Gold Market Cheat Sheet (April 18, 2011)
For the week, spot gold closed at $1,486.70, up $11.77 per ounce, or 0.80 percent for the week. However, gold equities, as measured by the Philadelphia Gold & Silver Index, fell 4.47 percent. The U.S. Trade-Weighted Dollar Index declined by 0.29 percent for the week.
Strengths
- Gold prices surged to new all-time highs, touching $1,486 per ounce. The gold price turned higher after news from China that its consumer prices surged 5.4 percent compare to the previous year. The hotter than expected inflation data, combined with the announcement that China’s foreign exchange reserves rose above $3 trillion, led investors to increase their exposure to gold.
- Ian McAvity, author of Deliberations on World Markets, predicts that gold is likely to fall the least if the global economy slows down in the second half of the year which he sees as a very real possibility. Part of the reason behind gold's resilience in the face of a very high likelihood of further problems in the west is the monetary role that it has played and, is increasingly playing again.
- The U.S. Mint said it will accept orders for its 2011 five-ounce silver bullion coin beginning April 25 with the coins honoring the Gettysburg National Military Park in Pennsylvania, as well as the Glacier National Park in Montana. Silver coin values have soared this year as silver prices have hit 30 year highs.
Weaknesses
- Reports that Burkina Faso’s president may have fled the presidential palace following a revolt by the presidential guard sent several West African gold stocks lower as investors feared a unclear change in the power structure within the country.
- South Africa, the top gold producer for more than a century until 2007, has now slipped to fifth position, according to data compiled by Gold Fields Mineral Services (GFMS). China was the number one gold producer in 2010, followed by Australia, the US and then Russia, which just edged past South Africa, the group said in its 'Gold Survey 2011' report.
- Members of the Nevada Exploration Coalition and the Nevada Mineral Resources Alliance are still steaming over a Nevada Mining Association deal with legislators during a special legislative session last year, which raised the state's claims fee structure. The agreement raised $27.5 million in more revenue for the state, which the exploration companies feel placed them at a costs disadvantage relative to producing mines in the state.
Opportunities
- Simon Hunt, founder of Simon Hunt Strategic Services, recently noted 2012 will be an important year for markets and the global economy. A new round of money printing by the Fed will unleash another bout of commodity buying after a pullback seen in the summer of 2011. Rises could be pretty parabolic with the U.S. dollar tumbling.
- GFMS released their annual gold survey for 2011. They reiterated their positive outlook for gold and maintained their forecast that gold could trade above $1500 per ounce and reach $1600 ounce by the end of 2011. GFMS believes gold will rise because there is little chance of a radical departure from loose monetary policies in developed nations, sovereign debt troubles in Europe will continue, inflation concerns will grow, and physical demand , particularly in China and India, should support investment demand.
- Standard & Poor's expects gold prices to remain high in the next year because of economic challenges in Europe, increasing global inflation and potential economic fallout from the Japanese earthquake. Also, Standard & Poor's forecast that most U.S. and Canadian metals and mining companies will improve their operating performance in the first half of this year, "reflecting a rise in average prices and strengthened end-market demand."
Threats
- Bolivian President Evo Morales is considering issuing a decree that would rescind existing contracts between foreign mining companies and the state run mining agency, effectively expropriating the mining and exploration assets.
- The International Monetary Fund (IMF) warned the U.S. that it currently lacks a credible strategy to stabilize its debt. The IMF said the U.S. was the only advanced economy to be increasing its underlying budget deficit in 2011 at a time when the economy wasn’t growing fast enough to bring down borrowing.
- Inflation would be around 10 percent if the same measurement policies were used as during the 1970’s, and inflation today would be near the same levels as when Volcker was Fed chairman and hiked rates. If you used the reporting methodologies in place before 1980, inflation would hit an annual rate of 9.6 percent in February, according to the Shadow Government Statistics newsletter.
