Gold Market Radar (March 12, 2012)
For the week, spot gold closed at $1,713.65 up $1.05 per ounce, or 0.06 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, fell 2.98 percent. The U.S. Trade-Weighted Dollar Index rose 0.70 percent for the week.
Strengths
- Buying interest in gold still seems to be running strong. Despite a stronger U.S. dollar, a sell off early in the week, and a brief plunge in prices on Friday morning with the release of the employment report, gold rallied back to finish the week slightly higher.
- On the stock side, Continental Gold announced drilling and underground sampling results from its Burtica project in Colombia which show high-grade drill hits outside their resource boundaries and continuity of gold mineralization within veins. The stock was up over 7 percent on this news. Other stocks which had strong moves this week include Chesapeake Gold (up 22 percent) and Endeavour Mining (up 8 percent).
- The Silver Institute demonstrated that a steady increase in demand has driven the price of silver up 20 percent in the first 10 weeks of the year, ahead of gold, platinum and palladium. The strength in silver demand has come via a surge in buying of silver-based ETFs, which now represents 586 million ounces of silver, up 10 million ounces year-to-date. In addition, there has also been increased demand for physical silver bars. Global industrial silver demand is expected to contribute to strong silver demand going forward.
Weaknesses
- Despite strong sales of American Eagle gold and silver coins in January, sales numbers plunged 83 percent in February. Sales of 127,000 ounces were reported for January, while only 21,000 ounces were reported for February. The U.S. Mint reports they sold 156,600 ounces of gold and 7,872,000 ounces of silver year-to-date, also below sales from this period last year.
- So far no satisfactory answer has been put forth to explain the five-minute plunge in gold prices last week. Some speculate that perhaps it was end of month rebalancing or even a sell by a central bank that was under pressure to come up with proceeds immediately.
- No responsible private investor would have undertaken such an irresponsible liquidation of their position when such an order could have easily been executed with much less market impact.
Opportunities
- Zerohedge reports that Germany is growing concerned over the security of the 3,400 tons of gold the country has stored in the U.S. A Swiss initiative sponsored by four members of the Swiss parliament has proposed that the Swiss people have the right to vote on three simple principals: 1.) Keeping the Swiss gold physically within Switzerland, 2.) Forbidding the Swiss National Bank from selling any more of their gold reserves, and 3.) Requiring the Swiss National Bank to hold at least 20 percent of their assets in gold bullion. Such a move to secure delivery of Germany and Swiss gold from storage within the U.S. would further raise the profile of gold.
- The China Development Bank is pushing forward with an agreement to offer renminbi-denominated loans to other BRICS (Brazil, Russia, India, China and South Africa nations) as a step to internationalize its currency and compete directly with trade normally conducted only in U.S. dollars. Already, Chile and oil-rich Nigeria have begun to make moves to include the renminbi in their reserve base.
- Getting delivery of physical gold appears to be rather tight. One mining company in West Africa says they have been approached about buying their gold mine production directly from the company versus going through the established channels for purchasing gold. There is too much of a backlog in these conventional outlets to acquire bullion en masse.
Threats
- Indonesia announced that it will take more of the profits from its mineral resources by limiting foreign ownership of mines in a move that has been speculated to scare off new investments. Under the new rules, Indonesia will require foreign companies to sell stakes in mines and increase domestic ownership to at least 51 percent by the tenth year of production. This is yet another move towards resource nationalization we have been seeing worldwide.
- During the PDAC conference held this week in Toronto, Colombia announced that they may revoke and reassign mining titles to boost revenue from mineral-rich properties. Currently, 60 out of 9,000 titles contribute 80 percent of government’s royalty fees from mining. The move to overhaul the mining title licensing system aims to create a reliable database, weeding out speculators, while keeping mineral-rich land idle for future sales and attracting new investments in a competitive way.
- While the first half of the year is looking relatively strong there will be headwinds coming in the second half and it is unclear whether the right policy decisions will be reached with a lame duck session of Congress, according to a recent Bank of America-Merrill Lynch report. They note the potential dangers of a policy mistake with the ending of the “Bush tax rates”, mandated debt ceiling spending cuts, a reinstatement of the payroll tax, extended unemployment benefits, the alternative minimum tax, and the Obama Health Care tax all coming back on to the table.
