Gold Market Diary (September 13, 2010)
For the week, spot gold closed at $1,246.25 per ounce, down $0.50, or 0.04 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, slipped 0.86 percent. The U.S. Trade-Weighted Dollar Index rose 0.90 percent for the week.
Strengths
- The International Monetary Fund, which set out a year ago to sell about 13 percent of its gold holdings, sold 10 metric tons to Bangladesh for $403 million. This transaction brings total central bank purchases from the fund to 222 tons.
- Despite recent declines within the past few months, gold coin sales are rising modestly due to new financial worries in the eurozone.
- Rick Mills, a respected gold analyst noted âMonetary and fiscal policies around the world are setting us up for an inflationary cycle. This will be the ultimate driver for the gold bull market going forward.â
Weaknesses
- While most of the discussions about letting the Bush-era tax cuts expire have focused on the justification for raising taxes on the rich, little has been said about the 47 percent of Americans who paid no federal income taxes in 2009. The current tax system exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education.
- It is a system in which the top 10 percent of earnersâhouseholds making an average of $366,400 in 2006âpaid about 73 percent of the income taxes collected by the federal government.
- The bottom 40 percent, on average, makes a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.
Opportunities
- The new Australian government suggested it could adjust the proposed profit based mining tax to meet demands of the independent MPs that helped them secure power.
- ANZ Commodity Research forecasted gold prices could reach $1,350 per ounce by early 2012 and stay there for the following twelve months.
- David Levenstein, precious metals analyst for Lake Shore Trading, stated âThe price of gold has traded above $1,240 per ounce which was previously a key level of resistance. As it slowly becomes a new support level, the price of the yellow metal will continue to trade higher and I believe that it will make a new historic high very soon.â
Threats
- Since the recession began 33 months ago, government transfers to households have risen 31 percent since the end of 2007. A record of 30 cents of every dollar in personal income is now derived from some form of government support.
- This level topped 27 percent in the wake of the 1991 recession and hit a prior peak of 28 percent in 1975. The government's role in supporting the recovery is already raising questions about how the economy will fare as the crutches are removed. Mark Zandi, chief economist at Moodyâs Analytics, commented âGiven how significant its role has become, it does make it more difficult for the government to exit out in a graceful way.â
- Despite a slightly better than expected recent employment report, the numbers are still sluggish. Only 47.6 percent of people between the age of 16 and 24 were employed last month, a new low since the data initially began in 1948.
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