Gold Market Radar (October 22, 2012)

Gold Market Radar (October 22, 2012)

For the week, spot gold closed at $1,721.75 down $32.73 per ounce, or 1.87 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained 0.12 percent. The U.S. Trade-Weighted Dollar Index slipped 0.05 percent for the week.

Strengths

• Junior Colombian mergers and acquisitions are heating up. Billionaire Eike Batista’s private gold company, AUX, announced cash takeovers of two Colombian junior gold companies, Galway Resources and Calvista Gold, worth more than $300 million combined. Galway and Calvista provide AUX several projects in the California district including Calvista’s 450,000 ounces gold indicated, and about as much again in inferred resources, and Galway’s 424,000 ounces gold indicated and 666,000 ounces gold inferred, all within two kilometers of AUX’s larger La Bodega and La Mascota projects, according to Mineweb.
• This week aanalysts at BMO significantly boosted their gold and silver price forecasts and highlighted their bullish view on related stocks versus bullion as they see positive momentum for metals due to a “new and open-ended round” of quantitative easing. They now expect gold to average $1,950 in 2013, up from their prior forecast of $1,700.
• Despite a down weak for gold bullion, gold stocks, as measured by the Gold Miners Index, gained 0.12 percent this week, edging out bullion which slid 1.32 percent this week. The stocks of miners have shown relative strength versus bullion for the last three months and may be poised to continue to outperform bullion.

Weaknesses

• Gold bullion slid over $33 per ounce this week with much of the decline coming on Friday as weak economic data out of China caused a broad sell-off of stocks and commodities. Silver prices slipped over 4 percent for the week.

Opportunities

• India’s gold imports are expected to climb in the last quarter of 2012 which will mark the first gain in six quarters as a decline in domestic bullion prices stokes jewelry and investment demand ahead of major festivals. The World Gold Council sees imports jumping to approximately 200 tonnes in the fourth quarter, or about 18 percent sequentially and up 27 percent year-over-year.
• Gold Fields said most miners returned to work at its strike-hit South African operations this week, but a new walkout at Lonmin’s Marikana platinum mine dampened hopes of an end to the worst labor unrest since apartheid. More than 80,000 miners have downed tools since August in often violent strikes that are hitting growth and investor confidence in Africa’s biggest economy and raising questions about President Jacob Zuma’s leadership. In a surprise move, 4,000 workers at Lonmin’s Marikana mine stayed away from work on Thursday, disrupting operations once again at a plant where police killed 34 striking miners in August. “There have been disruptions at various shafts since yesterday,” Lonmin spokeswoman Sue Vey said. The company later said it believed the workers were protesting against the arrest of three miners as part of a police investigation.
• The Australian reported that “gold has soared past coal as Australia’s second most valuable physical export to China, with sales up a whopping 900 per cent for the first eight months of the year, bringing in $4.1 billion. Chinese buyers are hoarding the precious metal amid a slowing economy, property-buying restrictions and uncertain financial markets as its central bank increases its holdings. The unprecedented jump in gold sales, along with continued acceleration of export revenues for other commodities led by coal—up 80 percent to $4 billion—caused total exports to China to rise by 10.7 per cent for the year to August, according to Australian Bureau of Statistics figures. Shipments of Australia's biggest export, iron ore, were up 20 percent for the same period but the total value of $26.9 billion was down 5 percent compared to last year, because of the mid-year price slump.”

Threats

• Deutsche Bank analysts, who are longer-term bullish on gold, said this week that they expect that the gold market could trade in a range over the next couple of months as they see a vacuum in terms of monetary action due to upcoming transitions/decisions in government in both the U.S. and China. Additionally, they believe somewhat supportive economic data from the U.S. could also weigh on market sentiment for gold as conditions seem to be normalizing.