Gold Market

U.S. Global Investors Weekly (09/18/2009)
For the week, spot gold closed at $1,007.60 per ounce, up $2.40, or 0.24%. Gold equities as measured by the XAU Gold & Silver Index (10) slipped 0.62% for the week. The U.S. Trade-Weighted Dollar Index (11) lost 0.11%.

Strengths
  • Gold got a boost from Federal Reserve Chairman Ben Bernanke and Berkshire Hathaway's Warren Buffett. Both stated that the markets have most likely bottomed and that a recovery is likely in progress. The statements brought increased levels of risk appetite and inflation fears resurfaced as most investors are cautious about the Fed's ability to remove excess liquidity in a timely manner.
  • It was reported that the Obama administration has determined that a cap-and-trade law would cost American taxpayers up to $200 billion, the equivalent of hiking personal income taxes by 15%.
  • Frozen food prices have increased at an annualized rate of 7.4% over the last three months as consumers have deferred going out to eat at restaurants.
Weaknesses
  • Bloomberg reported that, according to the Italian representative for the World Gold Council, gold jewelry sales in Italy, Europe's top market, fell 27% in the second quarter and are likely to fall about 20% in the full year.
  • According to the Gold Survey 2009 from Gold Fields Mineral Services, world gold mine production in the first half of 2009 increased 7% and there was a 7% increase in production costs between the first and second quarters to more than $600 per ounce.
  • GFMS Chairman Philip Klapwijk has forecasted that recycled gold supply will rise 22% in 2009 as a result of higher prices.
Opportunities
  • According to research from the CPM Group, central banks are expected to buy 6 million to 10 million ounces of gold annually due to currency uncertainties after historically being net sellers.
  • According to Vietnam News, many commercial banks have raised interest rates on gold deposits to attract more deposits and minimize the amount of depositors that withdraw gold with the intention to sell.
  • The Financial Times reported the U.S. dollar has overtaken the Japanese yen to become the new funding currency of choice. In this so-called "carry trade," low-yielding currencies are sold to finance the purchase of higher yielding assets. Analysts expect the strategy will continue to weigh on the U.S. dollar in this low interest rate environment.

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