Week ending 20 January 2012
Performance tables (all figures in US$)
| Current 19/01/12 |
1-week | 1-month | 3-month | 6-month | Fall from 12 - month high (%) |
Rise from 12 -month low (%) |
|
|---|---|---|---|---|---|---|---|
| Gold Bullion | 1,656.1 | Unch. | 2.5% | 0.4% | 3.8% | -13.3% | 24.9% |
| FTGM – Africa | 3,379.5 | 0.7% | 2.8% | 3.9% | 0.3% | -10.1% | 11.1% |
| FTGM – Asia Pacific | 15,654.0 | 2.1% | 13.1% | -4.9% | -20.6% | -23.7% | 13.8% |
| FTGM – America | 2,837.8 | -5.9% | -2.5% | -5.0% | -14.2% | -22.9% | 2.7% |
| FTSE Gold Mines | 3,409.1 | -3.8% | 0.1% | -3.4% | -12.6% | -19.7% | 4.1% |
Summary
Gold prices were unchanged this week, closing at US$1,656/oz. The FTSE Gold Mines Index fell 3.8%, driven by a sharp fall in the share price of one of its constituents: the chart showing the relationship between gold bullion and gold equities can be seen below.
The second update to the Thomson Reuters GFMS Gold Survey, the most authoritative review of the gold industry, was released this week. One of the highlights of the report was the dramatic increase in central bank buying. In 2011, net purchases by central banks amounted to 430 tonnes, the highest level since 1964. Some of the buyers included Mexico (100t), Russia (87t), Thailand (53t) and South Korea (40t).
Jewellery demand held up well, despite the strength in gold prices, while investment was higher on the back of a surge in demand for gold bars. On the supply side, mine production rose by 3.8% to 2,812 tonnes. The consultant remains bullish on gold prices for this year, with prices expected to exceed last year’s peak of US$1,921/oz.
Outlook
The year has started with moderately more appetite for risk across markets, supported by better-than-expected bond auctions in Europe. However, there will no doubt be many twists and turns in the coming months, and gold appears attractive as a hedge against many of these potential potholes. Long-term fundamentals in the gold market appear supportive of prices, driven by constrained supply and rising demand. Robust demand from central banks as witnessed in the Thomson Reuters GFMS Gold Survey, together with record levels of Gold Exchange-Traded Funds (ETF) holdings, suggests that demand for the yellow metal remains robust.
Gold equities, currently trading at attractive valuations on a number of metrics, appear poised for a rerating in 2012. Margin expansion in the gold mining industry has enabled companies to deliver record earnings over the last set of quarterly results. Despite this robust outlook for gold equities, the negative sentiment gripping equity markets has dominated investor sentiment. As such we believe gold equities are like a ‘coiled spring,’ ready to deliver value for investors in 2012.