Gold Market Cheat Sheet (January 31, 2011)

Gold Market Cheat Sheet (January 31, 2011)

For the week, spot gold closed at $1,336.75 per ounce, down $5.93 per ounce, or 0.44 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 0.2 percent. The U.S. Trade-Weighted Dollar Index slid 0.09 percent for the week.

Strengths

• Standard & Poor's says it is optimistic about the continued improvement of North American metals and mining companies, especially gold, calling the precious metal "the one consistent bright spot in the mining and metals sector." In an analysis published this week, S&P analysts advised, "Looking ahead into 2011, we believe gold prices could remain high throughout the year as a result of economic uncertainty in the west and growing concerns about inflation."
• The surge in gold prices during 2010 was driven not only by strong investment but a recovery in jewelry consumption and even industrial demand, said the World Gold Council Wednesday in its quarterly Gold Investment Digest. “The gold story in 2010 was about growth in all sectors in demand and not just due to economic concerns,” said Juan Carlos Artigas, investment research manager with the World Gold Council.
• Gold producers reduced their hedges by almost a third during the third quarter, GFMS and Societe Generale said in their third quarter “Global Hedge Book” report. This action left the outstanding adjusted hedge book at around five million ounces.

Weaknesses

• Peru reported production declines in nearly every sector of precious metals and base metals mining for the year 2010. Peru's Ministry of Energy and Mines reported an 11.19 percent decline in annual gold production, with silver production declining 7.27 percent, and copper falling 2.28 percent.
• Guinea plans to double its stake in mining projects to at least 33 percent, its newly-elected president said, a move that could rattle some of the world's biggest mining companies. "There will be three to five difficult months, since we've decided not to renegotiate contracts but instead to define a new mining policy that will give Guinea at least a third," President Alpha Conde said.
• The world’s most popular gold ETF, SPDR Gold Shares, doesn’t seem to be very popular lately. On Tuesday, the ETF had its biggest single-day reduction ever, putting its holdings at their lowest level since May.

Opportunities

• John Embry, Chief Investment Strategist at Sprott Asset Management, reiterated his beliefs on a gold bubble. As for those who say that the “gold bubble” has started to burst, Embry noted that the idea that gold is in a bubble is “beyond preposterous unless one honestly believes that the authorities can and will rein in the pace of money creation throughout the world. The simple truth is that they can’t in our debt-logged universe unless they are prepared to accept a deflationary crash that will make the 1930s look like child’s play.”
• TD Securities believes that the gold bull run is not over. In its gold preview report, TD Securities noted, “Looking ahead to 2011 and 2012, the consensus economic forecast is for global economic conditions to continue to improve such that the unprecedented fiscal and monetary stimulus deployed over the past three years can begin to be unwound. Despite potential Fed tightening headwinds, we believe there is still a positive case to be made for gold. Central banks became net buyers of gold in 2010 for the first time since 1988. Mine supply growth has been restrained; despite 10 years of rising gold prices, and global currency and trade imbalances remain.”
• Analysts at New York-based MSCI ESG Indices said that a new United States law aimed to stop the trade in conflict minerals might lead to higher prices of metals used in devices such as computers and cell phones. The Dodd-Frank Act, which includes a clause requiring companies to report on whether they use minerals sourced from the Democratic Republic of Congo (DRC) or its neighbors, will come into force on April 1.

Threats

• The road to higher returns in the first quarter is not paved with gold, according to most Canadian investment advisers. BetaPro Management's quarterly survey on adviser sentiment indicates that only 33 percent of the country's investment advisors are gold bulls, down from 64 percent from the recent fourth quarter. The fading allure of bullion and gold stocks is tied to rising prospects for the global economy, said Howard Atkinson, the president of BetaPro Management, which puts out a quarterly survey on adviser sentiment.
• Global investors are becoming more confident about the economic outlook, according to a quarterly poll of 1,000 Bloomberg subscribers. Almost twice as many of those surveyed said they will cut gold holdings in the next six months, instead of increasing them. More than half said the gold market is a bubble.