SWOT Analysis: Why the Next Few Months Could be an Attractive Entry Point for Gold Equities
-- Published: Monday, 15 December 2014 | Print | Disqus
By Frank Holmes
Gold traders are exhibiting bullish sentiment for a third week as the price of bullion continued through a second weekly advance. Assets in the SPDR Gold Trust, the world’s largest bullion exchange-traded product, rose on Tuesday at the fastest pace since July. The holdings are up almost 1 percent in December, snapping four straight months of losses.
Gold prices jumped this week in reaction to a pullback in various equity markets worldwide. Shanghai stocks had their sharpest fall in five years as a consequence of tightening credit conditions.
U.S. Mint American Eagle silver coins made history this week, topping 400 million in all-time sales and setting a new annual sales record as sales have surpassed 43 million for the year. HSBC analyst James Steel noted, “The beauty of coin demand is that it is a very good barometer of retail demand.”
Allied Nevada Gold slumped after a heavily discounted sale of shares and warrants raised $21.5 million this week. This comes amidst news last week that the company cut its gold and silver sales forecast for 2014.
After several attempts to raise capital through a debt offering, Platinum Group Metals raised $110 million through a bought deal managed by BMO and GMP. The share price pulled back about 13 percent on the news.
Guatemala’s government approved a new law that raises taxes on transnational miners from 1 percent to 10 percent. Canadian junior Firestone Ventures and Vancouver-based Tahoe Resources are part of a group of affected entities that are joining forces to challenge the law.
Canaccord Genuity recent updated its study looking at the four major TSX Venture corrections in the last three decades. The TSX Venture index is considered a good proxy for small-cap gold stocks. It’s official; we now have experienced the longest small-cap mining correction in 30 years.
The study also showed the best three months to gain exposure to gold have historically been December, January and February. With the authors believing the end of the correction could be nearing, the next couple of months could provide an attractive entry point into gold equities. Coming out of the previous four corrections, returns of 144 percent, 196 percent, 347 percent, and 252 percent were experienced.
The National Bank of Belgium is the latest central bank to show interest in repatriating its gold reserves. According to International Monetary Fund (IMF) data, Belgium holds 227.4 metrics tons of gold, representing 34.2 percent of its official foreign reserves. Most of the gold is held with the Bank of England, the Bank of Canada, and the Bank for International Settlements. The topic of gold repatriation has heated up in recent weeks after Switzerland voted down a referendum on November 30 that would have seen the central bank increase its gold reserves by 20 percent and the Dutch central bank announced in mid-November it had repatriated 122.5 metric tons of gold. Additionally, French political leader Marine Le Pen wrote an open letter to the governor of the Bank of France on November 25 requesting that the country’s gold holdings be repatriated.
Clarus analyst Jamie Spratt named Klondex Mines, Richmont Mines, Semafo, Kirkland Lake Gold, Agnico Eagle, AuRico and Detour Gold as the companies with the best opportunities to generate alpha in 2015 among gold miners.
Mining operators in Burkina Faso fear losing tax cuts after the government announced a plan to review the mining industry.
TD Securities published a report saying that the first few Fed monetary-tightening steps should take gold and silver to new cyclical lows. However, it sees the metals moving higher after that and forecast gold at $1,175 in the first quarter of 2015 and $1,275 by year end.
The Fed will meet next week as policymakers debate the timing of the first interest-rate increase in eight years. A rise in borrowing costs would put downward pressure on gold prices.
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