Gold Investors Weekly Review – June 27th

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  $1,315.66, up $0.81 per ounce (0.06%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained 0.53%. This was the gold investors review of past week.

Gold Market Strengths

China’s manufacturing Purchasing Managers Index (PMI) expanded in June for the first time in six months, posting its highest reading since November 2013, as policymakers to continue to implement targeted accommodative policies. The reading is significant because gold has become increasingly important to both high net worth and middle class individuals in China. As a matter of fact, the China Gold Association forecasts the global flow of gold from west to east will probably last for up to two decades as rising incomes spur demand. Such is the demand, the CME (Chicago Metals Exchange) is considering offering products to trade gold during Asian trading hours and competing with the Singapore’s government plan to promote the city-state as the regional precious metals trading hub.

Gold Market Weaknesses

Indian jewelers are threatening to shut down their stores if their demands for the government to revisit the gold import-export rules are not met. In light of rising global oil prices, the Indian government has shown little sign of revisiting its import restrictions on gold. Surinder Kumar Jindal, managing director of Jindal Dyechem Industries, one of the largest precious metals traders in India, has openly criticized the government’s inaction, arguing that import restrictions encourage smuggling, affect registered legal industry, and affect consumers as physical delivery premiums rise. Jewelers are hoping for the government to reconsider its position ahead of next month’s federal budget discussions.

China’s gold imports from Hong Kong fell 20 percent in May from a month earlier with net imports reaching 52.3 metric tons, compared with 65.4 tons in April. Commodities analysts speculate lower bullion demand from China—which surpassed India as the biggest gold consumer last year—may weigh on prices. However, import data from Hong Kong has become less reliable as the Chinese government continues to open gold import channels, likely diverting a portion of the import volume from Hong Kong to Beijing.

After a surge in mistrust during Europe’s debt crisis, the German government has decided not to proceed with the proposed repatriation of $141 billion in gold holdings currently stored in the U.S. and U.K. Analysts have speculated the repatriation request had the potential to irritate U.S.-German relations. Others have ventured to speculate that gold simply is not available for delivery to the rightful German owners, to which a German government official responded: “The Bundesbank never doubted the integrity of the foreign gold-storage sites.”

Gold Market Opportunities

It is time to nibble on gold stocks according to Barrons technical analyst Michael Kahn. Numerous signs suggest a decent rally is in the cards for gold, says Kahn, who argues the extreme bearishness of this cycle will leave no sellers left, while incremental buying will pull bullion up. Similarly, Swiss-based Incrementum published its latest “In Gold We Trust” report predicting a gold rally to $1,500 over 12 months. Incrementum argues that current monetary experiments will have unintended consequences difficult to gauge today, and gold should be your hedge for worst case scenarios.

The supply deficit for platinum is estimated at 818,823 ounces this year, according to New York-based commodities research CPM Group. The estimated supply shortfall will be the largest ever platinum deficit, which is vulnerable to operational disruptions in South Africa, which accounts for 73 percent of global supply. Although the South African five-month long platinum strike was declared officially over, analysts expect that it will take months before mines can ramp up to full capacity, further exacerbating the supply shortfall expected for this year.

Gold Market Threats

A Bloomberg report states China’s chief auditor discovered $15.2 billion loans backed by falsified gold transactions, thus adding to the signs that the yellow metal may be used with other commodities in fraudulent financing deals. The revelation may spur a wave of gold sales as lenders seek to unwind gold-backed transactions to ensure their counterparties are not fraudulent.

A Bloomberg report suggests gold will weaken after investors piled up into the trade too quickly. The report shows gold futures’ 14-day relative strength index exceeded the level 70 for a number of days since June 19, leading technical analysts to conclude prices are likely to decline.

The gold surge can’t sustain itself according to Donald Selkin, chief market strategist at National Securities Corp. in New York. According to Selkin, the spike was caused by the Iraqi conflict and Yellen’s comments which will fade as investors seek excitement in other areas of the market. Barclays analysts agree with Selkin’s observation, adding physical demand has been “unspectacular” as of late.

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