Geopolitical tensions and fears in the financial markets owing to the bailout of Freddie Mac and Fannie Mae, along with a weak dollar, have pushed gold higher again, according to a World Gold Council report released Tuesday.
The average price of gold in the second quarter was $896.11 an ounce — a 34% increase from a year ago. Bullion reached a multidecade high of $1,011.24 an ounce on March 17. It corrected 15.6% to $853 an ounce May 1, then resumed its uptrend. It now trades just 5% below its peak.
Shares of SPDRs Gold Trust, (GLD) which holds gold bars in a vault, reached an all-time peak of 100.44 in mid-March. It has been forming a base ever since. It's currently trading 5% below that high and pennies from a 93.45 buy point in a cup-with-handle base.
Its high IBD Relative Strength Rating of 91 and Accumulation/Distribution Rating of B show that the metal is outperforming mining stocks. SPDRs Gold Trust has climbed 15% year to date vs. 6% for Market Vectors-Gold Miners.
Bullion Vs. Producers
Gold has appreciated 41% in the past 12 months, as producers gained 13%. By comparison, the S&P 500 is off 14% year to date. It lost 18% in the past 12 months.
Market Vectors-Gold Miners has an RS Rating of 82 and Accumulation/Distribution of C. The 32- stock ETF is trading 17% below its March high and trying to find support at its 10-week moving average.
The commodity has outpaced the producers because soaring energy prices pinch producers' profits, according to industry experts.
"Gold mining companies are going to report disappointing earnings for the second quarter because the increases in energy costs outpaced the increase in the price of bullion, so their margins are going to be going down," said Tom Winmill, portfolio manager of the $204 million Midas Fund, which specializes in mining and metals firms.
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Overall Supply, Demand
The demand for gold jewelry dropped by 21% year over year to 445.4 tons in the first quarter, according to the most recent data available from the World Gold Council. It was the lowest quarterly demand since 1993. But higher prices translated to a 12% increase in dollar value, to $13.2 billion.
Jewelry demand dropped sharply in India but rose in China and Russia.
Industrial and dental demand eased 5% from the year-ago quarter to 110.3 tons because of a slowing U.S.economy. But total value rose 35% to $3.3 billion, the council reported.
Total global production in the first quarter, 593 tons, remained the same year over year. South African production fell due to energy shortages and safety-related interruptions.
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