Gold Market Diary (October 11, 2010)

Sunday, October 10th, 2010

Gold Market Diary (October 11, 2010)

For the week, spot gold closed at $1,346.74 per ounce, up $27.64, or 2.10 percent for the week. Gold equities, as measured by the Philadelphia Gold & Silver Index, rose 2.28 percent. The U.S. Trade-Weighted Dollar Index fell 1.05 percent for the week.

Strengths

• The gold price reached another record high this week as the Bank of Japan pledged to keep its benchmark interest rate at “virtually zero” and the Federal Reserve indicated it would soon buy more debt in an attempt to help the economy.
• Banks such as JP Morgan Chase, Deutsche Bank and Barclays Capital are currently re-opening or considering building large secure storage space for gold and other precious metals as physical investment demand continues to rise.
• Josef Stadler, a UBS executive who runs the services for clients with assets of at least $50 million to invest, recently noted that many high net worth individuals around the world are investing more in gold due to fears of a double-dip recession in the U.S. and the subsequent global fallout of such an event.

Weaknesses

• According to the National League of Cities (NLC), there will be a decline in the amount of property tax receipts for cities. The NLC reported city property tax revenues are projected to decrease almost 2 percent in 2010, the first decline since the recession began.
• The freeze on home foreclosures announced this week, due to what likely will amount to procedural errors, only forestalls the long and painful process which must be dealt with in order to bring the real estate market back into balance. There is plenty of backlog overhanging the market with just 20 percent of the 1.2 million homes in the foreclosure process on the market.
• The Chilean government reached an agreement on a bill that would include a six- year fixed tax rate with rates as high as 14 percent on miners operating in the country. In addition, Argentina’s Senate passed a law that will greatly reduce mining on and around the nation’s glaciers in order to protect water supplies. This could make current projects more expensive or even impossible for development to continue.

Opportunities

• Bank of America Merrill Lynch believes mining merger and acquisition (M&A) activity will soon increase. In a report called “Global Gold M&A Heats Up” they conclude for the balance of 2010, “We expect the reserve hungry senior and mid-tier producers to continue focusing their attention on resource-rich junior producers and developers.”
• Morgan Stanley became the latest investment bank to raise its gold forecast, as the firm is now calling for gold to average $1,315 an ounce in 2011 in its “base case,” and in its “bull case” gold is anticipated to reach $1,512 an ounce.
• Gold ATMs will make their U.S. debut in Las Vegas, Nevada and Florida within the next month. The makers of the gold ATMs currently have twenty in use around the world and are planning to open twenty more. While this is really more of a novelty at this time, it is a sign that gold could become more mainstream in the retail sector as an investment product.

Threats

• In a survey published by Citigroup, 86 percent of small business owners are concerned about a double-dip recession and this is what is holding back gains in employment along with the increased burden of higher healthcare cost.
• Some companies have calculated that it is cheaper to pay the fines for not providing healthcare than it is to offer insurance coverage. As an unintended consequence of the requirement that 80 percent of healthcare insurance premiums be spent on care versus administration of a plan, premiums are likely to go higher to maintain the same level of service.
• One of the largest outstanding legacy gold books was eliminated this week with the purchase of $2.63 billion of gold (2.7 million ounces) by a major South African based gold company. When North America’s largest gold producer closed out their hedge book in the past year, gold shed about $100 over the ensuing month. However, even a 10 percent pullback in bullion prices from here would not break the technical uptrend in gold prices.

Tags: Bank Of Japan, Barclays Capital, Benchmark Interest Rate, Double Dip Recession, Global Fallout, Gold, Gold Bullion, Gold Equities, Gold Market, Gold Price, High Net Worth Individuals, Home Foreclosures, Investment Demand, Jp Morgan Chase, Market Diary, Philadelphia Gold, Procedural Errors, Property Tax Receipts, Property Tax Revenues, Secure Storage, Silver, Silver Index, Spot Gold
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