6th July 2011
BlackRock: Weekly gold report w/e 1 July 2011
Performance tables (all figures in US$)
| Current 30/06/11 | 1 wk % | 1 mnth % | 3 mnth % | Fall from 12 mnth high (%) | Rise from 12mnth low (%) | |
Gold Bullion | 1,510.8 | -0.6% | -1.8% | 5.1% | -3.0% | 30.1% |
| FTGM – Africa | 3,183.5 | 4.3% | -6.7% | -9.3% | -14.3% | 9.3% |
| FTGM – Asia Pacific | 18,103.1 | 4.6% | -4.1% | -2.3% | -11.8% | 38.3% |
| FTGM – America | 2,991.5 | 1.1% | -4.9% | -6.6% | -14.0% | 12.4% |
| FTSE Gold Mines | 3,563.0 | 2.1% | -5.1% | -6.6% | -12.3% | 14.2% |
Source: DataStream
The “risk on” trade dominated the market this week after Greece approved its austerity package, which dampened the demand for “safe haven” assets such as gold bullion. The metal closed down 0.6%, but managed to hold above the US$1,500/oz level. Gold equities made some modest gains – as equity markets rallied – in spite of the weaker bullion price. They remain good value at current gold prices having underperformed significantly year-to-date. For the first six months of 2011, bullion has gained 6.6% while the shares are down 10.2%. We attribute this to the general headwinds affecting equity markets, such as the Eurozone sovereign debt issues. Gold equities have been unable to side step these issues and in our view are well worth considering for investors looking for exposure to gold.
In equity news, Romarco Minerals announced some very impressive drill results from the Haile gold mine in South Carolina, USA. Some of the intersections included 3.4g/t over a drill-indicated width of 115m. These drill holes, which are outside the current reserve estimates, demonstrate the potential for Romarco to expand the size of the project.
Outlook
The current fundamentals in the gold market are supportive of higher prices. Investment demand has been the most important driver of the bull market to date and the key factors that have been driving investment demand – concerns about financial markets, Eurozone debt and inflation – are likely to persist for the foreseeable future. The potential for further net purchases by central banks could also be supportive of prices. In terms of the gold equities, we believe that earnings will expand as gold prices rise and investors will be attracted back into the sector. The key threat to the gold market is an increase in real interest rates. When real interest rates begin to rise, the opportunity cost of holding gold will encourage investors to sell the metal. At the moment, we believe the interest rate and exchange rate environment remain bullish for gold.
The BlackRock Natural Resources Team
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