Friday, April 17, 2009

Today in Gold: Friday, April 17

Each weekday, Cash4Gold will troll through the web's gold banter and post some of the bigger or more interesting stories. Following is a run-down of today's features:

"NY gold ends down on dollar rise, weak ETF demand"

Main Points: The combination of current circumstances are not in gold's favor. Gold for June delivery dropped $11.90 today, falling to $867.90 an ounce. Week over week, gold dropped more than $12.

Let's take a look at some of the reasons why:

General Eletric and Citigroup both reported better than expected first quarter results. This is a trend that has continued since last week, as large US companies come out with positive results.

Dollar remains strong, thus harming gold in its inverse relationship.

Overall economic outlook is optimistic. Therefore, investors are 1) turning away from gold as a safe haven, and 2) turning towards riskier investments.

According to Reuters and CitiFX, "The price of gold could tumble to $730 an ounce if support gets breached, as the metal has failed to follow through on its recent rise."

Analysis: We've been saying this for a while, but while a sustained positive economic outlook appeared unlikely, it would spell disaster for those hanging on to gold. Anything continues to be possible, but early returns are not good for gold. The fact that it couldn't sustain $1,000 an ounce levels during apparent optimal times (less the fact that gold for retail purposes struggled), a steep drop if reports continue to reflect economic improvement would seem imminent.

"Gold remains most secure investment: World Gold Council"

Main Points: Despite its recent struggles, the World Gold Council claims that gold remains the most secure investment. The WGC cites that, during the past decade, gold has provided an average 26% return year over year, and always a positive outcome.

WGC Managing Director Ajay Mitra said, gold jewellery has been treasured, sought after and popular since the beginning of Indian history and till date, bears an extraordinary significance especially during festivals. The presence of a safe asset like gold in an investment portfolio ensures assured returns, which further adds to its appeal."

They also cite a report from the GFMS indicating that sustaining levels over $1,000 and even $1,100 is likely.

Analysis: I'd consider this a tough sell right now. Granted, they are referring to average annual price, so the current average gold price for 2009 is 17% higher than that for 2008 -- even though the price is down since year-end 2008. That said, current conditions would suggest a 26% return may be unlikely -- although that level of a return over 2008 average instead of 2008 year-end would seem much more possible.

No comments:

Post a Comment