Gold Investors Weekly Review – July 11th

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 $1,338.62, up $18.07 per ounce (1.37%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 3.10%. This was the gold investors review of past week.

Gold Market Strengths

Christian Noyer, head of the French central bank and ECB governing board member, believes the global expansion of U.S. regulations will encourage diversification away from the U.S. dollar, threatening its reserve currency status. Noyer’s comments come as a result of the hefty fines the U.S. government is levying on French bank BNP Paribas after it was accused of dealings with Iran. Mr. Noyer added that trade between Europe and China does not need to use the U.S. dollar, especially now that China has agreed to the creation of an offshore renminbi clearing in Paris. Mr. Noyer concluded by stating the French central bank will now actively avoid U.S. dollar transactions in order to escape the application of U.S. regulations to its dealings.

Gold posted its sixth consecutive week of gains after rising $18.07 per ounce for the week. Assets in the largest physical gold ETF erased this year’s decline as investors begin to realize the need for inflation protection as prices rise and the Fed vows to keep rates low for a considerable time. Not surprisingly money managers increased their net long positions in gold for a fourth consecutive week, leading all known ETF gold holdings to rise at the fastest pace since at least 2012.

Gold Market Weaknesses

British Columbia’s Fraser Institute’s Centre for Aboriginal Policy Studies warned that a recent Canadian Supreme Court ruling granting a group of 6 B.C. First Nations title to a large piece of land outside their reserves “will likely stunt economic development across Canada.” There are an estimated 200 First Nations bands in British Columbia, which raises concern among the mining community, that’s already been subject to numerous lengthy negotiations with these groups. In a related note, Australia’s Federal Court ruled in favor of the Ngadju people and against Gold Fields with regards to the St. Ives mining tenements. The Court sided with the Ngadju people after determining Gold Fields operations violate the native-title rights, to which Gold Fields objected, arguing it complied with its obligations at all times.

Gold Market Opportunities

Renowned technical analyst Carter Worth, chief market technician at Sterne Agee, reports gold’s chart pattern is “extremely” bullish as prices continue to post higher lows. In addition, the 150-day moving average appears to have bottomed out as markets enter a period that historically has provided seasonal support for gold, silver, and related equities. With this background, it is not surprising that Goldman Sachs Asset Management, which runs India’s largest gold ETF, issued a note to investors explaining that the risk profile of the investment had changed since the issuer (i.e. Goldman Sachs) may not be able to return the physical gold. Dhirendra Kumar, CEO of Value Research states Goldman Sachs has probably lent the gold out, and will be unable to deliver physical gold for early redemptions.

Gold Market Threats

Gold futures fell this week as analysts anticipate an earlier rise in U.S. interest rates. The Fed minutes released this week led analysts to revise their forecasts. Goldman Sachs, for example, now predicts increases to borrowing costs will take place in the third quarter of 2015, rather than its previous estimate the first quarter in 2016.

BCA Commodity strategists have reiterated their underweight gold call within the commodity complex. According to BCA, the strength of the dollar and the stabilization of the U.S. equity risk premiums suggest gold will remain trendless in the second half of the year. Volatility in the aforementioned areas has been a key driver for gold in the past, thus their stabilization implies that it is unlikely gold prices will rise much further.

Rising interest rates, bond yields, and low inflation expectations are creating a perfect storm with strong headwinds for gold in the future, according to Morgan Stanley analyst Joel Crane. According to Crane, it is highly unlikely that gold will continue to rise in the coming quarters given current market conditions and the expected improvement going forward.

 

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