Gold Market Notebook (2010-05-10)
For the week, spot gold closed at $1208.40 per ounce up $29.20 or 2.48 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index fell 3.99 percent. The U.S. Trade-Weighted Dollar Index surged 3.11 percent.
Strengths
- Supported by Greek riots, alleged trading errors, and Euro instability, gold continued to be a safe haven for many investors as the gold price peaked a 5- month high of $1,209.
- Warren Buffet recently stated his concerns over inflation due to governments printing of money, resulting in more skepticism of the ability of currencies to hold their value.
- Martin Murenbeeld, chief economist of DundeeWealth Economics, remains bullish on gold as he predicts investors will generally look to gold as an alternative to paper investments such as government debt.
Weaknesses
- As a result of a near 1,000 point drop in the Dow Jones Industrial Average on Thursday, the Commodity Futures Trading Commission and the SEC will investigate whether market participants accidentally or intentionally entered orders that hindered normal trading.
- Australia seems intent to charge a 40 percent resource rent tax on mining projects starting in July 2012. Kevin Rudd, Australian Prime Minister, stated the tax was “about right” and a fair redistribution of profits from the country’s natural assets.
- Mark Cutifani, CEO of South Africa’s largest gold producer, commented that sovereign risk in Australia is now higher than South Africa. .
Opportunities
- Many countries in Europe are on shaky financial ground, indicating the central banks role as a buyer of gold could become more extensive.
- The United Nations is proposing a new global currency to take the place of the dollar. While countries such as China and Russia have mentioned this idea several times in the past, one of the authors of the proposal suggested “replacing the dollar with an artificial currency would solve some of the problems related to the potential of countries running large deficits and would help stability.” Unfortunately, Monopoly has already cornered the market on artificial currencies.
- Sean Boyd, CEO of one of Canada’s larger gold companies, expects to see a rise in mergers and acquisition activity for gold miners as ongoing growth and quality deposit challenges persist.
Threats
- Portugal will likely receive its first ever credit rating reduction by Moody’s. This is a result of their struggles to awaken economic growth and abate their deficit.
- Portugal’s debt was 77 percent of GDP last year as France produced similar numbers; both countries are comparable to the 115 percent of GDP Greece generated.
- One of the bigger threats that is coming into focus is the scramble of governments to raise taxes to cover their debts. Australia’s new plan to raise taxes on natural resources and comments in Greece that they will just raise taxes on the most profitable industries to address their woes are just some of the latest symptoms.
