July 2010

Spot gold closed the month of July at $1,181.00, a decrease of $61.25 or 4.93 percent. Equity markets, as measured by the S&P 500 Index, rose 7.01 percent. The U.S. trade-weighted dollar declined 5.21 percent.

Strengths

• The top gold ETF in the U.S. has now passed $50 billion as nervous investors have continued to put their trust in gold amid rumors of a double-dip recession.
• Gold’s role as a reserve asset has been underlined as the Bank of International Settlements (BIS) record gold swap highlights its risk-free position. The fact that countries in financial distress have swapped rather than sold gold suggests that they want to hold on to gold in the longer term.

• A poll of 55 analysts and traders showed expectations for gold prices in 2011 have risen by nearly 7 percent to a median of $1,228 per ounce, and 2010 gold expectations have risen 4 percent to a median of $1,197 per ounce.

Weaknesses

• In Australia, the Association of Mining and Exploration Companies noted the new prime minister has not yet followed through on her long-promised dialogue with miners.

• The gold price fell to a three month low to around $1,160 per ounce due to fear abatement, central bank tightening and ETF liquidation.

• Congo’s mineral industry was dealt a blow when the U.S. financial reform bill was passed recently. Companies that use gold, tin, tungsten or tantalum (coltan)—minerals used in just about every electronic gadget—are now required to disclose to the SEC whether those materials originated in Congo or neighboring countries. The purpose is to show proof of whether their supplies are sourced from conflict mines or not.

Opportunities

• A recent UBS poll of over 80 reserve managers concluded that gold was expected to be the strongest asset class for the rest of the year, and 22 percent of the managers foreshadowed that gold would be the most important reserve asset of the next 25 years.
• China Gold Association forecasts China’s gold demand to rise 12 percent this year and further increase next year because “Chinese investors have shown their willingness to buy more when prices are on the rise.”
• Japan’s biggest bank recently proclaimed that assets held in Japan’s first exchange-traded funds backed by gold may increase eightfold in a year as investors seek to protect their wealth in the country with the world’s largest public debt.

Threats

• Beginning in 2012, gold coin purchases greater than $600 will become reportable transactions to the Internal Revenue Service.
• In South Africa, supporters of mine nationalism want to create a state-owned mining company that could take 60 percent ownership of new mining operations. This debate around the nationalism of South African mines has created “great uncertainty” with investors, and could even see the development of some projects essentially be put on hold, until after the ruling by the African National Congress’s policy review conference in 2012. 
• Deutsche Bank believes the “gold price weakness has been driven more by a liquidation in a net length among the investor community than a structural change in market fundamentals, and history suggests investor de-leveraging can persist for another month.”

For the month of July, the Philadelphia Gold & Silver Index (XAU) decreased 4.45 percent.  The S&P/TSX Global Gold Index fell by 9.43 percent.  The FTSE/JSE African Gold Mining Index declined 9.07 percent.  Returns are quoted as price return in the home currencies of each index.  For example, the S&P/TSX Canadian Global Gold Index 
is calculated using Canadian Dollars.

Past performance does not guarantee future results.

The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies.  The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.  The Philadelphia Stock Exchange Gold and Silver Index (XAU) is a capitalization-weighted index that includes the leading companies involved in the mining of gold and silver. The S&P/TSX Global Gold Index is an international benchmark tracking the world's leading gold companies with the intent to provide an investable representative index of publicly-traded international gold companies. The FTSE Gold Mines Index Series encompasses all gold mining companies that have a sustainable and attributable gold production of at least 300,000 ounces a year, and that derive 75% or more of their revenue from mined gold.