Gold Investors Weekly Review – January 10th

In his weekly market review, Frank Holmes of the nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. The price of the yellow metal went lower after two consecutive weeks of gains. Gold closed the week at $1,246.35, up $9.34 per ounce (0.76%). The NYSE Arca Gold Miners Index went 0.44% higher on the week. This was the gold investors review of past week.

Gold Market Strengths

Tiffany & Co., the world’s second-largest luxury jeweler retailer, reported a 4% increase in holiday sales, with positive sales growth in all regions. Demand was largely driven by an 11% increase in Europe, a 6% rise in the Americas and a 5% boost in Asian sales.

According to Bloomberg, gold analysts are the most bullish in a year on speculation that investors are covering near-record short positions. 15 analysts surveyed by Bloomberg expect gold to rise this week, while two are bearish and four are neutral; that is the highest proportion of bulls on record since past December.

Gold Market Weaknesses

Bank of America lowered its 2014 gold price forecast by 11 percent to $1,150 per ounce, arguing that physical purchases from Indian and Chinese buyers will weaken. In a similar note, ABN AMRO analysts say gold may drop back below $1,180 per ounce if U.S. macro data continues on the strong side.

India’s Economic Affairs Secretary Arvind Mayaram announced that the restrictions on gold imports are likely to continue until at least the end of March, unless a significant improvement takes place with regard to the nation’s current account deficit. It is worth mentioning that pressure has been building as Central Bank Governor Raghuram Rajan has expressed an inclination to remove the restrictions, which encourages smuggling.

Scotia Mocatta had a look at the continued redemptions in gold ETF products, which have not ceased in the new year. In its view, good macro data is encouraging further liquidations as investors continue to look for “risk on” trades. The most recent behavior revalidates the opinion of some analysts who argue the gold price has dissociated itself from ETF flows, forming a bullish, technical double bottom – a trait that has evidenced quite strongly this January.

Gold Market Opportunities

The recent shift in Canadian government policy is having a significant effect on the value of the “loonie,” or the Canadian dollar. Canadian government appears to have shifted gears and decided that a weaker currency, via monetary policy accommodation, is now required to hasten the rebalancing of the Canadian economy. The implications for Canada’s exporting industries, which encompass gold producers, are enormous. A decrease in the value of the Canadian dollar could erase any losses arising from declining gold prices for those producers with large, Canadian portfolios.

The Swiss National Bank’s gold holdings are the target of a national initiative and called by citizens collecting signatures, demanding that at least 20 percent of the central bank’s assets be in the form of gold. The measure would also bar the central bank from selling any of its holdings and would require the repatriation of the SNB’s gold holdings with the Bank of Canada and the Bank of England.

Gold Market Threats

After shedding some 30 million ounces of gold from a high of 85 million ounces, David Rosenberg of Gluskin Sheff believes it is fair to ask whether the fire sale is done. According to Rosenberg, sentiment could scarcely be more negative, with even the good macro data looking like it is priced in. What’s most interesting to see is that gold and bonds declined in the same year – a very rare phenomenon. The most recent memories of this trend occurring have coincided with gold market bottoms, in which market players shrug their shoulders at the mention of gold.

The macro economy in the U.S. could have started the year off a little better. This Friday, the official jobs report for December showed a net creation of 74,000 jobs, far too short of the market forecast for a 200,000 net job creation. The reading should be seen as an opportunity to reevaluate economic assumptions, to rebalance portfolios and to awaken from complacency before the market turns.

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