Gold Investors Weekly Review – August 8th

In his weekly market review, Frank Holmes of the USFunds.com nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. Gold closed the week at $1,311.60, up $18.27 per ounce (+1.41%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 2.21%. This was the gold investors review of past week.

Gold Market Strengths

Gold futures jumped the most in six weeks in New York as signs of escalating tension between Ukraine and Russia fueled demand for the precious metal as a safe haven. Gold traders turned the most bullish since January, according to a Bloomberg survey. The survey showed that 17 out of 26 analysts and traders who were polled believe gold will rise. The recent appetite for gold is encouraging as it coincides with a strong U.S. dollar, defying the historically-negative correlation. The U.S. dollar rose to the highest level in nine months.

BullionVault’s Gold Investor Demand Index rebounded as gold holdings reached a new record. Investor demand has showed signs of rebounding as the index rose to 51.9 from a four-year low of 51.2 in June. BullionVault’s customer holdings of gold climbed to 33.03 tonnes, exceeding the previous peak of 32.9 tonnes in March 2013.

ETF gold holdings rose 0.90 percent in July from a four-year low in June. The increase was the largest-monthly gain since late 2012, and halted a three-month decline. Gold ETF holdings are down 1.6 percent year-to-date as outflows slowed. Platinum ETF holdings closed July at a record high as demand was sustained after the South African strikes were resolved. Lastly, palladium ETF holdings rose nearly 3 percent to a new record, bringing its annual increase to 38 percent.

Gold Market Weaknesses

Data from the U.S. Mint showed that silver coin sales fell to the lowest level in July of this year, plunging 55 percent from a year ago. American Eagle Bullion gold coin sales also declined, posting the lowest level since March, and 41-percent lower than a year ago. In addition, Hong Kong gold net exports to China fell to a seventeen-month low. Even if there is evidence that some of the volumes are now entering through Shanghai and Beijing, the magnitude of the drop still points to softening of the Chinese gold retail and investment market.

Hong-Kong-Net-Gold-Exports-to-China-July-2014

Gold Market Opportunities

Gold and gold equities remain attractive even in a rising U.S. dollar environment, according to Canaccord Genuity analysts. Normally gold and the U.S. dollar display a negative correlation, meaning gold underperforms in a strong U.S. dollar market. This may not be the case now. According to Canaccord analysts, at times of rising inflationary expectations (like 1993), the negative correlation does not hold. As matter of fact, the Citicorp Inflation Surprise Index has staged an upturn from a cyclically-low level, which according to history bodes well for higher gold prices, even in the face of a stronger U.S. dollar.

Citigroup-Inflation-Surprise-Index-vs-Gold-Price-July-2014

Gold will extend this year’s surprise rally and climb to the highest level since September on the outlook for accelerating inflation, according to USAGOLD Centennial Precious Metals. Chief Market Analyst Peter Grant believes gold will rise to $1,400 by the end of the year, and will climb even further as the Federal Reserve increases interest rates. Similarly, Credit Suisse analyst Tom Kendall has recommended investors go long gold within the metals and mining complex, as it is not vulnerable to the unwinding of speculative positions in China.

Gold Market Threats

HSBC precious metals analysts argue that the path of least resistance for gold may be lower. According to the bank’s analysts, while a possibility for further build in gold’s price due to geopolitical tensions cannot be discounted, these gains tend to be fast-moving, and the bulk of the gains appear to have been made. Similarly, Credit Suisse is of the opinion that disinterest from gold investors in China and India will weigh on demand as the seasonal buying slows down toward the end of the summer.

More than 15,000 petition signatures opposing a nickel project were delivered on Tuesday to the U.S. Forest Service and the Bureau of Land Management to be presented to the U.S. Secretaries of Interior and Agriculture. The signatures are being presented in response to proposals for nickel strip mining in the area, in anticipation of the proper environmental assessment, as conservation groups seek to protect the lands from “destructive” mining.

 

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