Gold: Summer Trip and a Long-term Overview
Based on the July 8th, 2011 Premium Update. Visit our archives for more gold & silver analysis.
We've entered summer, a typically slow season for the metals, which is why they call it the summer doldrums. Gold closed June just 1.8% lower than it first started. Just for your information, the average summer drop over the last ten years was 8.6%, which at current levels would bring us to $1,407.53. It is also interesting to note that the summer lows have usually represented the bottom of the market for the remainder of the year, with one major exception, which was the difficult-to-forget year of 2008, which was when the summer decline was merely a harbinger of nasty things to come.
Summer is a good time to travel, so we invite you for a brief tour around the world to see what is happening with gold. We save the best for last.
Central African Republic: This landlocked and sparsely populated country, ranked among the 10 poorest countries in the world, could well be one of the world's leading exporters of gold in the near future. While international mining companies hope to establish operations there soon, farmers are abandoning their fields and are flocking to the gold areas hoping for a lucky strike. We wish them luck. It would be nice to have the riches go to the hands of people in that area of the world instead of corrupt governments.
Greece: One of the first things any person facing insolvency does is to sell the family silver and pay back debts. Apparently, that does not hold true for governments. Greece holds an impressive 125 tons of gold in the vaults of the Greek National Bank, worth approximately 4 billion euros. If Athens were to sell that gold, its government would be able to meet at least part of the debt payments without any outside help. Portugal, another country teetering on the brink of crisis, holds an impressive 383 tons of gold with a market worth of about 13.3 billion euros. The Portuguese have just squeezed an 80-billion-euro aid package from the European Union. Of the 400 tons of gold allowed to be sold each year by central banks, according to the Central Bank Agreement, only 53 tons have been sold so far during the present accounting period. About 52 tons came from the reserves of the International Monetary Fund. If central banks want to sell within the framework of the agreement, they are free to do so until September 26, when sales quotas expire. However, central banks around the world are doing just the opposite -they are stockpiling gold rather than selling it.
Iran: Iranians have a long history of buying gold coins for wedding gifts, or as a way to squirrel away savings. But recently, what was a steady demand has become a gold rush.
Instead of taking profits on the rise of gold prices, Iranians continued to buy them in ever larger numbers. The Iranian gold rush has been driven by fears about the domestic economy hit by sanctions against the country, lack of trust in the local paper currency and by fears about the global economy.
China: Silver demand in China is soaring. Silver imports have reached new highs, and analysts maintain that demand for this year will only continue to grow. The growth comes not only from industrial and jewelry demand, but also from the increased investments in silver as a hedge. Reports show that net silver imports to China have risen dramatically and will continue to do so going forward. In 2010, the net import of silver quadrupled, hitting a record of 3,500 tons. The pace of Chinese imports since the start of 2011 is still strong. Analysts see growing demand for silver in China, as well as India, rising by as much as 30% on the year. The increase in demand is also strong for Chinese silver 'Panda' coins, prompting the Peoples Bank of China to double the maximum issuance of coins for the year.
Great Britain: Britain's first gold dispensing vending machine made its debut this week in west London. The Gold To Go machine, predictably gold in color, is manufactured by a German company. A computer inside the machine updates the price of gold every 10 minutes to reflect fluctuations in the world market. It sells bars and coins in various sizes, including, a special souvenir 2.5g bar with the London skyline engraved on its reverse. Shoppers pay up to 25 per cent above the spot price for the convenience. We reported in the past about the world's first gold vending machine that opened last year in Abu Dhabi' and about another such machine in Las Vegas, so, if you travel to any of those places, take a photo and send it to us.
California: A Northern California gold mine that has been a tourist attraction for years could go back to mining as high gold prices boost the promise of profits. Sutter Gold Mining Inc. has lined up $20 million in financing to restart operations. If all goes as planned, mining could start next summer. The mine opened in 1989 to host tour groups. The owners say gold prices, topping $1,500 an ounce, make mining economically attractive again.
India: This is not an Indiana Jones summer blockbuster movie, but a true story. Precious stones, jewelry, gold and silver estimated to be worth several billion dollars have been found in the secret underground vaults of an ancient temple in southern India. An 18-foot-long necklace, 536 kilograms (1,179.2 pounds) of 18th century gold coins, diamond-studded plates, rubies and emeralds were found in the vaults of the Sri Padmanabhaswamy temple in Thiruvananthapuram, the capital of Kerala state. The vaults were opened for the first time in 135 years after the Supreme Court ordered the state government to take over the temple's assets from a trust controlled by the royal family of Travancore. The temple, devoted to the Hindu god Vishnu, was built in the 16th century by the kings of Travancore. The descendants of the royal family had appealed to the Supreme Court against the petition for the takeover. Meanwhile the government has sent two dozen police officers to the previously unguarded shrine for round-the-clock security. India's Supreme Court will decide what happens to the treasure. We're waiting to see how this interesting story develops.
Our tour package covers the above-mentioned countries. So it's time to wind up the trip. Before saying adieu, let's have a look at the gold charts (charts courtesy by http://stockcharts.com).
The very long-term chart for gold shows continued attempts to move above the rising, long-term trend channel. So far the attempts have been unsuccessful and we consequently expect to see this index move lower in the near weeks. At this time, there is really no other information forthcoming from this week's long-term chart.
The same can be said about the precious metals stocks.
In the very long-term XAU gold and silver mining stocks index chart this week, once again we see the index level attempting to move above the 2008 intra-day highs. The monthly closing highs have been surpassed but the breakout is not confirmed without XAU taking out the intra-day highs. Consequently, with price below 2008 high, the situation remains medium-term bearish.
Summing up, recent market momentum has been quite positive for gold and mining stocks but not much changed from the long-term perspective and a mid-year correction still appears to be in the cards.
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Thank you for reading. Have a great and profitable week!