NZ Mint Gold Report 2010

15 December 2010

Up, up and away
2010 will be remembered for the ballooning price of gold. NZ Mint head bullion dealer Mike O’Kane gives a retrospect on this year’s golden run for the metal.

Even though Q1 tends to be strong for gold with Chinese and Indian festivals and a return to work helping to hold prices higher, the year began on a quieter note.

It was not a harbinger of things to come. During 2010 gold started the year at USD$1,097. By early December it had rocketed to USD$1,431– an impressive 30 per cent increase.

In New Zealand dollars, the figures are not quite as inspiring although at year’s end (well, almost) the gold price remains around five per cent up in Kiwi terms.

Here’s what happened

Q1 started quietly, continuing the trend from the earlier years of being USD$100/oz higher than the previous January. Market influences included PIGS- European debt worries keeping values down, with the Euro being sold against the US Dollar and gold reacting inversely to the value of the dollar.

Low US interest rates signalled the probability of an inflationary period in the medium to long term which is historically good for the gold market. Other economies (Russia, China, India, Mid East, Asia Latin America) looked to hedge their exposure to both the US and Euro, moving more into the gold market.

The Indian market continued to strengthen and investment demand continued to stay strong in Western markets with exchange traded funds (ETF’s) increasing by 5.6T while physical demand remained strong at 190T. Demand for 1oz coins in the US dropped, but demand overall (Bars) increased.

In Q2 the price increased strongly up 11.5 per cent in USD$ and 23 per cent in Euro, as investors looked to gold’s protection, diversification, liquidity and risk properties. Price reached a new high of USD$1261 on June 28.

Double dip recession became a concern and equities and industrial commodities struggled while in the US inflation remained a key topic. Gold demand again surged on the back of weaker economic performance globally as investors searched for a hedge against economic woes and 274T were bought. Allocated metal account demand increased, with demand for coins and bars remaining strong.

Q3 saw strengthening through the quarter to finish at USD$1,307 QE with demand in emerging markets especially China. However, the price dropped in many developed markets. Economic performance in Q3 was sketchy and in the US unemployment figures remained high. In the gold market, ETFs were up 28T to a new high of 2,070T held.

Sales of bars and coins, down slightly on Q2 still remained above record levels, however Q3 is historically the quiet period due to the US and Euro holiday seasons and the absence of any significant festivals in the eastern societies. The State Bank of Vietnam lifted restrictions on importing gold as demand in Q3 was up 44 per cent (18T) on Q2 ( in Vietnam gold has become its own currency replacing the Dong in many transactions). US demand softened to 282Koz (402Koz previously).

In Q4 gold surged higher again peaking at an all-time high of USD$1,431 but subsequently pulled back to USD$1,380. Talk around inflation concerns in China added to concern around the future of commodity prices. Economic performance in Q4 was again sketchy with emerging markets growing but developed economies struggling with inflationary concerns. In early November the Fed put another USD$600Billion in to the economy which helped the move to gold. Again the Euro zone is struggling.

Gold market demand increased off the back of QE in the US, with physical demand picking up again. The price spiked 10 November at USD$1,424 and then again 7 December at $1,431 before pulling back to around USD$1,405 current price.

Ends

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