Gold Market Diary (November 8, 2010)
For the week, spot gold closed at $1,393.65 per ounce, up $34.25, or 2.52 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 5.19 percent. The U.S. Trade-Weighted Dollar Index fell 0.86 percent for the week.
Strengths
- Gold rallied to close at a new all-time high of $1,393.65 per ounce on Friday as the Fed's QE2 decision and continued weakness in the U.S. dollar powered bullion higher.
- The gold-to-silver ratio has fallen to its lowest level in two years as silver hit a 30-year high, continuing to bounce from an underperforming status in years past. Silver is also benefiting from its double role as an investment and industrial commodity.
- Peru's Ministry of Mines and Energy said that the country's September gold production dropped 23 percent from the same month last year. For the first nine months of this year, gold production was reported at a 10.9 percent decline compared to gold production during the same period of 2009. Peru is roughly the world's fifth largest gold producer.
Weaknesses
- A poll conducted by Barron's showed that 62 percent of portfolio managers see equities as the top-performing asset over the next 6-12 months. Only 15 percent felt precious metals would be the top performer, 6 percent for cash and 3 percent for bonds.
- Iran became the latest nation to increase its gold holdings as the nation announced that it has converted approximately 15 percent of its foreign exchange reserves into gold and now does not need to import the metal for the next 10 years.
- “The global financial crisis has weakened mining and metals companies' defenses against fraud,” an Ernst & Young reports says. “That provides increased exposure to corruption as mining and metal companies must expand their operations to territories.”
Opportunities
- Shayne McGuire, manager of the $330 million gold portfolio pension fund at the Teacher Retirement System of Texas, predicted the price of gold could soar to $10,000 an ounce. McGuire predicts gold will surge due to a series of fiscal crises that hit around the world, China's view on gold as a savings vehicle and the ascendance of ETFs.
- U.S. Representative Ron Paul, who is likely to chair the House subcommittee overseeing monetary policy, says he will urge an audit of U.S. gold reserves and has called for the dollar to be backed by gold and silver.
- Julian Phillips, founder of the Goldforecaster, recently stated his opinion of where the financial globe will be in the next 12-18 months. Phillips stated, “I see it very much as a going concern, I don't see a collapse but I do see an increase in uncertainty, in tensions, in confrontations and in fears. We are looking for confirmation of the Comex traders spreading views of potentially vastly higher prices but I don't see lower prices and therefore I see a very positive market for gold ahead.”
Threats
- The South African mining ministry has imposed a six-month halt on new prospecting bids in order to overhaul mining laws, iron out irregularities in the way rights are awarded and audit existing exploration and drilling contracts.
- A senior South African official said the country's mining sector is filled with problems including illegal drilling, rights sold without permission and companies having competing claims to the same plot.
- German Chancellor Angela Merkel and Mark Rutte, the Dutch Prime Minister, raised the theme of “burden sharing.” This envisions that private investors would be tapped to sponsor any future bailouts. Luxembourg's Prime Minister noted this issue is very sensitive and could lead to confusion in markets. It is not clear if government leaders are contemplating a system where those who made money or avoided serious losses would be called upon to make losers whole.
