounce, up $12.40, or 1.02 percent, for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 3.32 percent. The U.S. Trade-Weighted Dollar Index was essentially flat.
Strengths
- Overall, we have had a good start to the seasonal uplift in gold and gold stock prices as we start to close out the summer.
- A deal or two involving senior gold miners buying their higher-growth intermediate competitors have emerged, raising speculation of more deals to follow.
- Notable hedge fund managers are still shown to be net accumulators of gold. This is increasing gold's appeal as a portfolio asset for institutional investors.
Weaknesses
- The broader equity market has been swinging between euphoria and total despair on a week-to-week basis.
- For the first six weeks of the third quarter, the S&P 500 Index outperformed gold stocks by as much as 1000 basis points. That gap has since narrowed to less than 100 basis points.
- Overall most media pundits are still telling investors to get long growth stocks after a decade of losses.
Opportunities
- Recent economic data has started to build support for those who foresee a double-dip recession.
- Interest rates are not going higher, which could have been a headwind to gold, and are now poised to fall further, particularly with the rising worry about a bubble in bonds.
- Adjusting the 1980 gold price high for inflation would give us a price today of about $2,300 per ounce, so it does not appear there is a bubble in gold at this time.
Threats
- The headwind is the lack of economic growth and hence economic opportunity.
- This is compounded by governments seeking to stay in power by funding social safety net programs in the short-term versus addressing some of the longer-term issues.
