Weekly outlook: continues to be good medium to long term.
Gold spot price ranges
USD: 673.40 - 658.60
NZD: 905.53 - 876.13
NZDUSD: .7565 - .7435
Current influences on price:
A strong rally in US Treasury bonds has pushed the prices down at the end of the week, primarily due to exceptionally high yields and a weaker Euro and GBP.
Interest rate rise in New Zealand (8%) and Europe (4%) and the USA to try and curb inflation, coupled with rising oil prices are all working in favour of gold investment for the medium to long term.
The interest rate hike on Thursday saw the NZDUSD exchange rate spike to a record high, which once again makes gold purchasing very cheap, and excellent hedge option at the moment.
Sentiment in long term Gold investment is still very positive, with global demand increasing – according to the world gold council.
Year-on-year demand increased by 4% globally, despite a 17% increase in the spot rate. Demand in China increased by 31% from last year, and in India increased by 50%! At the same time world supply dropped by 3% (South Africa and Peru both making double digit negative decreases). The important thing to note here: Gold production is decreasing despite higher prices. This indicates that it is getting harder and more expensive to mine gold, which will continue to push the price upwards.
A new tri-metal exhaust catalyst that uses gold, developed for diesel engines, that can reduce harmful emissions by up to 40% has been unveiled in South Africa. This is seen as a positive for both diesel engines (as the catalyst can be tuned for different applications by using different amounts of metals: Gold; Palladium; Platinum) and for the gold market.
The Bank of Spain sold another 28 tonnes of gold in May after having sold 40 tonnes in March and another 40 tonnes in April. In three months and via an unannounced sales program, Spain has sold over 25% of its total gold reserves into the market. The interesting point is that this might not necessarily be being done to grab the best price... no, this "sales program" which has merited no public comment from the bank could be forecasting a much larger problem on the horizon in the fiat currency of Spain. This fire sale of gold reserves looks much more like an attempt to raise quick cash to solve banking and housing issues rather than a program of diversification.
The 133 tonnes in total sales over the past 3 months has not included the 37 tonnes in sales from the ECB (European Central Bank) umbrella organization as of yet. Looking at updated figures this morning showing less than 2 tonnes of sales last week by ECB captive banks, that 37 tonne figure has yet to show up in reports. So all told, the gold market in the last 3 months actually digested 170 tonnes of gold sales from ECB banks. There are no updated figures yet on banks outside of the ECB system because they report on a 3-6 month lag.
For a point of reference, even during the Bank of England and Bank of Switzerland gold sales from 1999-2004, no three-month tally during has been as high as 170 tonnes of sales into the market. The fact that the price has held up during this sharp increase is nothing short of remarkable and should highlight for even the market novice the underlying strength in the market.
UBS has put out a new research note stating that they see ECB sales reaching the quota of 500 tonnes this year. This has been revised up from the 400 tonnes of sales they had been expecting. The significantly increased sales in a short time period have kept the prices bottled up, but have not satiated demand in the market. If you can figure out what's affecting prices, then it's easy to pin point that during a period of increased bank sales, it is an opportunity to buy. As has been proven after every major set of bank sales in the last decade, the price eventually goes higher after the sales are done
Bear Stearns Cos, the largest broker for US Hedge funds is expanding its commodities business to meet growing demand for investments in the metals markets.
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