Gold Market Radar (January 7, 2013)
For the week, spot gold closed at $1,655.65, down $0.20 per ounce, or -.01 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained .72 percent. The U.S. Trade-Weighted Dollar Index gained 1.03 percent for the week.
Strengths
- The Shanghai Gold Exchange recently started a trial on interbank gold trading in order to increase the liquidity and flow of gold in China.
- Gold rebounded on Friday from heavy selling, rising from intraday lows to finish down less than 0.5 percent. Gold stocks also rebounded from their Friday lows.
- Bank of America Merrill Lynch picked Silver Wheaton as a top large-cap precious metals stock for 2013, viewing the company as the premier growth silver name with an above-industry average silver growth profile, rapidly growing free-cash flow and solid financial strength. Over the next four years Silver Wheaton’s production is forecasted to increase by some 70 percent, to 48 million silver-equivalent ounces.
Weaknesses
- Gold sold off immediately after the release of the December FOMC minutes, which revealed that “several” members of the committee were prepared to cease QE3 asset purchases “before the end of 2013.” Given the sharp market reaction in gold and other commodities, as well as in the dollar, this small section in the minutes was relatively unexpected so early into the QE3 process.
- Centamin’s Sukari mine again had a significant gold shipment held up in customs at Cairo airport before it could leave the country. This follows a similar episode only a few weeks ago, when a large 1.5 ton (48,000 ounces) gold shipment was held up.
- South African gold miner Harmony delayed the post-holiday reopening of its Kusasalethu mine following year-end violence and protests. The mine, 65 kilometers west of Johannesburg, had an underground sit-in just before Christmas when 1,700 workers refused to surface to protest the suspension of a colleague who had taken part in an illegal strike. According to Harmony’s website, Kusasalethu employed 5,756 people when it produced around 180,000 ounces of gold.
Opportunities
- Given that the current U.S. unemployment rate is still well above the Fed’s recently outlined 6.5 percent estimated threshold for halting asset purchases, it is unlikely that the Fed will cease QE3 in any hasty fashion. As of today’s data, U.S. unemployment stands unchanged at 7.8 percent.
- Aquarius Platinum Ltd. rose to a six-month high in Johannesburg after it sold off assets in Zimbabwe, and amid speculation that the South African supply of platinum will be lower during the first quarter.
- The past year was a tough one for the junior gold mining sector. However, according to Brien Lundin, CEO of Jefferson Financial, while junior resource stocks have been absolutely decimated over the past year, the result is bargains galore.
Threats
- Gold imports in India fell 31 percent for this period year-over-year, but the government is considering hiking the gold import duty again. Almost 80 percent of India’s current account deficit is attributable to gold imports. Officials said the government is considering a gold-import duty hike of 1 to 2 percent, from the current 4 percent to a possible 6 percent.
- Gold is now in a mature bull market, says Nadeem Walayat of MarketOracle.co.uk, whose story was picked up by Mineweb. Mr. Walayat believes that the best gold investors can likely achieve from here are gains of roughly 10 percent per annum. He predicts gold to trade in a range from $1,550 to $1,800 in 2013.
- Base metals are likely to outpace precious metals in 2013, says Hallgarten & Co’s Chris Ecclestone. As western economies strengthen, nearing pre-crisis levels, the outlook for base metals will continue to improve.
