Weekly Gold Market Review For October 9th

In his weekly market review, Frank Holmes of the USFunds.com summarizes this week’s strengths, weaknesses, opportunities and threats in the gold market for gold investors. Gold closed the week at $1,157.25 up $18.46 per ounce (1.62%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained 12.22%. The U.S. Trade-Weighted Dollar Index fell 0.95% for the week. Junior miners underperformed seniors for the week as the S&P/TSX Venture Index’s rose only 5.08%

Gold Market Strengths

Gold traders are the most bullish in three weeks on expectations that the Fed will hold off from raising interest rates until next year. The weak employment report last week ignited the recent rally which was buoyed this week by the release of the Fed’s September FOMC meeting notes which had a dovish tone. Gold advanced to a six-week high.

Platinum was the best performing precious metal, bouncing back 7.95 percent, as palladium took a backseat this week.  Traders had speculated that the Volkswagen’s emissions scandal might lead to increased demand for palladium should auto buyers shun diesel powered vehicles in favor of autos powered by gasoline engines that use more palladium in their catalytic converters.

China may have further increased central bank gold holdings in September, raising them by about 15 metric tons to 1,709 tons, as it seeks to diversify its foreign exchange reserves. China announced increases of about 19 tons for July and 16 tons for August after disclosing on July 17 that holdings had jumped by 57 percent since 2009. China has been reporting the value and tonnage of gold reserves monthly in a shift toward greater transparency as it promotes the global role of the yuan and seeks to join the IMF’s currency basket. Another recent positive aspect has been the signs of strength in the gold market even in the absence of Chinese physical demand with the markets closed there for the 7-day Autumn Golden Week holiday.

Gold Market Weaknesses

Despite this week perhaps being a turning point for gold, it rose the least out of all the precious metals.  Perhaps the week long holiday in China may have kept some buyers from bidding the market up higher.

According to Carter Worth (from Cornerstone Macro) sees weakness in gold’s recent rise as gold stopped “almost precisely” at the 50 percent retracement of the rally from $257/oz in 2001 to $1,920 in 2011. For stocks overall, he rejects the idea that the S&P 500 has successfully retested the August low. He said overall equities are under duress and headed lower given 44 percent of stocks in the S&P 500 have undercut their August 24 lows even though the index has not.

Kinross Gold announced it is under investigation in the U.S. by the SEC and the Department of Justice about improper payments at West African facilities involving allegations that first arose in 2013 and the company was already investigating. The company received subpoenas requesting records of communications and payments to officials and contractors at the miner’s operations in Mauritania and Ghana.


Gold Market Opportunities

The recent uptrend in gold could mean a positive full-year return by year end. According to Capital Economics, the headwinds for gold could be behind us, pointing to tighter labor markets and perhaps even inflation. Their report notes that inflation should snap back in most economies over the next few months as the big falls in oil prices in late 2014 drop out of the annual comparison. Their 2016 year end forecast is $1,400/oz.


Klondex provided an update on its Midas exploration drill program with notable intersections of multi-ounce per ton grades.  Interestingly, within the results was a non-vein intercept of 115 feet with an average grade of 2.3 g/t. This drilling has revealed a very different style of mineralization south of the Midas bonanza veins that have been mined to date. The new area is highly oxidized and while the grade is lower than at other drill locations, the breadth of the intersection creates the potential for substantial quantities of bulk ore to be mined should there be a surface scenario such as an open pit.

Comstock Mining reported significant drill intercepts at its Dayton Resource Area. The program, which consisted of 408 holes totaling 30,818 feet of drilling, resulted in several important discoveries, including defining multiple, previously undefined mineralized zones and additional dike-like masses of quartz porphyry. Separately, Integra Gold announced the discovery of new gold bearing zones at Lamaque South, including 22.64 g/t over 2.59 meters at No. 6 vein. This should further pique the interest of Eldorado Gold which recently purchased nearly 15 percent of the company.


Gold Market Threats

Gold imports by India, the world’s second-biggest consumer, dropped 52 percent last month after shipments had surged in August. Shipments jumped in August as jewelers stocked up to meet a surge in demand during the festival and wedding season that started this month. The lack of investment demand is a cause for concern given the negative sentiment towards the asset class.

According to Ruchir Sharma, who helps manage $25 billion as head of emerging markets at Morgan Stanley Investment Management, investors need to brace for a “long winter” with the commodities bear market predicted to last for many years and oil dropping to as low as $35 per barrel. Goldman Sachs has an even dimmer outlook. They said the odds are increasing that oil will slump near $20 because the market is more oversupplied than initially forecast. The investment bank also said prices could stay low for as long as 15 years.

The Environmental Protection Agency appears to have rushed to judgment when it decided to preemptively block a proposed mine from being built near Alaska’s Bristol Bay, according to a yearlong review of the case by former Defense Secretary William Cohen. Cohen noted that the agency was “not fair” in its decision to rule out gold mining in the region before the developers had even applied for permits to build the mine.


Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing