Gold Market Cheat Sheet (June 20, 2011)
Spot gold closed at $1,539.45, up $7.70 per ounce, or 0.51 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 1.86 percent. The U.S. Trade-Weighted Dollar Index rose 0.32 percent for the week.
Strengths
- China’s gold output in the first four months of 2011 totaled 103.23 tons, up 4.24 percent from the same period a year ago, according to the Ministry of Industry and Information Technology. Total gold produced in the month of April was 29.8 tons, while gold mining output rose 5.05 percent from a year ago to 85.4 tons.
- CME Group is decreasing the margin requirements for gold futures by 10 percent as of the close of business on this coming Monday. The initial margin to open new speculative positions will decline by nearly $700 on the COMEX division of the New York Mercantile Exchange. CME Group said the changes are part of the “normal review of market volatility to ensure adequate collateral coverage.”
- Exploration results from the Yukon are even more impressive this year. Last year was strong for exploration in the Yukon, with about $150 million in such expenditures. But this year is looking even better, with exploration expenditures expected to top $250 million, according to Natural Resources Canada.
Weaknesses
- Tanzania’s Parliament on Tuesday approved a $27.4-billion five-year development plan, backing the proposed introduction of a super-profit tax on mining companies. Tanzania cites rising commodity prices as justification for the tax.
- India’s Mines Ministry has prepared a draft Sustainable Development Framework for the mining industry to provide guidelines for project level practices to ensure sustainable mining, as the industry faces mounting criticism on several performance-related issues.
Opportunities
- China’s gold production is expected to rise by more than 10 percent in 2011 from a year ago, a senior official from the China Gold Association said, opining that world gold prices would continue to climb in the second half of the year.
- Gold should trade to just over $1,600 an ounce by the end of 2011 and silver should be flirting with $50 an ounce as governments will need to maintain a loose monetary policy despite the phasing out of stimulus packages in the U.S., according to Philip Newman, director of major research firm GFMS. Newman noted, “The outlook for inflation remains fairly upbeat, so investors in commodities and precious metals – gold and silver – we think, would still return to the market later this year.”
- Standard Chartered Bank recently said, “limited gold production, buying by central banks and increasing demand from India and China – can potentially drive the gold price to $5,000 per ounce.”
Threats
- Market observers want to see Vietnam’s leadership doing more to prevent a further flight from the dong into gold and other tangible assets. The government introduced a plan that proposed tightening the controls on gold trading. A further draft decree on this subject from the State Bank of Vietnam is expected to be released at the end of this month. A law passed recently made it illegal for people to sell their gold to anyone other than the central bank, undermining gold’s viability as a black-market currency.
- More governments in Africa and elsewhere, especially newly elected ones, will likely look at raising mining taxes and royalties amid historically high commodity prices.
- It is interesting to ponder that one of the positives considered by default analysts with regard to the European Central Bank (ECB), should Greece restructure its debt, is that the ECB currently has dollar swap agreements with the Fed. In other words, if the equity base of European banks is wiped out by a default, the U.S. would backstop the system with a bailout.
