Gold Market Radar (November 19, 2012)
For the week, spot gold closed at $1,713.50, down $17.68 per ounce, or 1.02 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 8.42 percent. The U.S. Trade-Weighted Dollar Index gained 0.19 percent for the week.
Strengths
- On November 12, Osisko announced the acquisition of Queenston Mining. Queenston shareholders will receive 0.611 Osisko shares per Queenston Mining share, implying a C$6 offer, and representing a 20 percent premium to last Friday’s closing price. Queenston Mining gained 14.8 percent on Monday after the announcement.
- Continental Gold provided an update on drilling of the Yaragua vein at its Burtica project in Colombia. The release was highlighted by the results of a deep step-out hole drilled 200m to the west of (and well below) the current Yaragua resource shell. The results indicate strong potential for resource growth.
- The Indian gold market is showing signs of recovery, up 9 percent to 223.1 tons in the third quarter of 2012 from 204.8 tons in the third quarter of 2011, following increases in both jewelry and investment demand. Jewelry demand increased due to restocking ahead of the Indian wedding and festival season.
- Billionaire fund manager George Soros increased his stake by about 50 percent in the SDPR Gold Trust, and John Paulson maintained his holdings in the world’s largest gold bullion-backed ETF. During the third quarter, Soros Fund Management raised its stake in the SPDR Gold Trust from 884,400 shares in the second quarter to 1.3 million shares.
Weaknesses
- Most of the recent selling in U.S. equities has been attributed to reducing assets ahead of the potential Bush-era tax cut expiry.
- According to the World Gold Council Report, central banks continued to buy gold in the third quarter for a total of 97.6 tons worth $5.2 billion, but central banks were buying at a slower pace, accounting for 9 percent of overall demand.
- China’s gold demand fell 8 percent to 176.8 tons in the third quarter of 2012 from 191.2 tons in the third quarter of 2011. The fall is due in part to lower jewelry and investment demand, down 6 percent and 12 percent, respectively.
Opportunities
- Christopher Wood, of CLSA, in Friday’s GREED & Fear publication wrote that uncertainty continues in Washington and believes there will likely be a last-minute fix on the “fiscal cliff.” Ben Bernanke will have the excuse he is probably looking to resume unsterilized purchases of long-term Treasury bonds, at the current rate of $45 billion a month, which means further Fed balance sheet expansion. Such a move, together with uncertainty has the potential to take the ten-year treasury bond yield back to old lows.
- Platinum and palladium will return to the biggest shortages in at least a decade this year as strikes and safety stoppages in South Africa and falling sales from Russia cut supplies. According to UBS, platinum and palladium supply will decline 10 percent this year. South Africa platinum output fell 12 percent, producing just over 600,000 fewer ounces than last year. Palladium supply is expected to decline, led by falling Russian state stock sales, which are expected to diminish to 250,000 ounces this year from 755,000 ounces last year.
- Philip Klapwijk, Global Head of Metals Analysis at GFMS, stated Wednesday that silver prices may rise as much as 38 percent in 2013 from current levels as a weak global economy spurs safe-haven demand for the precious metal. Strong investment demand, higher gold prices on the back of monetary easing, rising inflation expectations and low interest rates are among the factors that should lure buyers to the safety of silver. Spot silver has gained more than 16 percent so far this year, outperforming a rise of 10 percent in gold.
- The U.S. Mint is selling more silver coins relative to gold coins than in any year in the bullion coin program history.
Threats
- The World Gold Council reported that the global gold demand fell sharply in the third quarter from the year-ago period because of global weakness, high prices and slower demand from China. Global gold demand, as reported by the World Gold Council, fell 14 percent year-over-year.
- This week, the gold metal price held up relatively strong compared to a loss of 8.4 percent in mining stocks measured by the NYSE Arca Gold Miners Index. The index fell below its 200-day moving average, implying technical weakness.
- Gold investment demand in the third quarter dropped 16 percent from the year-ago period.
