Gold Market

U.S. Global Investors Weekly (06/26/2009)
Gold Market

For the week, spot gold closed at $939.60 per ounce up $5.55 or 0.59%. Gold equities, as measured by the XAU Gold & Silver Index (11) rose by 1.52% for the week. The U.S. Trade-Weighted Dollar Index (12) fell by 0.54%.

Strength
  • Gold's investment appeal resurfaced as the dollar came under renewed pressure after China's central bank reiterated a call to lessen the dollar's role as the world's currency. The European Central Bank's liquidity injection of 442 billion euros pushed money market rates and Libor to record lows. This marked the first week in four that gold prices recorded a gain.
  • Contrary to market expectations, many analysts believe the Federal Reserve is unlikely to begin rate normalization in 2009 because of a negative output gap and tight levels of credit. RGE analysts said that in order to tame rising Treasury yields, the Federal Open Market Committee may later expand quantitative easing.
  • According to a Bank of America-Merrill Lynch report, it would take 360 years to double your money based on current U.S. base interest rate yields.
Opportunity
  • Fed Chairman Ben Bernanke's grilling by legislators in the Bank of America acquisition of Merrill Lynch may reduce the odds of the central bank receiving increased powers in the regulatory overhaul of the financial system. There is some speculation that Lawrence Summers is vying to be appointed as the new head of the Federal Reserve when Bernanke's potential reappointment comes up for consideration by President Obama.
  • A senior researcher with the ruling Communist Party has stated that China should buy more gold because the dollar is poised for a fall and the metal is needed to effectively hedge from downside risk. More importantly the article noted that China was taking a number of steps to support the greater international role of the yuan with a view towards making it an acceptable reserve currency.
  • South Korea may set up an exchange to trade gold as early as 2011 to boost the transparency of transactions and to counter the illegal smuggling of gold, which accounts for about 60% of supply in that country.

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