Gold Market Cheat Sheet (September 19, 2011)
For the week, spot gold closed at $1,810.03, down $45.67 per ounce, or 2.46 percent. In sympathy gold stocks fell. The U.S. Trade-Weighted Dollar Index also declined less than 1 percent for the week.
Strengths
- In a Mineweb article, data shows that assets of gold exchange traded funds (ETFs) in India jumped nearly three times in August when compared to the same period last year. With stock market volatility on the rise, investors appear to have taken a fancy to gold ETFs. Gold ETF assets jumped to $1.58 billion during August 2011 from $55 million a year ago, according to data from the Association of Mutual Funds in India.
- Thomson Reuters GFMS released its Gold Survey 2011 Update 1 this week which covered the first half of the year. While the firm thinks some weakness may be in the cards for gold in the near-term, its bullish outlook remains in place and it expects gold to clear the $2000 mark by the end of the year. Indeed, data for the first half reveals a constructive fundamental picture for gold.
Weaknesses
- The gold mining equities, as measured by the NYSE Arca Gold Miners Index, fell 3.01 percent on the week with only 4 of 30 stocks in positive territory.
- Dollar funding needs ushered European banks to use gold as collateral to secure dollar funding. The Financial Times reported that “Gold dealers and analysts said that there had been a strong move to lend gold in the market in exchange for dollars in the past week, accelerating in recent days.” This trend has pushed gold leasing rates (the implied rate for lending gold for dollars) to record lows. This surge in lending is seen as one reason why gold prices have struggled of late.
- We continue to see mining stocks underperform bullion. The market has not yet extended the gains from gold to equities. Up to this point, we see that mining stocks have lagged in performance relative to bullion, but the companies themselves have directly benefited from increasing gold prices.
Opportunities
- In testimony before the House Natural Resources Committee, National Mining Association CEO Hal Quinn told congress that U.S. industry share of global exploration spending has dropped from 20 percent in 1993 to just 8 percent today. Quinn pointed out that the current regulatory process of the EPA is flawed such that it impedes growth and inhibits mining employment. Quinn noted that we could see tremendous growth and job creation, if the U.S. were allowed to develop its vast mineral wealth.
- Regarding Libya’s gold reserves, a central bank official commented, “Now I will not advise them to sell the gold ... Now the way we look at it is as a hedge for other currencies,” while stating that financial support was not needed.
- Mineweb reported that China, the world's second-largest gold bullion market, is set to become the latest country to get gold-dispensing ATMs. The ATMs will be set up in nightclubs and private banks and will dispense 2.5 kilogram bars of gold bullion.
Threats
- Reuters reported that jewelry makers at an international trade far are seeing greater use of silver, bronze, ebony and plastics in jewelry, as surging gold prices put off price-conscious consumers.
