Gold Market Diary (Sepetember 26, 2010)
Spot gold closed at $1,295.95 per ounce, up $21.65, or 1.70 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 2.82 percent. The U.S. Trade-Weighted Dollar Index fell 2.60 percent for the week.
Strengths
- The gold price climbed to an all-time high of $1,295.95 this week following the Fed’s statement to keep interest rates significantly low as the economy continues to struggle.
- Nevada gold producers are seeing higher-than-expected profit margins in 2010. The average price of gold received by gold producers in Nevada is $100 dollars higher than a year earlier. At the same time, the average cost of gold production in the state declined about $20 for the first time in a decade.
- David Rosenberg, chief economist and strategist at Gluskin Sheff, said recently “the reality is that no country wants a strong currency right now, which is why gold has so much allure as it makes its transition from commodity to monetary metal.”
Weaknesses
- A survey released by the Nevada Division of Minerals found that exploration investments in the state totaled $110 million during 2009, compared with $158 million in 2008.
- A ministerial panel in India has approved a mining bill that will see mining companies share 26 percent of their profits with the local population of communities affected by mining projects. The bill also states that, if a mining project is not successful, the company has to pay to the locals an amount equal to the royalty paid to the government.
- Of the 450 audience members attending the annual Denver Gold Forum, when asked who among them was bearish on gold, only two attendees raised their hands leaving 448 bulls to the two bears.
Opportunities
- MF Global is looking for the gold market to maintain its upward momentum, with gold prices perhaps advancing toward $1,350 an ounce over the next few weeks.
- David Rosenberg also mentioned that gold is likely to remain in its secular uptrend for years to come with gold prices reaching $3,000 per ounce.
- Barclays Capital said “we maintain our view for the fourth quarter of this year to be the strongest quarter on record yet for gold prices, with downside corrections finding support from the seasonally strong period of fabrication demand with the forthcoming wedding and festival season in key gold-consuming countries.”
Threats
- A recent headline for a gold company with a property in Panama, noted it had completed a $45 million prepaid forward gold purchase.
- Jeff Christian, managing director at the CPM group, believes the price of gold is booming and expectations will remain strong into the second quarter of 2011. However, he does not believe the gold price will have a repeat of the 1980’s uptrend.
