Gold Market Cheat Sheet (July 11, 2011)

Gold Market Cheat Sheet (July 11, 2011)

For the week, spot gold closed at $1,544.15, up $59.05 per ounce, or 3.98 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 4.19 percent. The U.S. Trade-Weighted Dollar Index moved up 1.02 percent for the week.

Strengths

• Chinese restrictions on exports of nine rare materials, including gold, violate global rules and give the country’s manufacturers an unfair edge, according to the World Trade Organization panel. This conclusion backs a complaint by the U.S., the European Union and Mexico.
• The U.K.'s Royal Mint said that its silver coin production in the first half of the current year has doubled to 324,421 ounces. This is consistent with reports from other mints around the world, which have also seen a huge surge in silver coin sales over the period.
• Fred Hickey, author of The High Tech Strategist newsletter, recently stated, “I increased my overall gold stock positions because gold stocks are the second cheapest they’ve been relative to gold in the last 30 years (the cheapest point came in late 2008 during the liquidity crunch).”

Weaknesses

• With its new Cross-State Air Pollution Rule, the U.S. Environmental Protection Agency announced mandatory reductions in some 900 coal-fired, natural gas-fueled, and oil-burning power plant emissions that will force the closure of scores of older, inefficient power plants.
• The American Coalition for Clean Coal Electricity says the rule "would be among the most expensive ever imposed by the agency on coal-fueled power plants, dramatically increasing electricity rates for American families and businesses and causing substantial job losses."
• Issues of heavy rains and labor strikes had been impacting Chilean mines throughout the week, perhaps deterring companies from meeting their production guidance for the year. "The copper market in particular was spooked by the ongoing labour issues at Grasberg and Chuquicamata, and latterly by the news of production stoppages at Escondida due to highly unusual heavy rains," Sucden Financial said in a research note.

Opportunities

• India’s largest gold bullion supplier and the biggest trading arm of the government, MMTC Limited, expects to import around 275 tons of gold in 2011-12. This is compared to the 245 tons that it imported a year ago. Silver imports are expected to jump by around 30 percent to 1,200 plus tons during the same period. MMTC plans to increase its jewelry outlets from 15 to 55 by the end of 2012. The company also aims to increase its jewelry franchise base from 75 at present to 200 by the end of 2012.
• Bolivia's mining exports should hit a new record high of more than $3 billion this year, supported by high prices for silver and zinc, according to Deputy Mining Minister Hector Cordova. This would represent a roughly 25 percent increase from the $2.41 billion record in 2010.
• Ronald Stoeferle's Special Report on Gold noted that, “In the long run we could see a future where rather than asking for the price of gold, people will much more often ask for the price in gold. Our next 12 month target is USD 2,000. We believe that the parabolic trend phase is still ahead of us.”

Threats

• On Tuesday, South Africa’s National Union of Mineworkers (NUM) rejected the Chamber of Mines’ (CoM’s) latest wage offer and threatened to launch a strike. NUM general secretary Frans Baleni said the CoM emerged from the third round of wage negotiations “bruised.” Baleni said, “We are now ready for action. There has not been progress and clearly progress would not be coming. We have no option but to opt for a push.” According to NUM, the gold mining industry could face a strike by over 140 000 workers.
• Simon Hunt, founder of Simon Hunt Strategic Services, recently said, “with China's real consumption remaining weak and global consumption being flat to down, together with financial markets likely to be in some turmoil later in the summer, we expect to see 3-month copper prices falling to at least $3.40/lb -down 20 percent from current levels - and possibly even $2.95 by year end.”