Gold Price: Alternative Economic Confidence Indicator

- November 10th, 2011

Gold price has been strong by any standard for a decade, the use of the search term “gold price” with the Google search engine, has been suggested by Edward Ritchie, Senior Investment Analyst at Manulife Asset Management to be a general gauge for confidence in the United States economy.

Gold Price: Alternative Economic Confidence IndicatorBy Dave Brown – Exclusive to Gold Investing News

While the gold price has been strong by any standard for a decade, the use of the search term “gold price” with the Google search engine, has been suggested by Edward Ritchie, Senior Investment Analyst at Manulife Asset Management to be a general gauge for confidence in the United States economy. The “gold price” alternative was published in the Economist as an innovative partner for its well known and widely regarded Big Mac Index tracking the purchasing relative power parity for various world currencies.

A published chart from earlier in the year indicates that the number of “gold price” inquiries on the Google search engine is inversely proportional to the level of consumer confidence. Gold investors will note that although “gold price” Google searches have declined during the second half of this year, the number of “gold price” inquiries remains strongest in India, the United Arab Emirates, Singapore, Malaysia and Hong Kong. This may provide support for a case for gold investment as the “gold price” search may also reflect a general demand and interest in the physical gold investment with jewellery as Asia demonstrates traditional buying trends during the Dhanteras and Deepavali gold festivals and traditional wedding season gold demand.

Funding challenge for junior gold equities

If “gold price” Google searches provide a basic framework for the basic appetite for physical gold or for the general economy, the potential for investment in gold exploration and development companies might currently be undervalued.

John Gravelle, Mining Leader for the Americas at PwC suggests, “the big [gold] mining companies are having their own challenges building the big [gold] mining properties now, and they are taking that exploration function and they are letting the little companies do that and then they acquire them once they find something. They are being strategic with it, they want to find the properties that are near the ones that they already have, and they want to find the right metals and the right grades.” With junior mining companies currently representing as much as 57 percent of the Toronto Stock Exchange, well managed junior mining companies should represent good value as, “a winner will look like someone who has found a property in a good jurisdiction that is [exposed] to a favourable commodity; certainly gold is a great one, that has high grades.”

A report issued on Tuesday indicates 36 junior mining companies are in the top 100 mining companies in terms of market capitalization having total outstanding shares worth more than $200 million, which is triple the number from two years ago.

Spot market gold prices

Gold is trading slightly lower today with growing concerns of the Eurozone debt crisis, impacted by pervading fears of Greek insolvency and escalating borrowing costs in Italy. This has prompted traders, speculators and institutional investors to sell gold investments. Spot market gold prices traded in the range of $1,746.00 per troy ounce, a modest decline of 1.3 percent from the previous trading session. Aside from gold, other precious metals have also demonstrated downside volatility with silver losing 1.2 percent to $33.67 per troy ounce; platinum sliding 0.3 percent to $1,621.50 per troy ounce and palladium falling 0.7 percent to $640.22 per troy ounce.

While the catalyst for spot market gold price seems firmly focused on events in Europe, other precious metals may also be affected by the impacts of weather related delays for industrial and automotive production and supply chain disruptions from Thailand.


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