Weekly Review For Gold Investors – May 1st

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 Market Strengths

After a two-month hiatus, Russia’s appetite for buying gold is back. The nation increased foreign reserves of bullion to 39.8 million ounces as of April 1, compared with 38.8 million ounces a month earlier. The 30 ton purchase was the most since September. Russia is the fifth-biggest holder of gold and thus the move sends a bullish signal to the market.

Gold jewelers are betting the Indian Akshaya Tritiya festival will buoy demand for the bullion. Jewelers expect the festival could drive up sales by as much as 30 percent over last year’s level. Already, gold imports are estimated to have hit 125 tons in March, compared with just 55 tons in February and twice the amount imported a year earlier, suggesting jewelers have stocked up well. The holy day of Akshaya Tritiya, which fell on April 21, is considered by Hindus as an auspicious day to purchase gold. It is the nation’s second biggest bullion-buying festival.

Comstock Mining announced that for the first quarter of 2015 its weighted average gold grades improved by 63 percent from a year earlier while silver grades improved by 113 percent. The strip ratio improved to 1:1 from 4.8:1 the previous year. Lastly, the company expanded its existing heap leach pad in a consistent move with its recently expanded water control permit. In other news, Balmoral Resources confirmed it intercepted 19.55 gram per tonne gold over 44.45 meters at its Martiniere property in Quebec.

Gold Market Weaknesses

It has been almost two weeks since gold prices sustained a move in either direction for more than a day, the longest period since September. This paralysis has been a consequence over the lack of consensus about the timing of a Fed rate hike. The Federal Reserve begins its next two-day policy meeting on April 28.

Gold traders are bearish on expectations that improving U.S. economic data will back the case for higher interest rates.

While PIMCO has come out declaring that the commodities correction is over, the firm also said it does not expect a sharp recovery.

 

Gold Market Opportunities

RBC Capital Markets forecast appetite for gold by central banks will hit 275 tons this year. That level would equate to the second-largest increase in 50 years. Overall, central banks have been net buyers of gold for 14 straight quarters to present and the RBC analysts said the demand helped mitigate bullion’s losses in 2014.

Correlation-Gold-Price-and-Central-Bank-Gold-Reserve_-2015

UBS believes it is seeing increasing signs of deteriorating cash flows, deteriorating appetite for low quality credit and deteriorating credit conditions in the U.S. Recent data from the National Association of Credit Management hinted at a significant reduction in credit extended in March and a sharp rise in credit applications rejected. Corporate receivables are also on the rise. All of these data points are classic late cycle signals.

US-Credit-Conditions-April-2015

According to BCA, China is aiming to make the RMB a fully convertible currency by the end of 2015. Consequently, capital account reform will accelerate markedly in the coming months. Another consideration in this regard is the twice-a-decade review of the IMF on Special Drawing Rights (SDR) scheduled later this year. The Chinese government has been pushing to include the RMB in the SDR basket, but failed in its 2010 attempt as the RMB was not regarded as “freely useable.” Achieving full convertibility under capital account transactions is regarded as a critical prerequisite. Purchasing gold to back the RMB is one of the strategies China is employing to make its money a reserve currency for international trade.

 

Gold Market Threats

Laurence Fink, chairman of BlackRock, has said gold’s traditional role as a store of wealth has been usurped by contemporary art and apartments in cities such as New York and London. He said gold has lost its luster given there are other mechanisms in which you can store wealth that are inflation-adjusted.

Barrick Gold is facing an investor revolt ahead of its annual meeting for the second time in three years, as two of Canada’s largest pension funds said they will not support the board of directors. The funds cite low confidence in the ability of the directors to effectively exercise their duties to shareholders’ level of satisfaction. The main sticking point is the outsized executive compensation.

Venezuela’s central bank signed a $1 billion gold swap with Citibank. Although details are unknown, experts calculate that the bank will charge an interest rate of between 6 and 7 percent.  It’s obvious Venezuela needs dollars, but it’s another story regarding what Citibank has planned for the gold.

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