2013-03-20

Gold price gained ground Tuesday, rising $7.00 to $1,613 per ounce

The gold price gained ground Tuesday, rising $7.00 to $1,613 per ounce despite strength in the U.S. dollar against its foreign counterparts.  Gains in the price of gold came as the U.S. dollar traded to its highest level versus the euro in 2013.  Gold prices continued their rally on the back of news that Cypriot President Anastasiades agreed to support a proposed tax on bank deposits of $7.5 billion.  Despite reports that Cypriot legislators were backtracking on the plan, the mere possibility of such a tax rattled markets.
CIBC World Markets noted that Cypriot authorities were working “to renegotiate the terms of a €10B bailout, attempting to scrap its levy on small account holders and instead seizing more from larger depositors and businesses.”  CIBC’s research team highlighted “the large stake Russia has as a major creditor to Cyprus and will likely be involved in an alternative solution.”  Instability with respect to the banking system in Europe has supported gold prices in recent days and weighed on global equity markets.
The team at TD Securities highlighted the World Gold Council’s report on Central Bank diversification strategies, specifically, “rebalancing from the dollar and the euro.”  TD noted:
“Portfolio optimization analysis methodology taking into account market size and access constraints concludes that gold should receive a prominent 8% allocation equal to that of Japanese Yen, where USD and EUR comprise 65% of the portfolio.  The report notes that central banks seek high quality alternatives to USD and EUR that include CNY, CAD, AUD, CHF, DKK and of course Gold.   The study estimates that daily average trading volume in Gold is US$240 billion.”
Gold mining stocks traded near unchanged despite stronger gold prices.  The Market Vectors Gold Miners ETF (GDX) changed hands at $37.50, up .02 on the day.  Shares of Yamana Gold (AUY) advanced 2% to $14.99 after Cowen Securities analyst Adam Graf upgraded the shares to Buy from Hold.  Graf noted, “Shares have traded off with the group YTD. However, AUY has not disappointed in either 2012 performance or 2013 guidance, unlike its peers. Production growth for 2013-2016E leads the peer-group at a CAGR of 8.0% versus peers of 6.0%.”
The U.S. Federal Reserve Open Market Committee (FMOC) begins a two-day policy meeting today.  While interest rates will likely be held unchanged, investors will be focused on the policy statement when the FOMC releases its policy statement tomorrow afternoon.  Employment data has been strong of late and any indication from Chairman Bernanke and his colleagues that the current quantitative easing program will be curtailed would pressure the gold price.  Conversely, a dovish outlook for monetary policy could cause a relief rally in the price of gold.

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