Gold Market Diary (June 7, 2010)

Saturday, June 5th, 2010

Gold Market Diary (June 7, 2010)

For the week, spot gold closed at $1,219.90 per ounce up $5.52 or 0.45 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index fell 2.80 percent. The U.S. Trade-Weighted Dollar Index continued its upward march rising 2.03 percent.

Strengths

• U.S. Mint May gold coin sales hit their highest level since 1999. Silver coins sales also were halted until more silver blanks could be acquired. Rand Refinery noted sales of Krugerrand gold coins soared by 50 percent due to investor demand over the euro crises.
• In an interview with The Gold Report, when asked what hedge is most favorable against a collapse of the euro, CD Capital founder Carmel Daniele stated, “The safest bet is gold. It’s the safest currency. It’s become a currency.”
• In the prior week, the German five-year bond auction failed for the first time since September 2008. Dealers were left holding 22 percent of the issue, which was priced to yield only 1.47 percent. In contrast, Portugal sold bonds yielding 3.70 percent. Seems that investors figured, why buy German debt when I can buy higher yielding Portuguese debt, guaranteed by the German government?

Weaknesses

• South Africa’s first quarter gold production fell 15 percent quarter-on-quarter, continuing their decrease in output.
• Kevin Rudd, Australia’s Prime Minister, said the government has no plans of reforming the resource super profits tax. KPMG, one of the top accounting firms, noted that $69 billion worth of resource projects had been placed on hold in Australia due to uncertainty over the tax.
• Gold prices slipped almost $17 on Thursday and commentators cited the current strength in equities and decreased risk aversion was unfavorable for gold investors and could subdue gold prices in the short term. The sudden drop could also have been due to the International Monetary Fund (IMF) asking for a bid on some of the gold they currently have in the pipeline to sell. Latest estimates place the IMF with about 153 tonnes left to sell. Interestingly, one of the gold ETF’s inventory rose by 21.3 tonnes on the same day.

Opportunities

• The second largest pension fund in the U.S., California State Teachers’ Retirement System, will vote soon on whether to invest in commodities as a hedge against the risk of increased inflation
• Michael Jalonen, of BofA Merrill Lynch Global Research, highlighted that for 20 of the last 22 years, bullion has enjoyed late summer/early fall gains averaging 13 percent on the back of renewed jewelry demand. A rally in bullion has also tended to support some spectacular rallies in the gold mining stocks. Jalonen notes bullion could rise to $1,300 per ounce by October 2010.
• While there may be days where gold could see a quick sell off, these are likely going to be opportunities to accumulate gold and gold equities as governments policies are out of step with economic reality. A recent report by Eric Sprott and David Franklin outline “A Busted Formula” and it is an excellent overview of economic problems our nation faces. When the U.S. government spends $117,933 to create a job that won’t pay anywhere near that amount of income, or takes on $2.5 trillion in debt to get GDP to rise by $200 billion, it is like running a business where you buy dimes for dollars.

Threats

• Indications of a double dip in Europe have been becoming more visible as restrictive policies and an assortment of troublesome data, such as weakening consumer spending and manufacturing reports are becoming more consistent, according to a recent ISI Group report. What is distressing is the lack of realization that the odds of such an outcome in the U.S. are just as strong.
• Corporate debt markets continue to struggle. Global new issues declined to $70 billion in May, less than half of what was issued in April and the lowest since August 2003. Investment bankers are hesitant to bring new deals that may not go well.
• Warren Buffett, recently subpoenaed to testify before Congress, predicts a negative outcome for municipal debt in the U.S. In fact, New York, recently has stopped paying contractors of private construction companies and told them to continue work or they will sue them for breach of contract.

Tags: Bond Auction, Commodities, ETF, ETFs, Gold, Gold Bullion, Gold Coin Sales, Gold Equities, Gold Investors, Gold Market, gold market diary, Gold Prices, Gold Report, gold update, golds, International Monetary Fund, International Monetary Fund Imf, Investor Demand, Kevin Rudd, Krugerrand Gold Coins, Market Diary, Philadelphia Gold, Profits Tax, Rand Refinery, Risk Aversion, Silver, Silver Coins, Top Accounting Firms, U S Mint
Posted in Bonds, Commodities, ETFs, Gold, Markets, Silver | Comments Off

Gold Market Diary (5/31/2010)

Monday, May 31st, 2010

Gold Market Diary (5/31/2010)

For the week, spot gold closed at $1,214.38 per ounce up $37.28 or 3.17 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index gained 4.71 percent. The U.S. Trade-Weighted Dollar Index continued its upward march rising 1.58 percent.

Strengths

• Chinese and Indian gold demand remained strong in the first quarter of 2010 despite high gold prices. The inference is that consumers in these two important nations are becoming accustomed to higher gold prices. Indian and Chinese demand rose 698 percent and 11 percent, respectively, in the first quarter.
• Recent data shows Indian gold imports improved by 23 percent last month and accelerated by 71 percent during April compared to the same periods a year ago.
• Debt contagion fears in the euro zone have led to strong buying in gold coins, gold bars, and gold exchange-traded funds during May.

Weaknesses

• The Wall Street Journal is featuring a three-part series called “The Gold, The Bad and the Ugly.” In the first installment, the Journal highlight some positive aspects of gold, but included a graphic showing the gold price overlaying the previous rise in the Nasdaq Composite and an index of homebuilding stocks to question whether gold is the next bubble.
• If the gold price were to rise to about $2,350 per ounce, this would just be the inflation-adjusted price of gold in 1980 dollars. Also of note, if one compared the amount of gold the U.S. held relative to its debt in the 1970-1980 cycle, the amount of debt outstanding today would put gold roughly in the $40,000 per ounce range.
• A $165 billion bailout package has been introduced by Congress to fund current shortfalls for union pension funds in distress. The bill could impose an almost infinite liability on taxpayers due to the pensions having to be paid out until the workers die.

Opportunities

• Wang Zhenying, deputy director-general of the Department of Financial Market Management at the Shanghai office of the People’s Bank of China, stated that China should improve gold investment products and develop more of them considering the country’s savings of more than 30 trillion Yuan.
• Protection of wealth is a major trend that will continue according to Deutsche Bank as it increased its gold price forecasts for this year and the following two years. Predictions have been pushed to $1,215 for the end of 2010, $1,450 for the end of 2011, and $1,600 for the end of 2012.
• President Obama recently issued an extended moratorium on permits to drill new deepwater wells for the next six months. The U.S. Minerals Management Services, which is the second-highest revenue producer for the government behind the IRS, manages the nation’s natural gas, oil and other mineral resources, and now will have essentially no income coming in the door. This delay in drilling could cut 4 percent of U.S. supply and have a big impact on the Gulf as close to 20 percent of Gulf coastal states’ wealth is reliant on the oil and gas industry. Besides pushing oil prices higher, gold prices typically rise when oil strengthens.

Threats

• To help investors understand the logic behind the proposed Australian windfall profits, Australia defined a windfall profit as anything that exceeds a return on assets of 5.3 percent, which is equal to Australia’s ten-year bond yield. This clearly shows Australia’s strategy of penalizing investments that could produce returns greater than buying government debt.
• Julius Malema, leader of the Youth League of the Africa National Congress, noted that despite objections from President Zuma, nationalization of South Africa’s mines could be implemented as a policy in 2012.
• China is considering amending its resource tax to a more supply-demand outlook as new policy would implement taxes based on value of production instead of current quantity of production benchmark. Although a change in policy, this reformation has the potential to force prices higher as the marginal cost of production is likely to rise.

Tags: Bailout Package, China, Chinese Demand, Commodities, Deputy Director General, energy, Gold, Gold Coins, Gold Demand, Gold Equities, Gold Exchange Traded Funds, Gold Imports, Gold Market, gold market diary, Gold Price, Gold Prices, gold update, golds, India, Market Diary, Nasdaq Composite, Natural Gas, Natural Resources, Ounce Range, Philadelphia Gold, Shanghai Office, Silver, Silver Index, Spot Gold, Union Pension Funds, Wall Street Journal
Posted in Bonds, Energy & Natural Resources, Gold, India, Markets, Oil and Gas, Outlook, Silver | Comments Off

Gold Market Notebook (5/24/2010)

Monday, May 24th, 2010

Gold Market Diary (5/24/2010)

For the week, spot gold closed at $1,177.10 per ounce down $56.08 or 4.55 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index fell 9.62 percent. The U.S. Trade-Weighted Dollar Index slipped 0.78 percent.

Strengths

• Japan’s largest trust bank, Mitsubishi UFJ Trust, is expected to develop the country’s first precious metals ETF that will be backed by physical metals stored in Japan.
• Holdings in gold ETFs have touched record highs recently with asset levels approaching $50 billion.
• Peruvian mining GDP has risen 260 percent in the last two decades. In 2010, Peru will receive $14 billion in foreign investment for mining projects which will likely catapult them into the top five gold producing countries.

Weaknesses

• Dennis Gartman, author of The Gartman Letter and hedge fund manager, urged investors in gold to “rush to the exits” as bullion hit new highs. Due to the steeper and quicker than anticipated fall in the gold price, Gartman did suggest investors reconsider entering back into the gold trade later in the week.
• Gold tumbled more than $50 for the week and inflation data presented by the government that was absent of any price gains for April did not help.
• Spain approved its first public wage cuts, the deepest for at least 30 years, in response to the latest EU rescue package. If strikes similar to those in Greece occur the austerity proposals may lose political support.

Opportunities

• There seems to be no end to governmental opinions that more regulation is a certain way to improve the economy. German Chancellor Angela Merkel encouraged global economic powers to send a “signal of strength” by agreeing to more forceful financial regulation. In the U.S., similar financial reform bills are being debated.
• Policymakers have cited the failure of capitalism as a need for new rules but none of these measures mandate confidence from investors. We’re approaching a situation where the cost of regulation exceeds the economic benefits it was intended to create.
• Ken Gerbino highlighted on MineWeb.com this week many of the above mentioned concepts in his article “Gold and Greece: Not what you think”. He says investors accumulate 5 to 10 percent of their assets in gold and not be too concerned about the price.

Threats

• Recent sales on Akshaya Tritiya, the second-largest gold buying day in India, the world’s largest gold market, were significantly low which could foreshadow subdued demand for the year if prices remain steady.
• Evy Hambro, manager of BlackRock Investment Management’s $14.3 billion World Mining Fund, said “resource nationalism” is an important risk miners are faced with in the near future. Countries such as Brazil, China, Mongolia and Africa are likely to follow in the foot steps of Australia and raise their nation’s mining taxes.
• California’s largest public pension fund has asked for a $600 million injection from the state—already $19.1 billion in the hole—to shore up their shortfall in funding. Illinois’ state pension plan, which has $78 billion in unfunded liabilities, is also hoping their state can put $4 billion into the plan in 2011. However, the state has a $13 billion budget deficit of its own.

Tags: Angela Merkel, Asset Levels, Brazil, Chancellor Angela Merkel, China, Dennis Gartman, ETF, ETFs, Gartman Letter, German Chancellor Angela Merkel, Gold, Gold Bullion, Gold Equities, Gold Etfs, Gold Market, gold market diary, Gold Price, Gold Trade, gold update, golds, Hedge Fund Manager, India, Inflation Data, Market Diary, Mitsubishi Ufj, Philadelphia Gold, Physical Metals, precious metals, Silver, Silver Index, Spot Gold
Posted in Brazil, ETFs, Gold, India, Markets, Silver | Comments Off

Gold Market Diary (5/1/2010)

Saturday, May 1st, 2010

Gold Market

For the week, spot gold closed at $1,179.20 per ounce up $21.60 or 1.87 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index rose 3.82 percent. The U.S. Trade-Weighted Dollar Index gained 0.63 percent.

Strengths

• Central banks have turned into buyers of gold for the first time in two decades. Gold sales by central banks remain very low and have helped support the price of gold. Central banks have only sold 7.2 tons of gold over the past six months under their current selling agreement.
• The SPDR Gold Trust reported a record high in terms of tonnage this week after increasing its holdings by 6.09 metric tons. If you compare this jump with the combined sales of global central banks and the IMF over the past six months it basically comes out a wash.
• The gold price hit a 2010 high of $1,180, fueled by investors continuing to embrace gold’s safe-haven qualities as uneasiness over eurozone sovereign debt levels increased.

Weaknesses

• Major Western Australian mining companies have warned that their profits are facing a multi-billion dollar hit from the introduction of a resource rent tax which is likely to be imposed on top of existing state royalties.
• However, the legislation could be a boon to exploration companies as some experts believe this legislation will include the introduction of “flow-through share schemes” which allow junior exploration companies to pass on their tax losses to shareholders.
• Mongolia’s president has ordered a halt to the issuance and transfer of mineral exploration licenses until the government can enact a stricter law on mining investment.

Opportunities

• CPM Group expects investment demand for gold to remain extremely high during 2010 and in the years to come.
• CPM also predicts gold could rise to as much as 1-2 percent of global financial assets. This would represent a significant shift in investor preferences.
• The world’s supply of diamonds is running low according to De Beers. The miner will reduce capacity in order to extend the life of its mines and that diamond prices could rise by 5 percent a year for the next five years.

Threats

• Venezuela’s president, Hugo Chávez, has threatened to nationalize gold-mining operations, claiming concerns over the environmental impact on Venezuela’s ecosystem.
• The Colombian gold-mining industry has voiced concerns over the country’s recent rule change in access to certain high-altitude mining environments. However, there is a history of working out solutions to economic development in Colombia.
• Nouriel Roubini, a New York University professor, said “rising sovereign debt from the U.S. to Japan and Greece will ultimately lead to higher inflation or government defaults. While today markets are being worried about Greece, Greece is just the tip of the iceberg.”

Tags: Australian Mining Companies, Buyers Of Gold, Central Banks, De Beers, Exploration Companies, Exploration Licenses, Financial Assets, Gold, Gold Equities, Gold Market, gold market diary, Gold Price, Gold Sales, gold update, golds, Investment Demand, Junior Exploration, Market Diary, Philadelphia Gold, Share Schemes, Silver, Silver Index, Spot Gold, Tax Losses, Western Australian Mining Companies
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Gold Market Diary (4/24/2010)

Saturday, April 24th, 2010

Gold Market Diary (4/24/2010)

For the week, spot gold closed at $1157.60 per ounce up $20.20 or 1.78 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index rose 2.23 percent. The U.S. Trade-Weighted Dollar Index gained 0.65 percent.

Strengths

• The above chart shows the relative performance of copper and gold prices. Since January 2009, copper prices have moved up faster than gold. Included on the chart is the relative performance of a basket of pure gold producing companies versus a group of gold producers that largely rely on copper or other base metals as a byproduct to add to their revenue.
• Official Chinese trade data for March disclosed the strongest-ever recorded inflow of platinum imports for the last decade. The rise is probably due to increased industrial demand, such as in oil refining where platinum is used as a catalyst for the cracking of petroleum.

Weaknesses

• An online commodity poll documented that 93 percent of investors believe the gold price will fall in the near term due to a recovery in global equity markets.
• Despite the perceived belief of recovery, the U.S. Treasury is expected to increase debt by issuing a record $128 billion in notes next week.
• A rallying U.S. dollar after the Moody’s downgrade of Greece was a headwind to the gold price this week. Another headwind was speculation that some of the larger holders of the gold ETF might see some investor redemptions due to the recent fraud case brought by the SEC against Goldman Sacs.

Opportunities

• The world’s 10 major gold miners have produced a negative $2 billion free cash flow throughout the last three years. This can be measured up against a positive $8 billion free cash flow from the U.S.’s largest copper miner. Recently, a number of these large gold companies have signaled they intend to pursue building copper mines that have byproduct gold potential. These require $3 to $4 billion a piece to build so don’t expect a bunch soon but this brings up an interesting question: Will the copper miners allow their markets to be disrupted by gold miners? These byproduct producers would look to sell all the copper they can so they can tell the world they are the lowest cost gold producers. Not likely, copper miners could crush these marginal projects through temporary price weakness.
• Colombia offers investors vastly unexplored areas rich in gold deposits. A recent article highlighted that gold companies are expected to invest up to $400 million in exploration and production this year and $4.5 billion over the next decade in Colombia.
• Respected investment strategist John Embry noted he would not be surprised to see a $500 rise in the gold price within the coming six months. Embry concludes the rise could be caused by the accelerated increase in Western nation’s sovereign debt and a potential for paper claims on gold ownership to exceed what can reasonably be delivered in the physical gold market.

Threats

• The Bank of America-Merrill Lynch economics team doesn’t anticipate broad-based inflation pressures until 2012.
• However, they noted if interest rates for the 10-year Treasury bond were to reach 5 percent or higher in the near term, this could change the outlook for inflation to accelerate sooner.
• Two global taxes on financial institutions recently proposed by the IMF would likely raise costs for consumers. The taxes would be imposed on bank liabilities and equity.

Tags: Base Metals, Copper Miner, Copper Mines, Copper Prices, ETF, Fraud Case, Free Cash Flow, Global Equity Markets, Gold, Gold Companies, Gold Equities, Gold Etf, Gold Market, gold market diary, Gold Miners, Gold Price, Gold Prices, Gold Producers, gold update, Goldman Sacs, golds, Market Diary, Philadelphia Gold, Silver, Spot Gold, U S Treasury
Posted in Energy & Natural Resources, ETFs, Markets, Outlook, Silver, US Stocks | Comments Off

Gold Market Diary (04/18/2010)

Sunday, April 18th, 2010

Gold Market

For the week, spot gold closed at $1137.40 per ounce, down $24.60, or 2.12 percent. Gold equities, as measured by the Philadelphia Gold & Silver Index, fell 4.71 percent. The U.S. Trade-Weighted Dollar Index slid 0.39 percent.

Strengths

• In the prior week, the holdings in world’s largest gold-ETF hit an all time high of 1,140 metric tons
• Despite the strength in the U.S. dollar, investors are increasing giving a higher weight to sovereign risks and are choosing gold as a means of storing value. Jason Toussaint, managing director of World Gold Trust Services, noted that gold is increasingly being used as a long-term portfolio asset, particularly among institutional investors and pension funds.
• Global gold output has been falling at about 5 percent a year since 2000-2001. The world’s largest gold mining company recently presented a study showing that North American gold production from 1998 to 2008 fell 60 percent.

Weaknesses

• The above chart shows U.S. real disposable personal income rising about 1.8 percent over the last two years. However, as CLSA notes, if government payouts to consumers are excluded, real personal income has fallen by about 6 percent. The media portrays the economy as being on a steady footing now, so it will be very difficult for the government to withdraw stimulus funding in the near future.
• Goldman Sachs lowered its gold price forecast by $100 an ounce for 2010 to $1165, citing expectations that real interest rates would rise this year.
• Consumer confidence unexpectedly fell to its lowest level in five months, but the same survey, consumers also upped their inflation expectations from 2.7 percent to 2.9 percent for the next 12 months.

Opportunities

• The World Gold Council forecasts that gold imports into India may match or exceed last year’s estimate of 480 to 500 metric tons and that gold prices could advance to as high as $1,300 per ounce in the coming year.
• The world’s largest platinum producer also noted that it could see stronger demand this year.
• If China revalues its currency higher, as some expect, gold and other precious metals will become cheaper in their domestic market. However, this does not mean the U.S. will see an expansion in manufacturing jobs as Congress and others expect.

Threats

• With the U.S. health care reform bill passed, business-related measures could be the next legislative priorities for the Obama administration and Congress. Efforts to tighten capital market operations could have a negative effect on the economy on the whole, which could affect gold.

Tags: American Gold, China, Consumer Confidence, Disposable Personal Income, ETF, Gold, Gold Equities, Gold Imports, Gold Market, gold market diary, Gold Mining Company, Gold Output, Gold Price, Gold Prices, Gold Production, gold update, Goldman Sachs, golds, India, Inflation Expectations, Market Diary, Philadelphia Gold, Platinum Producer, Silver, Silver Index, Sovereign Risks, Spot Gold, World Gold Council
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Gold Market Diary (4/10/2010)

Saturday, April 10th, 2010

Gold Market

Gold Break Out

We continue to be encouraged by the price action of gold in the face of a strengthening U.S. dollar. Typically, gold and the dollar move in opposite directions, but so far this year gold is up 6 percent, and at the same time the dollar has appreciated 4 percent.

Gold has also been appreciating against other major currencies in the developed world, as the chart above shows. The Eurozone, Britain and Japan are all struggling with rising fiscal deficits and the after effects of the global financial crisis.

In fact, the price of gold in euros made another record high as the threat of a sovereign debt default by Greece and other indebted countries in Europe continues to threaten the stability of the continent’s primary currency.

In our view, this gold “breakout’ against the world’s primary paper currencies highlights gold’s growing allure as a store of value against further currency debasement caused by governments spending with little restraint. Gold appears to be reassuming its role as an alternative currency unencumbered by political liabilities.

For the week, spot gold closed at $1161.10 per ounce up $34.30 or 3.04 percent. Gold equities, as measured by the XAU Gold & Silver Index climbed 3.34 percent. The U.S. Trade-Weighted Dollar Index rose 0.16 percent.

Strengths

• Acquisition activity has picked up lately in the gold mining sector.
• Australia’s largest gold miner recently offered to buy the second largest gold miner listed on the Australian Stock Exchange. This transaction would allow the acquirer to raise their gold exposure, as a percent of assets, which has been diluted somewhat by their recent increase in copper production
• In Canada, the Meliadine gold property will be acquired in a friendly takeover by their largest shareholder. This acquisition will help to consolidate the acquirer’s strategic position in Nunavust region where they have just commissioned the Meadowbank Gold Mine.

Weaknesses

• The unemployment rate remained unaltered at 9.7 percent
• In the month of March, 162,000 jobs were gained. This is the largest monthly gain within the past 3 years, but may not be a trend reversal.
• The total unemployment rate actually rose for the second month in a row, hitting 16.9 percent, as 238,000 unemployed people were re-classified as “not in the labor force”.

Opportunities

• As a follow up note to the Memorandum of Understanding between the Industrial & Commercial Bank of China and the World Gold Council highlighted in the prior week concerning new initiatives in gold marketing to their general population, it should be noted that in this region individual wealth is likely rising faster than anywhere else in the world. Some analysts project this trend to yield a gold price of $1,500 by year end and potentially $2,000 to $3,000 per ounce in the next several years.
• One of the world’s largest producers of copper recently noted that if predictions of demand growth for copper by China and India proved to be even remotely true it would be hard for global suppliers to meet demand. Next year the copper market is expected to see a meaningful supply deficit.

Threats

• The Credit Suisse stock basket of highly leveraged equities has outperformed even the most risky assets such as banks, homebuilders, and small cap stocks since the March 2009 post crisis lows. While this certainly reflects improved credit conditions there may also be speculative elements to this which could trigger a correction with a movement to higher rates in the U.S.
• Morgan Stanley has argued there are substantial risks to the medium-term inflation trajectory. Their rationale centers on their belief that central banks may decide to opt for a bit more inflation now, rather than find oneself in a more precarious position a few years down the road because of unsustainable debt levels.
• Protest turned to riots and then an overthrow of the government in Kyrgyzstan this week. At least 65 protestors were killed after government forces opened fire on their citizens upon their objection to over a 200 percent increase in electric and heating bills. Some 5,000 protestors installed a new interim government.

Tags: Acquirer, Acquisition Activity, Australian Stock Exchange, Canadian Market, Copper Production, Debasement, Debt Default, Dollar Index, Fiscal Deficits, Friendly Takeover, Global Financial Crisis, Gold, Gold Equities, Gold Market, gold market diary, Gold Miner, Gold Property, gold update, golds, Indebted Countries, India, Market Diary, Paper Currencies, Price Of Gold, Silver Index, Spot Gold
Posted in Canadian Market, India, Markets, Silver | Comments Off

Gold Market Diary (4/5/2010)

Monday, April 5th, 2010

Gold Market Diary (4/5/2010)

For the week, spot gold closed at $1,126.80 per ounce, up $19.30, or 1.7 percent. Gold equities, as measured by the XAU Gold & Silver Index climbed 8.2 percent. The U.S. Trade-Weighted Dollar Index fell 1.7 percent.

Strengths

• The gold price climbed for a third week in a row.
• While the S&P 500 Index gained 5.4 percent in the first quarter, putting in four quarters of consecutive gains, its momentum is starting to wane as each successive quarterly return has been lower. At the same time, most Wall Street strategists are calling an end to economic worries and trying to make the case for investors to get long equities after the easy money has been made.
• A recent case in point: strategist calls at two of the biggest banks ended their bets on a falling-dollar trade last week as their recommendation lost 2.8 percent.

Weaknesses

• Home prices rose 3 percent in March, marking the eighth straight month of gains, but home prices are still down 0.7 percent over the past year. While this may be the smallest annual decline in three years, it is still a decline and suggests it may be too early to call a bottom.
• Despite the growth in consumer confidence this month, most consumers are still pessimistic about the future of the current business and labor conditions.

Opportunities

• China’s largest bank by assets and the World Gold Council have agreed to combine forces to formulate new gold investment products and programs. The Memorandum of Understanding will continue to push gold as an investment for its general population.
• The World Gold Council noted that gold consumption for the next 10 years in China is expected to double (see Frank Holmes commentary in this Investor Alert). If such predictions were to unfold, known gold reserves in China would be depleted in just six years.

Threats

• California’s state treasurer sent letters to the major investment banks reminding them that California is a big part of their business when it comes to debt issuance. Bill Lockyer wrote “I do, however, worry about firms selling our bonds, on one hand, and trading (credit default swaps) on our bonds, or otherwise participating in the market, on the other.”
• In the letter, Lockyer made specific inquiries into the banks’ role in the credit default swap markets and whether this activity could adversely affect the California debt issuance and the borrowing cost paid by taxpayers.
• These comments are in the same vein as Greece’s prime minister calling for an end to the CDS market on its debt because it was driving up borrowing costs. Sovereign credit risks, international and domestic, remain a serious issue and will not go away simply by not pricing that risk in a public market.

Tags: Biggest Banks, Consumer Confidence, Dollar Index, Dollar Trade, Economic Worries, Frank Holmes, Gold, Gold Consumption, Gold Equities, Gold Investment, Gold Market, gold market diary, Gold Price, Gold Reserves, gold update, golds, Investment Banks, Investor Alert, Market Diary, Memorandum Of Understanding, Quarterly Return, Silver Index, Spot Gold, World Gold Council
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Gold Market Diary (3/29/2010)

Sunday, March 28th, 2010

Gold Market

For the week, spot gold closed at $1107.50 per ounce up $0.50 or 0.05 percent. Gold equities, as measured by the XAU Gold & Silver Index fell 2.76 percent. The U.S. Trade-Weighted Dollar Index gained 1.11 percent.

Strengths

• The decision by the Fed to keep record low interest rates has helped keep a floor under gold.
• A story this week highlighted the record outflows of cash from money-market funds and concluded investors are becoming more comfortable with taking risk.
• However, another survey reported that despite the S&P 500 rising more than 70 percent since its low on March 9 only three out of every ten people have increased values of their portfolio throughout the last year. Perhaps most of the cash is being used to meet living expenses and not wealth creation.

Weaknesses

• The Commodity Futures Trading Commission will soon debate whether there needs to be position limits on metals such as gold, copper, and silver to prevent price manipulation. Currently, there does not appear to be enough support for such a measure on the commission.
• Initial jobless claims fell 14,000 to 442,000, which is the lowest level in six weeks. Also continuing claims fell to the lowest level since December 2008.
• The sales of new homes surprisingly fell to a record low, raising some questions about the strength of the consumer.

Opportunities

• Martin Murenbeeld of Dundee Wealth Economics recently stated, “Sovereign debt problems in the developed economies will be exacerbated in the coming years by pension and health care costs of retirees, furthermore, and are hugely bullish for gold”.
• Portugal’s credit rating was lowered by Fitch this week and further added to the woes of the euro. The dollar has been the short-term beneficiary of this flock to safety but the U.S. has its own problems that will exacerbated by further expansion of our entitlement programs.
• Gold-copper porphyry deposits are being pursued as the next panacea of growth for some of the major gold mining companies. Unfortunately, the gold grades are very low and the economics of the mining project will depend on what the copper price does in the future. The problem is that the capital requirements are often in the $3 to 4 billion range. With copper prices being twice as volatile as gold it will be difficult to imagine that these projects will command a premium valuation.

Threats

• In Carson City, Nevada a district court judge has allowed a ballot initiative to move forward that would change tax from “net proceeds” to “gross proceeds” of mines. In states such as Nevada that are searching for new sources of revenue, this change would have increased the mining industry’s tax bill more than 300 percent based on 2008 tax receipts.
• If an aid agreement is not put into action for Europe, the dollar could continue to strengthen in the near term as the Euro decreases, causing gold to look unattractive to traders.
• Seasonally we are entering a weak phase for gold prices until jewelry buyers return at the end of the summer to replenish stocks, however the fragility of our economy probably doesn’t give one much reason to short gold at this point.

Tags: Bill Gross, Commodity Futures Trading, Commodity Futures Trading Commission, Dollar Index, Dundee Wealth, Futures Trading Commission, Gold, Gold Equities, Gold Market, gold market diary, Gold Mining, gold update, golds, Health Care Costs, Initial Jobless Claims, Low Interest Rates, Market Diary, Metals Copper, Money Market Funds, Porphyry Deposits, Position Limits, Price Manipulation, Silver Index, Sovereign Debt, Spot Gold
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Gold Market Diary (March 20, 2010)

Saturday, March 20th, 2010

Gold Market Diary (March 20, 2010)

For the week, spot gold closed at $1,106.04 per ounce up $4.14 or 0.38 percent. Gold equities, as measured by the XAU Gold & Silver Index were essentially flat this week. The U.S. Trade-Weighted Dollar Index gained 1.12 percent.

Strengths

• The Fed decision to hold interest rates exceptionally low for an extended period gave gold a modest gain this week.
• While inflation is perceived to remain tame, this may be wishful thinking. As we outlined last week, a recent IMF Staff Position Note “Rethinking Macroeconomic Policy”, released earlier in the quarter, is making the argument that traditional inflation targeting of 2 percent may not be optimal and opens the discussion of inflation at 4 percent.
• Another data point which highlights how tenuous the low inflation argument could be is the recent compliance of only 53 percent by OPEC with their promised 4.2 million-barrel-a-day output cutback. With no substantial job creation forecast in the pipeline and unemployment near 10 percent, why are oil prices above $80 per barrel?

Weaknesses

• The Index of U.S. Leading Indicators rose 0.1 percent in February; the smallest gain in close to a year, but the index is up for eleven straight months, the longest streak since 2003–2004.
• The most recent CPI reading in the U.S. showed an annual rate of 2.1 percent, down from 2.6 percent recorded in the prior month.
• Traditional arguments for no significant inflation center on low capacity utilization, high unemployment, and stable expectations. It is really the stable expectations point that tends to be the most important of these three factors. History is full of accounts where high trajectories of inflation are achieved despite factories operating below capacity and unemployment rates that are double digit. One really only needs inflation expectations to change.

Opportunities

• Moody’s put out a report on the five biggest AAA-rated countries, the U.S., the U.K., Germany, France, and Spain are all at risk of soaring debt cost and will have to implement austerity plans that threaten social cohesion. Moody’s noted, growth alone will not resolve this increasingly complicated debt equation.
• Japan also stands out as a potential sovereign debt risk. With a gross debt-to-GDP ratio of over 200 percent, Japan can ill afford to raise interest rates beyond 1.5 percent, anything much higher and they could default.
• As Martin Murenbeld of Dundee Wealth Economics recent noted, we are entering a multi-year period of sovereign debt problems that stem from excessively liberal fiscal policies over the last 30 to 40 years. Unwinding benefits which are enshrined as fundamental rights will be difficult and this enforces the positive long-term macro picture for gold.

Threats

• The Council of Ethics of the Government Pension Plan of Norway has been asked by two global trade unions and four Norwegian trade unions to divest their holding in Mexico’s largest diversified miner due to alleged labor, human rights, and environment violations. Norwegian pension funds have a history of divesting their holdings in other mining companies.
• Australia’s junior mining sector faces continued growth constraints. While countries like Canada have exploration tax credits available for flow-through shareholders to foster growth and potentially lead to the construction of a mine that has a sustained economic benefit, Australia is talking of upping royalty taxes on the mining sector. Fewer mines and fewer jobs get built when tax rates are uncompetitive.
• When addressing the issue of higher royalties, Australia’s Colin Barnett noted while this may be a period of increasing property, the demands on the West Australian Government are immense.

Tags: Canadian Market, Capacity Utilization, Cutback, Dollar Index, Gold, Gold Equities, Gold Market, gold market diary, gold update, golds, Imf Staff, Inflation Expectations, Job Creation, Leading Indicators, Macroeconomic Policy, Market Diary, Opec, Silver Index, Spot Gold, Staff Position, Traditional Arguments, Trajectories, Unemployment Rates, Wishful Thinking, Xau
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