Gold Market Radar (January 28, 2013)
For the week, spot gold closed at $1,684.30, up $25.30 per ounce, or 1.50 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 1.89 percent. The U.S. Trade-Weighted Dollar Index gained 0.37 percent for the week.
Strengths
⢠Klondex Mines Ltd., a Northern Nevada gold exploration and development company, announced the discovery of a new gold mineralization at its flagship Fire Creek project. The discovery, located approximately 540 feet west of the Main Zone, intersected 123.9 grams per ton gold over five feet. Paul Huet, CEO of Klondex, commented âWe are very excited by this new discovery at Fire Creek. A discovery of this nature demonstrates that Fire Creek remains under-explored and that ongoing exploration could lead to other zones providing potential growth for Klondex.â
⢠The Russian central bank will continue to buy gold as it seeks to diversify its foreign reserves away from paper assets which it views as risky, First Deputy Chairman Alexei Ulyukayev said Thursday at the Davos conference.
⢠Demand for physical gold has been unusually high for this time of the year. The Standard Bank Gold Physical Flow Index signaled demand climbed to the highest since November. Purchases typically pick up at the end of year coinciding with religious festivals in India.
⢠Total assets of the Federal Reserveâs balance sheet broke through $3 trillion, hitting new highs. Money printing is in full swing and has started to have material impact on bank reserves, and dramatically expand the monetary base.
Weaknesses
⢠Gold capped the biggest decline in almost two weeks after a drop in U.S. jobless claims signaled an improving outlook for economic growth and curbed demand for the precious metal as a haven asset.
Opportunities
⢠The China Securities Regulatory Commission (CSRC) has finished drawing up regulations that will enable gold-backed exchange traded funds to be listed on domestic stock exchanges. It seems possible that a launch could attract a substantial initial inflow of capital (into the mutual fund sector).
⢠On January 24, Bob Hoye wrote on Pivotal Events about gold appeal from a relative strength perspective (RSI). When the RSI gets to the high 70s the rally is close to peaking. In September the RSI soared to 84 and in late December fell to 28. The view is that any measurement below 30 is considered as the signal to begin accumulating.
⢠On January 23, a piece titled âThe End of Gold Cash Costs as We Know Them?â by Geoff Candy was published on Mineweb. The article discusses plans by Goldcorp and Yamana to adopt new cost performance measures known as âall-in sustaining cash costs.â This measure more fully defines total costs associated with producing gold; it includes by-product cash costs, sustaining capital, selling general and administrative expenses, and exploration expense.
Threats
⢠Goldâs bull market is over, according to Rene Hochreiter, Allan Hochreiterâs CEO, the top forecaster in the London Bullion Market Associationâs 2012 poll. The fading of so-called fear trades is set to diminish the appeal for gold, said Tom Kendall, Credit Suisseâs head of precious-metals research, and the most accurate precious-metals forecaster in the past eight quarters tracked by Bloomberg.
⢠India, the worldâs largest buyer of bullion, raised taxes on gold and platinum imports to 6 percent from 4 percent. The move is set to reduce a record current-account deficit and may reduce gold demand in Asiaâs third-largest economy. However, the appetite for gold is so ingrained in India this tax wonât have a dramatic impact.
