Gold Market

Gold Market

For the week, spot gold closed at $731.5, up $23.9 or 3.38 percent. Gold equities, as measured by the XAU Gold Index (10), rose 8.58 percent for the week. The U.S. Trade-Weighted Dollar Index (11) slid 1.28 percent for the week.

Strength

• The Federal Reserve Bank's 50 basis point rate-cut pushed gold to a 28-year high this week as the inflationary effects of a falling dollar fuel investment demand for gold.
• Gold stocks assumed a leadership position in the market this week, outpacing the S&P 500 by 578 basis points.
• Gold has also attracted attention globally. Gold oriented ETFs have returned 5.2 percent in the last month versus 4.4 percent for India's Sensex stock exchange.

Weakness

• Despite recent strength in gold equities, junior gold stocks have lagged the performance of large capitalization gold companies over the past 60 days.
• According to Standard Bank Asia Ltd., the hoarding of physical gold in Asia is creating a discount to spot gold in countries like China.
  

Opportunity

• According to Goldman Sachs, the U.S. dollar could depreciate by another 2-3 percent against Asian currencies in the next 3-6 months.
• Silver bullion may outperform gold bullion prices in the upcoming weeks as silver has lagged over the last three months.

Threat

• Given the rapid decline in the U.S. dollar central banks may step in begin buying dollars in attempt to stabilize the currency.
• Suresh Hundia, president of the Bombay Bullion Association, stated recently that both the demand for gold jewelry and gold investments will "dry up" at these high price levels.