Gold Investors Weekly Review – January 24th

In his weekly market review, Frank Holmes of the nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. The price of the yellow metal went lower after two consecutive weeks of gains. Gold closed the week at $1,269.40, up $15.3 per ounce (1.22%). The NYSE Arca Gold Miners Index went 1.57% higher on the week. This was the gold investors review of past week.

Gold Market Strengths

Gold sales by Japan’s biggest bullion retailers surged 63%. It reached a five-year high. Sales of gold bars to local investors soared to 37.3 metric tonnes from 22.9 metric tonnes a year earlier. This surge in sales is attributable to the policy of Prime Minister Abe which resulted in the weakening of the yen. Consequently, investors have been looking for a hedge against inflation.

Softer platinum prices and an increasing interest in platinum jewelry from Chinese consumers created a surge in China’s platinum imports, up 23.5 percent year-over-year. December imports soared 86.5% year-over-year to 369,500 ounces, the second-highest number on record.

Gold Market Weaknesses

Thomson Reuters GFMS says that the professional gold market is obsessed with “tapering.” Despite the fact that tapering is largely fully discounted, there has been quite a dichotomy in the gold market over the past year. GFMS notes that professional investors continue to lose interest in gold, while “grass roots” buyers maintain their appetite for the yellow metal.

Analysts predict lower gold prices this year. Morgan Stanley cut its gold target price by 12% to $1,160 for 2014, while the 2015 price was also cut by 13% to $1,138. Morgan Stanley believes that gold will extend declines this year as gains in the equity market reduce the need for haven assets and an increase in regulations hurt risk appetite. According to a LBMA survey (London Bullion Market Association), gold will average $1,219 an ounce in 2014. They further predict a high and low trading range of $1,379 to $1,067, respectively.

Gold Market Opportunities

Mining analyst Eric Lemieux (Laurentian Bank Securities, Quebec), keeps his top pick for the year as Virginia Mines. This company has an exceptionally well-managed team and a focused business model. The CEO of the company said that he wants to be at the beginning of the food chain with significant discoveries, and the end of the food chain with a royalty portfolio.

Gold Market Threats

The Ministry of Finance in Indonesia imposed a new duty on exporting minerals which includes copper concentrates. Companies like Freeport-McMoRan Copper and Newmont Mining are facing an even larger tax burden going forward. Both companies believe that the new Indonesian export tax is in breach of their Contracts of Work with the government of Indonesia. Freeport officially stated that it will keep negotiating with the government.

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