Gold Investors Weekly Review – April 4th

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 $1,303.64, up $8.37  per ounce (0.65%). The NYSE Arca Gold Miners Index rose 0.52% on the week. This was the gold investors review of past week.

Gold Market Strengths

Gold rose $8.37 per ounce for the week, as the futures contract posted its best one-day performance since March 12 on Friday. U.S. payrolls rose 192,000 in March, missing analysts’ expectations for a 200,000 gain. The weekly price action was also supported by positive import estimates from India and expectations of further stimulus in China, where Shanghai physical premiums turned positive.


Gold sales by Japan’s biggest bullion retailer increased five-fold in March as investors accelerated purchases ahead of the nation’s sales tax increase on April 1. The demand was in response to Prime Minister Abe’s tax hike as the government seeks to address the nation’s swelling public debt and to stoke inflation. Similarly, India’s gold imports are set to more than double in March from February’s 33 tonnes, according to a government official with direct knowledge of the matter.

Gold Market Weaknesses

Data from the U.S. Mint shows that sales of gold coins dropped 32 percent in March from February, despite strong sales for silver coins which rose 43 percent. Similarly, the Perth Mint reported sales of 30,177 ounces in March, down from 47,000 ounces in February.

Gold Market Opportunities

Both the buy-side and the sell-side are warming up to gold. This week, Pecora Capital, a Florida-based asset manager, said gold will return to a record within five years as weaker equities spur demand for a safe haven. On the sell-side, Deutsche Bank raised its 2014 and 2015 gold price estimates, while Australia and New Zealand (ANZ) Bank raised its views to neutral after being bearish on the metal. ANZ analysts say their physical gold indicator increased toward the end of March, even in the face of a weaker Chinese currency.

South Africa’s platinum sector strikes have reached the 10-week mark as auto sales growth in the U.S. reached 10 percent this March, increasing the potential for a price spike amid supply constraints. The strikes, in which the unions have appeared intransigent, may put thousands of platinum workers out of work permanently, as mining companies seek to mechanize mines to halt cost escalation. A recent proposal criticizes the Black Empowerment status quo and calls for profit-sharing programs with employees that align their interests with those of the company and ensure all related parties receive economic benefit, not just the Black Empowerment groups.

Gold Market Threats

Natixis analysts argue downside pressures for silver are much higher than those of gold given the average mining costs for silver are around $7 per ounce (Natixis estimate). The bank has a base case for silver at $18.60 an ounce for 2014, and $15 per ounce in 2015, noting that prices could go as low as $10 per ounce. In their view, the liquidation of a portion of the nearly 20,000 tonnes of silver held in exchange traded products (ETPs) is a latent threat to the silver market.

Executives from Caterpillar are expected to testify next week before a U.S. Senate subcommittee on allegations that the heavy equipment manufacturer used a foreign subsidiary to avoid paying $2.4 billion in U.S. taxes. This type of pressure on corporations to repatriate funds at a massive cost to investors is not new, and we may see more in the mining sector where companies pay taxes in the countries where they operate, not necessarily in the country where their head offices are located.

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