Gold Investors Weekly Review – July 25th

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. Gold closed the week at $1,307.49, down $3.61 per ounce (-0.27%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 0.57%. This was the gold investors review of past week.

Gold Market Strengths

Investors are buying metals from zinc to aluminum at the fastest pace since 2009, betting demand gains will tighten supply. The buying has been made evident by fresh money coming into exchange traded funds backed by metals. Hedge funds are the most bullish on copper in at least eight years, after betting on prices to drop earlier in the year. Zinc, aluminum, and platinum group metals have also seen incremental buying, in what is turning into a very exciting second half for metals.

China’s manufacturing activity expanded at the fastest pace in 18 months in July as new orders surged. The HSBC PMI reading rose to 52.0 from June’s 50.7, in the latest indication that the economy is picking up as government stimulus measures kick in. The increase in industrial activity should translate in higher earnings, and propel a new wave of gold consumption in the world’s biggest gold market.

Gold Market Weaknesses

Curbs on gold imports are likely to remain in place according to Indian Finance Minister Arun Jaitley. The Indian government has announced it is inclined to continue with the measure as a means of controlling the widening current account deficit. The impact on the absolute level of gold imports has been properly documented; however, new data shows that India’s wealthy have been buying real estate as a means of protecting their real wealth from the devaluation risks of paper money. Recently though, gold buying has increased sharply, partly as a result of the crackdown on gold smuggling, which has served to evidence how tight the market is, and how relentless the Indian demand for gold is.

China gold imports from Hong Kong fell for a fourth month in June amid weaker demand from retailers. The data supports statements from the China Gold Association saying domestic gold demand fell 19 percent in the first half of the year as investors bought fewer bars and coins. Similarly, jewelry demand in China fell 24 percent in the second quarter, according to Chow Tai Fook. The weakness has been attributed to a slowing economy, together with the unwinding of shadow financing deals following fraud investigations. Buying is expected to increase as the government continues its monetary easing program, which has propelled industrial activity back into expansionary territory as of late.

Gold Market Opportunities

After three years of comprehensive environmental and technical studies and analyses, the U.S. Army Corps of Engineers released the Final Environmental Impact Statement (FEIS) for Haile gold project owned by Romarco Minerals. The FEIS included no material changes to the proposed project, which is positive since the EPA originally gave the Draft EIS a favorably high and rarely awarded EC-2 rating. As a result of this news, BMO capital markets upgraded Romarco to “speculative outperform” from “market perform”, with a target price of $1.30 a share.

Dundee Precious Metals gathered a lot of talk this week. Further to our mention last week, more positive support for the company’s recently refurbished Tsumeb Smelter has been hitting the wires. The highlight were news by Codelco, the world’s largest copper producer responsible for nearly 10 percent of global output, issuing a warning that its copper deliveries for the remainder of the year would suffer a sizeable reduction due to its roasters and smelters being unable to treat the high arsenic concentrate produced as of late. The Tsumeb smelter is one of two or three smelters in the world capable of treating this type of concentrate, which highlights the importance and strategic value of this asset going forward.

Gold Market Threats

The cost of borrowing gold for short selling dropped to a 13-month low in London, indicating greater availability of gold for loan. A greater availability of gold for loan suggests lower short term demand for physical metal out of Asia, but also increases the likelihood of short sellers and speculators to increase their bets against gold.

After a $2.6 billion government fine forced it to take its biggest quarterly loss since 2008, Credit Suisse has announced it is leaving the commodities trading business. However, Credit Suisse stated it may keep parts of the business, such as precious metals, an area in which the bank faces serious conflicts of interest as it continue to influence prices and sentiment through its research and coverage.


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