Gold Investors Weekly Review – October 24th

In his weekly market review, Frank Holmes of the summarizes this week’s strengths, weaknesses, opportunities and threats in the gold market for gold investors. Gold closed the week at $1,230.39 down $7.93 per ounce (-0.64%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 1.31%. The U.S. Trade-Weighted Dollar Index rebounded 0.71% for the week.

Gold Market Strengths

The primary driver for the recent positive sentiment on gold is higher expected demand, particularly from China and India. Gold imports into India last month rose by roughly four times to 95 metric tons compared to 15 to 20 tons in September of last year. Festival season in India, as well as the deregulation of the Chinese gold market, has given a substantial boost to global gold demand.

Gold analysts and traders are bullish on gold for the fourth-straight week, the longest streak since February. Bloomberg survey results for next week showed 11 out of 21 traders holding a bullish outlook for gold.

Fear and uncertainty in the global economy is stimulating gold demand as well. This month the International Monetary Fund (IMF) downgraded its outlook for global growth, increasing the attractiveness of gold as a safe haven. Furthermore, the more dovish mentality from the Federal Reserve has been a big tailwind for gold, which has been depressed by expectations of rate increases.

Gold Market Weaknesses

SPDR Gold Trust holdings were reduced to their lowest level in a year on Monday. This decline in gold assets is concerning given that gold prices have recently rebounded.

JP Morgan reduced its gold price forecast for 2015 and 2016 this week. The bank sees gold prices declining to $1,220 per ounce and $1,200 per ounce in 2015 and 2016, respectively.


Gold Market Opportunities

The first opinion poll pertaining to the Swiss gold referendum revealed stronger support for the policy than against. The referendum would require the Swiss National Bank to hold at least 20 percent of its reserves in gold. As it currently stands, the Swiss National bank has only 7 percent of its reserves in gold. The cost to reach the 20 percent mark would amount to roughly $70 billion of additional gold purchases.


Gold Market Threats

Paul Tudor Jones, a world renowned macro trader, said that commodities as a whole will be ugly until at least 2020. Jones argues that having reached the peak a few years ago, commodities still have a long way to go before the bottom is reached.

Severe droughts in the western United States may weigh heavily on mining companies operating in the region. In 2013, mining companies around the world spent $12 billion on water infrastructure, a 275 percent increase from 2009. The extra costs incurred by maintaining water quality and quantity are problematic for the industry.


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