Gold Market Diary (December 6, 2010)
For the week, spot gold closed at $1,414.07 per ounce, up $50.32, or 3.69 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 7.38 percent. The U.S. Trade-Weighted Dollar Index slid 1.47 percent for the week.
Strengths
- China approved the country's first mutual fund, which invests in gold-backed, exchange- traded funds overseas, as inflation fears have fueled demand for the precious metal. "The fund offers a brand new way to invest in gold, giving investors' access to 'golden opportunities' globally," Lion Fund Management said in a statement.
- China gold imports rose almost fivefold in the first 10 months from the entire amount shipped in last year, as concern over rising inflation increased gold's appeal as a store of value.
- India gold imports for the first three quarters of this year have already exceeded last year's total by almost 100 tonnes. Analysts predict the total for this year to break 750 tonnes.
Weaknesses
- The average cost of gold mines increased 4.1 percent in the third quarter of this year, according to a recent report. The third quarter numbers represented the biggest quarter-over-quarter increase since the beginning of 2010.
- The Peru Ministry of Energy and Mines reported an 11.17 percent drop in gold mining production for the first 10 months of this year. This implies that some of their gold producers are being challenged to keep productivity up.
- Goldman Sachs predicted that gold will reach a peak of $1,750 per ounce by 2012, due in large part to further quantitative easing by the Federal Reserve.
Opportunities
- The International Monetary Fund (IMF) announced that gold sales dropped by 40 percent, or 628,000 ounces (19.5 tonnes), between October and September, as central banks have shown increased interest in owning the metal as a hedge against economic uncertainty, according to a Reuters report. Another article noted the IMF, at its current rate of sales, may be finished liquidating its planned sales in December 2010.
- Ernst & Young is forecasting more IPOs in 2011 due to a strong demand for metals. "We're very busy looking at IPOs at the moment," said Lee Downham, a partner in the mining division of Ernst & Young. "I would expect some multi-billion, FTSE-100 mining companies coming to market at some point next year."
- Nepal's commercial banks are back in the business of importing gold and silver after a ban that had been in effect for months was lifted.
Threats
- Deloitte Canada's report, "Tracking the Trends 2011," identifies government intervention and project financing among the formidable issues mining companies will face in the year ahead.
- The French bank Natixis recently noted that imbalances in the global financial system and irrational behavior on the part of investors are just some of the reasons why gold prices are so high and why they are likely to fall in the future. The Netherlands-based editor of Goldletter International suggested that now would be a good time for junior mining companies to start selling their gold forward.
