Gold Market

U.S. Global Investors Weekly (08/21/2009)
For the week, spot gold closed at $954.45 per ounce, up $5.90, or 0.62%. Gold equities, as measured by the XAU Gold & Silver Index (XAU) (10) gained by 1.01% for the week. The U.S. Trade-Weighted Dollar Index (DXY) (11) decreased by 1.09%.

Strengths
  • According to the World Gold Council's latest report, identifiable investment gold demand in 2Q09 totaled 222.4 metric tons, up 46% year-over-year (y/y). Net investment demand eased from 1Q09 but remained very healthy from a historical standpoint.
  • China posted a 6% rise in jewelry demand, compared to a 22% decline in globally.
  • Gold gained after the dollar fell to a two-week low as better economic data and comments from Federal Reserve Chairman Ben Bernanke, who said U.S. home resales rose for the fourth straight month in July signaling the worst of the recession has past.
  • Global jewelry demand has started to stage a recovery after the weakness seen in 1Q09. Demand rose to 404 metric tons from 345 metric tons, a gain of 17%, but still down 22% on a y/y basis. The real turnaround came in bar hoarding and coin retail investment, primarily in India.
Opportunities
  • Warren Buffett and Pacific Investment Management Co are both advocating future dollar weakness caused by massive federal stimulus spending leading the country's deficit to about 13% of GDP this fiscal year, more than twice the non-wartime record. Emerging market portfolio managers at PIMCO suggest diversifying away from the dollar.
  • Zimbabwe's central bank governor has proposed the introduction of a Zimbabwe dollar that will be fully backed by credible, tangible and locally available assets, such as gold, diamonds and platinum to combat inflation.
  • India is planning to cut permit delays to attract overseas capital through a much simpler resource law. The legislation is also important to reduce reliance on foreign gold imports needed to meet demand.
  • The BBC reported China reduced its holdings of U.S. government debt by 3% in June. The move reaffirms China's worries that its positions in U.S. debt securities may fall in value as the U.S. keeps up its aggressive quantitative easing campaign, which many analysts fear will lead to inflation.

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