Weekly Review For Gold Investors – March 6th

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 $1,165.66 down $47.56 per ounce (-3.92%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 11.57%. The U.S. Trade-Weighted Dollar Index was up 2.47% for the week.

Gold Market Strengths

Gold traders are bullish for a second week on the outlook for increased demand from Asia. The Shanghai Gold Exchange saw withdrawals of 412 metric tons as of February 27. Annualizing that would mean 2,472 metric tons for 2015, an increase of close to 18 percent 2,102 metric tons in 2014. Additionally, imports by India are expected to surge following the government’s decision to maintain current tax rates. The expectation had been for taxes on imports to drop, causing locals to hold off on purchases during February. This could cause purchases to jump to 100 metric tons in March from about 25 tons in February as jewelers and traders replenish stockpiles.

Perth Mint gold coin and minted bar sales rose to 31,981 ounces in February, an increase from January’s 23,174 ounces.

BullionVault’s Gold Investor Index climbed in February at the fastest pace since April 2013. Furthermore, the gold gauge measuring the balance of buyers against sellers rose to 54.5 in February versus 50.5 in January.

Gold Market Weaknesses

March has historically been the worst month for bullion. According to data compiled by Bloomberg from the past four decades, bullion futures have dropped 1 percent on average in March. Prices have fallen 65 percent of the time, more than any other month.

Bullion erased its 2015 gains and fell the most in more than a year on Friday after a government report showed U.S. employers added more jobs than forecast in February. The unemployment rate dropped to the lowest in almost seven years. Holdings in exchange-traded funds backed by gold headed for the biggest weekly decline since November.

RBC is forecasting year-over-year production to decline by about 10 percent in 2018 and 2019 at Kinross Gold. They also see costs increasing 5 percent from 2015 to 2019. In other company news, Eldorado Gold was blocked from completing construction of a processing plant at its Skouries Mine in Greece.


Gold Market Opportunities

According to billionaire investor Thomas Kaplan, telling Indians not to buy gold is like asking Americans not to consume liquor. He said the metal has historically been a very good way to store wealth for India and also pointed out that China is “specifically and overtly” encouraging its people to buy gold. He went on further to say that when people tell him gold and silver are commodities, he counters saying the metals are currencies. This is because in a world of massive money printing, silver and gold can’t be debased. Thus, gold and silver are the only financial assets that you can own that do not represent someone else’s liability.

The price of gold could be boosted by Akshaya Tritiya, the Indian holiday that is considered by Hindus as an auspicious day to buy precious metals. The holiday falls on April 21 this year. Additionally, the central bank of Mauritius announced it plans to invest heavily in gold as a refuge from volatility.

In an attempt to rebrand itself as a mining-friendly jurisdiction, Ecuador is hoping that incentives and tax benefits will polish its tarnished image and attract $5 billion worth of investment over the next five years. The government believes that incentives passed in October will attract foreign miners to help develop the country’s gold and copper riches. They include 30-year investment contracts that promise tax stability and accelerated depreciation. Rafael Poveda, Ecuador’s Minister of Strategic Sectors, said the government has made the decision that mining constitutes a central axis in its development plans.


Gold Market Threats

The chart below from the University of Michigan’s sentiment survey shows over 60 percent of households were bullish on stocks in February. Survey results like these were last seen in July 2007, right before the last bull market took a nosedive. A modest position in gold could act as a diversifier against downside economic risks.


MinEx Consulting published a research report showing that in the last decade junior explorers did a 30 percent better job than senior miners at finding deposits, both in measures of bang-for-the-buck as well as the number of discoveries made. According to their piece, the value discovered by juniors was $12.1 billion vs $7.9 billion for seniors for 2005 thru 2014.

In the 1970s, even the best-performing, most credible central banks struggled to tame inflation. Today, even the best-performing, most credible central banks are finding it difficult to avoid deflation. Given that it was near impossible to avoid unwanted inflation back then, the question arises as to why it should be any easier to avoid deflation today. Taming deflation through monetary policy alone is likely to be a lot more difficult than taming inflation. This is because interest rates can rise infinitely, if necessary. However, they can only fall to zero, or to marginally negative levels, thanks to the existence of cash. With so few policymakers taking the threat of deflation seriously and with so many of them convinced that economic recovery is around the corner, the risk is that we could sink further into the deflationary mire thanks to weak monetary growth, high levels of debt and persistent deleveraging.



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