Gold Market Diary (November 29, 2010)
For the week, spot gold closed at $1,363.75 per ounce, up $10.52, or 0.80 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 1.21 percent. The U.S. Trade-Weighted Dollar Index surged 2.36 percent for the week.
Strengths
- After two weeks of losses, gold finally made positive headway this week despite a very strong dollar and a bout of profit-taking on Friday.
- Dollar strength has been brutal with a gain of 2.36 percent this week alone, but gold has been very resilient as gains have been driven by a loss of confidence in European policymakers to convince markets they are solvent.
- Silver appetite remains extremely resilient as well. In just three days, the U.S. mint received orders for 273,210 of the collector’s version of the 2010 American Eagle Silver Proof coins after a two-year production absence.
Weaknesses
- The Shanghai Futures Exchange reported that it plans to raise margin requirements for gold and several other metals to 10 percent to curb speculation.
- Ghana, Africa’s second-largest gold producer, included a royalty rate hike proposal of 6 percent of sales from the current 5 percent in its 2011 budget plan.
- Chile’s government said it is “moderately optimistic” that mining companies will accept a new royalty scheme to raise the copper royalty rate to 4 percent in 2011 from its current rate of 3 percent. Zambia announced a new tax agreement which left income taxes and royalties at current levels, but included a new undefined 15 percent variable tax. Last year, Zambia tried to impose a windfall profits tax on miners, but eventually backed off.
Opportunities
- CIBC raised its gold and silver targets for 2011 and 2012 to $1,600 and $1,700 for gold and $28 and $30 for silver, respectively. It noted that quantitative easing has transcended from a “one off” solution during the financial crisis to something “as habit forming as cocaine.”
- Nouriel Roubini warned of more trouble coming out of Europe saying Ireland is just the tip of the iceberg—using up nearly 13 percent of the total bailout funds available—and Portugal is next in line. Roubini noted, though, that Spain is the real elephant in the room and needs to be addressed. Another commentator noted, “what do you expect when you have a pathological borrower see interest rates drop from 15 percent to 3 percent?”
- Martin Murenbeeld, Chief Economist of Dundee Wealth Management, recently noted that the retirement of the baby boomers in the U.S. will create fiscal stresses unlike the world has ever seen.
Threats
- Ben Bernanke defended the Fed’s QE2 policy and alluded that the real problem of the day is countries that keep their currencies artificially low.
- Sheila Bair, head of the FDIC, had an opinion piece in The Washington Post pushing for urgent action to stop the next financial crisis, which she fears will start in Washington. Bair noted that with $14 trillion in debt, or $100,000 for every American household, government still appears to be unwilling to address the hard choices.
