Gold Market Cheat Sheet (March 21, 2011)
For the week, spot gold closed at $1,418.90, up $1.45 per ounce, or 0.10 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 1.21 percent. The U.S. Trade-Weighted Dollar Index slid 1.49 percent for the week.
Strengths
- In a chaotic week of fears over a nuclear plant meltdown and a new war front opening up in Libya, gold held up and the U.S. dollar fell.
- Even when gold sold off on Tuesday due to liquidity needs of certain investors to cover other losses, there turned out to be a net positive accumulation of gold bullion by exchange-traded funds.
- Across several Asian markets, premiums for gold bars and coins rose due to investor demand.
Weaknesses
- Platinum and palladium fell on expected curtailments in auto production in Japan, and renewed economic worries over a collapse in U.S. housing starts and rising fuel prices pinching economic growth.
- A recent report by the Bureau of Land Management appeared to show there was no economic contribution from hardrock mining on federal lands.
Opportunities
- Hong Kong’s Chinese Gold & Silver Exchange Society, a century old bullion trading bourse, announced plans to start trading gold quoted in yuan in May. The plan is to expand the role of the yuan in global trade as China works to reduce its dependence on the dollar as its functional foreign exchange currency.
- Historically, gold demand is about 3,000 tons per year, with new mine supply providing 2,400 tons, scrap supply about 200 tons and central bank sells supplying the balance of roughly 400 tons.
- China replaced South Africa as the world’s largest producer of gold back in 2007. However, the gold produced in China is purchased entirely by their central bank. In addition, during the first two months of 2011, China imported more gold than all its imports in the last year. At their current rate of buying, Chinese consumers could buy half of the new mine supply produced this year. Meanwhile, more than 400 tons historically supplied by Western central banks has fallen to zero.
Threats
- In the upcoming presidential race in Peru, several of the candidates are talking about imposing windfall profit taxes on miners operating within the country.
- In South Africa, Minister of Mining Susan Shabangu has conveyed that she is looking at the tax template Australia tried to implement on its mining industry last year.
- In response to China recognizing it may have to limit its exports of rare earth metals, four U.S. Senate Democrats sent the U.S. Treasury and the Secretary of the Interior a letter urging them to block Chinese mining projects in the U.S. and internationally.
