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SWOT Analysis: Gold Remains an Increasingly Valuable Alternative Asset


 -- Published: Monday, 5 January 2015 | Print  | Disqus 

By Frank Holmes

Strengths

  • Gold traders surveyed by Bloomberg are bullish for next week. Rising concerns surrounding the political uncertainty in Greece are increasing the precious metal’s appeal as a haven.
  • Goldman Sachs set its long-term forecast for gold prices at $1,200 an ounce for the next three years. This price is estimated by the investment bank to be the majority of gold producers’ breakeven price. If gold prices fall below $1,200 an ounce, losses would result in a supply reduction, which should prop prices back up.
  • China’s net gold imports from Hong Kong reached a nine-month high in November, most likely due to inventory build-ups for the Lunar New Year. Furthermore, the Shanghai Gold Exchange saw strong withdrawals last week at 57.7 tons, bringing the year to date total to 2,073 tons.

Weaknesses

  • Gold ended 2014 slightly down, declining 1.72 percent. This is the second-straight year that gold has declined.
  • The drop in gold prices this year is affecting coin sales. The U.S. Mint is heading for its biggest annual decline in sales since 2006.
  • Gold-backed ETFs are seeing the negative effects of lower gold prices as well. Holdings in gold-backed ETFs dropped to the lowest level since 2009, as roughly $6.7 billion was removed this year.

Opportunities

  • Gold prices responded positively to news last Friday that China’s central bank was considering loosening liquidity requirements for the country’s banks. With many seeing this speculation becoming reality, news of further stimulus in China should cause a further rise in gold prices.


  • The New York Federal Reserve recently saw a 42 ton withdrawal of gold. The recent rise in gold repatriation from countries like the Netherlands and Germany is a sign that global market and political uncertainty is on the rise and gold is becoming increasingly valued as a haven asset.
  • German five-year yields on government bonds dropped below zero this week for the first time. The difficulties facing Europe are captured in this event, as investors are now willing to pay to hold German debt with no returns. With falling rates and growing uncertainty, gold becomes an increasingly valuable alternative asset.

Threats

  • Chilean President Michelle Bachelet presented a bill this week that would make union leaders the only authorized negotiators in wage bargaining, while outlawing mining companies’ rights to replace workers on strike. The proposal will risk further investment delays according to the mining companies affected.
  • The Zambia Mines Minister is refusing to undo the hike on mining royalties that came into effect on January 1. The policy raises royalties for open pit mines from six percent to 20 percent.
  • The Chilean Supreme Court declined to hear Barrick Gold Corp.’s appeal regarding fines imposed on its Pascua-Lama project. The fines, imposed by the country’s environmental regulator, could make it more difficult to move the project forward.

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 -- Published: Monday, 5 January 2015 | E-Mail  | Print  | Source: GoldSeek.com

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