Gold Market Cheat Sheet (February 22, 2011)
For the week, spot gold closed at $1,385.53 per ounce, up $32.48 per ounce, or 2.39 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 4.28 percent. The U.S. Trade-Weighted Dollar Index fell 1.04 percent for the week.
Strengths
- World gold demand grew 9 percent during 2010, its highest level in 10 years, said the World Gold Council Thursday in its quarterly demand trends report. “This performance was mainly attributable to higher jewelry demand, strong momentum in key Asian markets and a paradigm shift in the official sector, where central banks became net purchasers,” said the report. “The WGC expects total demand to remain resilient across the jewelry, investment and technology sectors in the coming quarter.”
- The World Gold Council and ICBC launched the Only Gold Gift Bar as the “first gold investment gifting product” in China, which the Gold Council says should further boost the already-growing gold market in the country. The product consists of bars weighing 10, 20, 50, 100 and 1,000 grams. The Only Gold Gift Bar is another innovation resulting from a strategic partnership between ICBC and the World Gold Council. It follows the launch of the Gold Accumulation Plan (GAP) last year, currently accounting for over 1 million account holders.
- Demand in China for physical gold and gold-related investments is growing at an explosive pace. ICBC, the world’s largest bank by market value, sold about 7 tonnes of physical gold in January this year, nearly half the 15 tonnes of bullion sold in the whole of 2010, said Zhou Ming, deputy head of the bank’s precious metals department on Wednesday. “We are seeing explosive demand for gold. As Chinese get wealthy, they look to diversify their investments and gold stands out as a good hedge against inflation,” Zhou told Reuters.
Weaknesses
- President Obama’s Fiscal Year 2012 proposed budget calls for charging a 5 percent royalty on the gross proceeds of hardrock minerals mined on public lands including silver, gold and copper. The President’s budget would also establish a new Abandoned Mine Land fee on hardrock mining, “so that the hardrock mining industry is held responsible in the same manner as the coal mining industry.”
- The Commission on Mineral Resources opposes the governor of Nevada’s proposed reorganization of the Nevada Division of Minerals, which promotes mining, into the Department of Conservation and Natural Resources, which regulates mining. Fred D. Gibson, Jr., chairman of the Commission on Mineral Resources, said the commission’s opposition is due to “policy inconsistencies inherent in the enabling statues of the two organizations.” The commission advised, “Placing the agency into the Department charged with issuing permits to the natural resource industry and protecting natural resources presents a potential conflict of interest.”
- In another action hostile to mining in the U.S., the Nevada Senate Judiciary Committee is considering legislation that would ban the use of mining-related eminent domain actions in the state.
Opportunities
- The official sector was a net buyer of gold for the first time in 21 years in 2010 and, according to the World Gold Council, it is likely to remain so for a while. The World Gold Council, in its latest edition of Gold Demand Trends, suggests that this reflects a desire to preserve national wealth as well as promoting greater financial market stability. The Council also believes that further sales from “advanced economies” are unlikely to be significant in the near future because the official sector remains highly risk-averse.
- Analysts expect Canadian gold mining stocks to shrug off a recent pull-back in prices and perform well in 2011 as economic uncertainty and central bank demand help support bullion. Analysts say risks, including the uneven U.S. economic recovery, Europe’s debt problems and creeping inflation in emerging markets, should all help gold regain momentum.
- Ted Whitehead, senior portfolio manager at Manulife Asset Management, thinks the bullion price could reach a record $1,500 an ounce if the U.S. Federal Reserve resorts to more quantitative easing, effectively printing money to buy government debt, to try to boost the economy.
Threats
- A two-year timeout on thousands of mining claims near the Grand Canyon will expire this summer, but the U.S Department of the Interior (DOI) is considering extending the ban another 20 years. The DOI is scheduled to release a Draft Environmental Impact Statement on Friday that would ban new mining claims on one million acres near the Grand Canyon.
- Australia will collect an estimated $60 billion less in a new mining tax over the next decade than originally predicted because of changes in the tax before last year’s election. Treasury figures show the originally proposed tax would have raised $99 billion between 2012-2013 and 2020-2021, but the revised tax is projected to earn only $38.5 billion during the period.
- Clearly, revolution is the order of the day in the Middle East where the people are beginning to understand that you can’t rely on the government to provide prosperity and freedom. This instability is creating a lot of uncertainty, but may not be fully priced into U.S. markets as the media is focused on celebrating freedom and ignoring the creation of a power void.
