Weekly Review For Gold Investors – February 20th

In his weekly market review, Frank Holmes of the USFunds.com summarizes this week’s strengths, weaknesses, opportunities and threats in the gold market for gold investors. Gold closed the week at $1,202.85 down $26.58 per ounce (2.16%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 3.58%. The U.S. Trade-Weighted Dollar Index was up 0.41% for the week.

Gold Market Strengths

The minutes from the Federal Reserve’s January meeting showed that policy makers argued for keeping interest rates near record lows for longer due to both the stronger dollar and the crisis in Greece. This news favors the case for both gold and silver.

Timmins Gold announced it will acquire Newstrike Capital by way of a court-approved plan. This continues the recent streak of acquisitions in the mining space.

Gold Market Weaknesses

According to a study of almost 100 global gold mining transactions by the Bloomberg Intelligence Metals and Mining team, valuations for gold mining deals peaked in 2011 and then fell more than 70 percent to a historical low in 2014. Mine prices fell faster than the metal due to lack of corporate interest in deals. As a result, gold mine values fell 350 percent more than the metal’s price.

Michael Rawlinson, Global Co-Head of Mining and Metals at Barclays, commented that while the sharp drop in oil prices has reduced costs for mining companies it has also added to uncertainty in the market and could prolong the wait for the commodity cycle to turn upwards again. This is mainly due to two unforeseen events: the drop in iron ore prices and the sudden collapse of the oil price.

Gold Market Opportunities

RBC Capital Markets published a report highlighting Osisko Gold Royalties as being well positioned to outperform in the current price environment. This is due to a strong balance sheet that could allow it to pursue accretive deals as well as positive optionality in its existing portfolio. This is yet another implication of the gold-royalty business model which has outperformed the broader gold miner stocks in recent years.

gold_royalty_vs_miners_2012_2015

Dundee Capital Markets initiated coverage of Klondex Mines with a “buy” rating. It highlighted that the company is positioned as a high margin and growing producer, has no material capital requirements, and that the company is forecasted to generate sizable free cash flow. Furthermore, the company’s assets host highly prospective exploration upside.

Gold Market Threats

House Democrats have launched a perpetual U.S. mining reform crusade proposing measures that would force miners to pay royalties for minerals extracted from public lands and contribute to a fund for clean-up costs.

Bank of America announced that gold may drop to $1,150 in the next few weeks citing the outlook for U.S. monetary policy.

Sibanye’s CEO announced that the company is through with buying assets as it deems them expensive in the current environment. Nonetheless, he still sees potential for substantial synergies between companies.

 

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