Gold Market Cheat Sheet (February 28, 2011)
For the week, spot gold closed at $1,410.20 per ounce, up $20.67 per ounce, or 1.49 percent for the week. However, gold equities, as measured by the Philadelphia Gold & Silver Index, fell 0.11 percent. The U.S. Trade-Weighted Dollar Index moved fell 0.55 percent for the week.
Strengths
- Rising tensions in the Middle East and North Africa and concerns about loose money in the West once again sent investors looking to gold as a means to protect their wealth. This caused gold to approach previous record-high price levels.
- The World Gold Council announced updates on new commercial uses for gold in automotive emissions control systems which began being used during the first quarter of this year. Other recent developments that could increase gold demand include uses in catalysts and nanoparticles to clean contaminated water supplies, reduce mercury emissions and improve the efficiency of production of other common chemicals.
- Developing global political and financial problems pushed the silver price to $34 per ounce, a new all-time high for the metal.
Weaknesses
- With gold approaching its previous highs, investors have become a bit skittish. Over the last quarter, a number of companies have seen surges in their share prices, but this week some shorter-term investors were willing to sell their positions with no concern over a 5 percent hit to the share price if they could lock in a short-term profit.
- This type of price action caused a surge in many volatility indexes this week, which can worry investors.
- Rising oil prices and a pickup in capital costs, which were outlined by a number of companies reporting year-end results, are also of concern.
Opportunities
- In the report "Ungeared for Growth: Mergers, Acquisitions and Capital Raising in Mining and Metals," Ernst & Young (E&Y) predicts this year will see strong growth in mining M&A "with competition becoming fierce." E&Y says the same factors that drove growth in deals last year will continue to drive the market in 2011. This includes: resource security, higher commodity prices, improved cash flow and availability of capital, ongoing industry rationalization and the desire for greater vertical integration.
- Mining will become a thriving sector in South Africa within the next five to 10 years, the South African Mines Minister Susan Shabangu says. "Our regulatory framework is conducive to investors and they also have incentives to invest in our country," Shabangu said.
- Charles Evans, President of the Federal Reserve Bank of Chicago, stressed the need for continued “dovish” monetary policies. While Evans did not specifically refer to a third round of quantitative easing (QE3), he hinted at such a move by saying that “the message that comes out of what I think of as high-quality research on this subject is that policy ought to remain accommodative for really quite a while, even a while after conditions start to improve.”
Threats
- A bill proposed in the State of Washington seeks to capture "the name, date of birth, sex, height, weight, race, and address and telephone number of the person with whom the transaction is made" of every purchaser of gold. Furthermore, if passed, the bill will record "a complete description of the property pledged, bought, or consigned, including the brand name, serial number, model number or name, any initials or engraving, size, pattern, and color or stone or stones" and price paid of course.
- What’s also significant in the bill is that any transaction in the amount over $100 would require a signature, photo and fingerprint of the person with whom the transaction is made.
- Tiberius Asset Management co-founder and head of trading, Chris Eibl, said that if one looks at gold in the context of the rest of the precious metals complex, "gold will probably be a market performer and maybe slightly underperform versus the other metals such as platinum group metals and maybe even silver."
