Gold Market Cheat Sheet (March 7, 2011)
For the week, spot gold closed at $1,430.90 per ounce, up $20.30 per ounce, or 1.44 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 1.72 percent. The U.S. Trade-Weighted Dollar Index fell 1.12 percent for the week.
Strengths
- The price of gold reached a new all-time high of $1,434.50 an ounce as crude oil prices rose and settled at their highest levels since September 2008 on investor fears of supply disruptions and possible international intervention in the Middle East.
- China was the number one gold producer with reported production of 341 tonnes. Australia maintained its number two ranking with production of 266 tonnes and the United States ranked third with an output of around 240 tonnes as miners dug deeper to cash in on high bullion prices, according to Melbourne-based Surbiton Associates.
- Canadian provinces occupied three of the top four rankings for mining exploration and investment in the latest version of the Fraser Institute's Survey of Mining Companies 2010/2011. Alberta is the top-ranked place in which mining and exploration companies can do business, according to the latest edition of the Fraser Institute annual survey of international mining companies. While Canadian provinces occupied three of the top four rankings, Nevada came in second, followed by Saskatchewan and Quebec, which had previously been ranked first for three consecutive years.
Weaknesses
- South Africa's mining community has been rocked by the latest global mining rankings published by the Toronto-based Fraser Institute, which placed the country 67 out of 79 jurisdictions across the world. Over the past five years, South Africa has fallen precipitously from 37th place in the rankings. Zimbabwe is placed at 71, just behind South Africa, yet Botswana, a neighbor of both, ranked 14th, and the top spot for the African continent.
- Egypt on Sunday banned the export of gold for the next four months, a measure bankers said seemed aimed at preventing business people and former government officials who acquired capital illegally from transferring it abroad. A decree banning the export of gold in all its forms, including jewelry and ornaments, was issued by newly appointed Trade Minister Samir el-Sayyad. It takes effect immediately and continues until June 30, the official news agency MENA reported. "This decision, which comes in light of the exceptional circumstances the country is passing through ..., is to preserve the country's wealth until the situation stabilises," MENA said. The MENA statement made no mention of whether the ban included exports of gold from mining.
- Holdings of the world’s largest gold-backed exchange traded fund, the SPDR Gold Trust, fell for the fifth consecutive month in February which is the longest run of outflows since the trust’s inception.
Opportunities
- There were 52 initial public offerings (IPOs) in the mining sector across the TSX and TSX Venture exchange, which raised more than $1.3 billion, and the sector as a whole raised more than $17.7 billion in IPOs, public offerings and private placements, Ernst & Young said. “Strong commodity prices and the fundamental need to develop long-term reserves will continue to drive activity into 2011, particularly in the gold sector,” E&Y national mining and metals leader Tom Whelan said.
- Chinese gold demand has exceeded 200 tonnes in the first two months of this year. Only a couple of months ago China reported its gold imports for the first ten months of 2010 totaled 209 tonnes. If the pace continues China would purchase close to half of world mine production in 2011.
- The world's biggest commodities trader, Glencore International, is bullish on the outlook for the asset class, expecting last year's buoyant trends based on growth in emerging nations such as China to persist this year. "Their outlook is basically a continuation of the trend we've had this year. The mega-trend for the mining sector is still in place and will continue next year. We'll continue to see recovery in developed markets," said Henri Alexaline, a credit analyst at BNP Paribas.
Threats
- Battle lines are once again being drawn between Australia's minerals sector and the Federal Labor Government over taxation measures, this time over the introduction of a carbon tax as a so-called prelude to introducing an emissions trading scheme several years down the track. The industry already pays income tax to the Federal Government; a myriad of taxes and royalties to State and Territory governments; and some miners are faced with the Minerals Resource Rent Tax," chief executive of the Association of Mining & Exploration Companies (AMEC), Simon Bennison said.” A carbon tax will have an inflationary impact on the Australian economy, detrimentally affect Australia’s international competitiveness and attractiveness as a safe place in which to invest.
- Branded gold and silver jewellery items are set to get more expensive in India. India's finance minister Pranab Mukherjee announced the government would levy a nominal 1 percent central excise duty on jewellery made of gold, silver and precious metals that are sold under a brand name. Of the 130 items that are to be covered by the new levy, gold and silver branded jewellery items have entered the tax net. The new levy is set to deal a body blow to precious metal and stone jewellers in India
- Legislation before the Securities and Exchange Commission is designed to stop the trafficking of "conflict gold" among other metals from the Democratic Republic of Congo is implemented in its current form, it is going to be "Pretty problematic" for the gold industry at large, says World Gold Council CEO, Aram Shishmanian. Although the World Gold Council fully supports the intention of the legislation, it believes in its current form it will have "perverse and risky unintended consequences."
