Gold Market Cheat Sheet (April 25, 2011)
For the week, spot gold closed at $1,504.13, up $17.43 per ounce, or 1.17 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 3.24 percent. The U.S. Trade-Weighted Dollar Index slid 0.97 percent for the week.
Strengths
- After S&P lowered its rating outlook on the U.S., the gold price surged early in the week and reached an all-time high of $1,507 per ounce Thursday on a weak jobless claims report.
- The University of Texas Investment Management Company, which manages the endowment for the Texas teacher’s pension fund, has placed 5 percent of its assets in gold bullion.
- What is significant about this purchase is that the buyer has taken delivery of the physical gold into its own custodial accounts versus relying on an intermediary to hold the bullion through a paper claim on its behalf. This represents a purchase of $1 billion of gold bullion and makes a strong statement about the seriousness of pension funds treating precious metals as a legitimate asset class.
Weaknesses
- Negotiations for higher electricity prices are nearing conclusion, as Zambia expects to agree on higher electricity prices with mining companies this year in a move that is likely to increase costs for miners within the country, a senior industry official said.
- David Rosenberg, chief economist and strategist at Gluskin Sheff, noted debt-strapped governments are pulling in around 9.5 percent more revenue year-over-year, showing the economy may be getting stronger.
- Conversely this increase in government revenue may be a pick-pocket effect of governments’ having raised sales taxes, unveiled high income surcharges or boosted top marginal rates. This, along with the hammering the consumer has taken from rising food and fuel costs, is absorbing a near 23 percent share of wages and salaries.
Opportunities
- There is chatter in the foreign exchange market that China may do a surprise 10 percent Yuan revaluation and Greece may strike a deal to cut its bonds by 40 percent. It would appear the Chinese government has guided multinational corporations to expect a 5 percent revaluation in the near term, but 10 percent is a big number and would likely support the gold price.
- Earlier this week the Chinese supported the Spanish bond auction. Notably, the eurozone is China’s largest trading partner and it appears they may be more concerned about keeping the euro from collapsing versus a steady decline in the dollar.
- Gold's decade-long bull run could continue in the next four years, though at a slower pace, with positive inflation risks partially cooled by a shift towards more normal economic conditions, analysts polled by Reuters said. The median forecast of 12 analysts polled in the past two days for the average price in 2015 was $1,700 an ounce. "Gold will be underpinned by sovereign debt in the eurozone, United States and Japan, as well as the dollar weakness and further reserves diversification by central banks," said Robin Bhar, an analyst at Credit Agricole.
Threats
- A U.S. law threatens natural treasures including Grand Canyon National Park as mining claims on public lands proliferate, an environmental group said. The 1872 Mining Law, signed by President Ulysses S. Grant, allows mining companies, including foreign-owned ones, to take about $1 billion a year in gold and other metals from public lands without paying a royalty, according to a report by the nonprofit Pew Environment Group. Non-governmental organizations have been very successful in aligning themselves with state and federal regulators that see creating new rules as a means to greater job security.
- Nevada mining operations may soon face three tiers of regulations and legislation aimed at eliminating constitutional caps on net proceeds of mines taxation and clamping down on net proceeds tax deductions. Senate Majority Leader Steven Horsford argued that state regulators need to close mining tax loopholes as soon as possible “so the state gets every dollar it’s entitled to.”
- Jim Rogers, a well respected commodity expert, said “Silver and gold, yes, will be a bubble someday…There’s no question in my mind that all commodities will be a huge bubble someday. But I don’t think that bubble is going to happen in 2011. I think it’s going to be more likely 2017, or 2018…you know, a few years from now. I’m not picking a year, just saying its a few years away.”
