Gold Market
For the week, spot gold closed at $1,096.65 per ounce down $8.75 or 0.79 percent. Gold equities, as measured by the XAU Gold & Silver Index, fell 2.19 percent for the week. The U.S. Trade-Weighted Dollar Index gained 0.28 percent.
Strengths
- According to a report in the China Daily, Chinese citizens have been rushing to buy gold after major department stores cut the price of jewelry by around 3 percent in year-end promotions for the Chinese holiday season. Gold jewelry sales increased by about 30 percent or more over the previous weekend.
- The International Monetary Fund has said the dollar’s share of global currency reserves fell in the third quarter to the lowest level in a decade. The currency’s portion fell at the end of the third quarter of 2009 to 61.6 percent from 62.8 percent in the previous quarter. Data collected by the World Gold Council showed that central banks collectively bought $28 billion of gold at an average price of $978 ounce.
- MasterCard released a report showing jewelry sales in the U.S. rose 5.6 percent for November and December. Luxury retail, excluding jewelry, increased slightly by 0.8 percent during the holiday season compared to last year, due to an extra day of holiday shopping and a spike in online shopping.
Weaknesses
- According to Reuter’s calculations, the value of the U.S. dollar’s net long position was around $700 million in the week ending Dec. 22, up from a net short position of $1.98 billion the prior week, and ended 32 straight weeks of short dollar positions.
- Data from the Mines and Geosciences Bureau of the Philippines showed that investments in the mining industry fell short of an already downscaled $650 million full year target from its original target of $1 billion. The latest actual investment figure is $375 million this year, a fraction of the downscaled target due to tight credit for developing projects in emerging markets.
- The New York Times has reported that New York State’s courts are feeling the legal fallout of the recession as they are closing the year with 4.7 million cases, the highest tally ever, with cases ranging from contract disputes to home foreclosures.
Opportunities
- Philip Klapwijk, chairman of Gold Fields Mineral Services, has stated gold will probably extend its longest winning streak in at least six decades next year on inflation concerns and dollar weakness. Klapwijk most accurately forecasted the average gold price for 2009 among his peers, being only 0.2 percent from the actual average.
- Esteemed hedge fund manager Eric Sprott has said the S&P 500 Index will collapse below its March lows when an expected rebound in economic activity fails to materialize. Sprott has said the market’s rally is attributable to the misinterpretation of economic data and forecasts a 40 percent correction.
- Similarly, Jim Sinclair, a much respected and followed bull on the gold price, disagrees with analysts predicting a stock market rally in 2010, and instead remains confident in gold, looking for new highs above $1,224 then moving on to $1,274 before reaching $1,650.
Threats
- Research from Sprott Asset Management indicates that out of three of the largest Treasury buying groups, including the Federal Reserve itself, households bought the most in government debt in 2009 which totaled $528.7 billion as opposed to only $15 billion in 2008, a 35-fold increase. The issue going forward is who will pick up the demand of Treasury auctions if the household sector has been tapped out and foreign buyers are reluctant to add more dollars to their reserves.
- The U.S. government has bailed out GMAC, the ailing former finance arm of General Motors, for the third time by injecting $3.8 billion in capital, increasing the U.S. Treasury’s stake in the lender to 56 percent from 35 percent.
- Morgan Stanley is forecasting yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the largest annual increase since 1999, also pushing interest rates higher on 30-year fixed mortgages to 7.5 percent to 8 percent, the highest in a decade.
