Gold Market Cheat Sheet (August 2, 2011)
For the week, spot gold closed at $1626.02, up $24.75 per ounce, or 1.5 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 6.6 percent. The U.S. Trade-Weighted Dollar Index slid 0.51 percent for the week.
Strengths
- The gold price advanced to a record high of $1,632.80 per ounce on Friday morning after news that U.S. GDP rose at a 1.3 percent annualized pace in the second quarter, well below market expectations. The gold price was also boosted by the fact that President Obama and the House Republicans remain unable to forge an agreement to raise the debt ceiling.
- Indiaâs physical demand for gold remains high despite the spike in prices, wealth management firm UBS has said, adding that gold sales to India increased 23 percent from the start of the year until July. Also, gold sales rose 76 percent in May as compared to sales in April and a thumping 161 percent from a year ago, UBS said in a report.
- Newmont Mining Corporation, the largest U.S. gold producer, boosted its dividend this quarter by 50 percent to 30 cents. The company raised the dividend as gold prices continue to reach record highs. Newmont said it will raise dividends by 5 cents for each $100 increase in the average price of gold during the previous quarter.
Weaknesses
- South African gold mine workers and the major producers were due to meet on Friday for wage talks, in a bid to end a strike that could halt daily output worth up to $25 million at a time when the price of bullion is near record highs.
- Goldcorp, the worldâs second largest gold producer, cut its production guidance for the year to between 2.50 million and 2.55 million ounces, from 2.65 million to 2.75 million ounces, due to production problems at three mines.
Opportunities
- Mining mergers and acquisitions transactional value in the first half of 2011 reached $96.3 billion, almost overtaking 2010âs value of $113.7 billion. Ernst & Young predicts that in the remainder of 2011 and in the whole of 2012 global mining merger activity will rise, with increases in transaction values.
- Sovereign debt worries in Europe and in the United States could push the gold price up to $2,500 per ounce, and possibly even as high as $5,000 per ounce, according to research from Citigroup. âIt is difficult to argue that gold is going to $5,000 an ounce on the basis of equivalence with the seventies bull market. However the drivers are the sameâthe debasement of fiat currencies as a store of value and fear over the outlook for the global economy,â Citigroup said.
- Reuters' biannual poll of precious metals price forecasts found that over half of the respondents expect prices to average $1,500 an ounce or more this year. Analyst responses indicated that continued eurozone debt concerns, a weak dollar, and increased demand from emerging economies and central banks will support the gold price.
Threats
- Barrick Gold, the worldâs largest gold producer, raised its capital expenditure estimates for two of its main mines.
- Barrick noted capital expenditures at the Pascua Lama mine could now cost $5 billion, compared to the previous $3.6 billion. Also, Pueblo Viejo will cost approximately $3.8 billion, exceeding the initial $3.3 billion estimate.
- Rising capital costs is a threat to margin expansion for the miners. This has been a headwind to their price performance.
Comments are closed.