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SWOT Analysis: Will Gold Equities Outperform Gold Bullion This Year?


 -- Published: Monday, 2 February 2015 | Print  | Disqus 

By Frank Holmes

Strengths

  • As of Thursday, assets in exchange-traded gold products rose for a tenth session, reaching the highest level since October. Investors added 65.6 metric tonnes so far this month, the most since September 2012.  Gold equities, as measured by the NYSE Arca Gold Miners Index, are up 20 percent for January while the S&P 500 Index finished down 3 percent.

 

  • Gold demand out of Greece is ten times the average number since the election on January 25. According to London-based gold dealer Coin Invest, sales of gold coins and bars to its Greek customers rose to GBP 2 million (Great Britain pounds) in just five days following the election, compared with a weekly average of GBP 200,000.
  • Klondex Mines increased its mineral resource estimate at Fire Creek, announcing that measured and indicated ounces are up 47 percent. Wesdome Gold increased its proven and probable reserves by 57 percent at its Eagle River Mine.

Weaknesses

  • The Federal Reserve upgraded its U.S. economic assessment to “solid growth” from “moderate growth” on strong job gains. It also noted the lower unemployment rate and voiced expectations of labor market improvement. The Fed is choosing to ignore soft retail sales, disappointing income growth, the lowest labor force participation rate since 1978, dismal durable goods orders, collapsing industrial commodity prices, and a negative S&P 500 earnings growth rate (-0.5 percent, ex-Apple).
  • Gold traders are split over the gold price outlook, ending eight bullish weeks. Survey results for next week show eight bullish, eight bearish, and four holds.
  • The U.S. Geological Survey figures show that production of gold by U.S. mines was 6 percent lower in October compared to September, and 11 percent lower compared to the previous year. The 10-month output was down 7 percent year-over-year. The U.S. is the world’s fourth-largest gold producer after China, Australia and Russia.   

Opportunities

  • Paradigm Capital published a report arguing that 2015 is positioned for gold equities to outperform bullion. This is due to margins being positioned to expand thanks to the impact that lower oil prices and exchange rates are having on operating costs. In prior periods where conditions were similar, gold equities tended to outperform bullion. This was the case in 2009 and 2010 for example, when gold equities soared 113 percent and 67 percent, respectively.
  • Goldman Sachs announced that over the past month they have witnessed a broad-based change in sentiment among investors when it comes to gold, especially among generalists. Three main reasons were given for the sentiment change: 1) with the global deflationary environment, the U.S. will be forced to maintain low interest rates for longer; 2) a resurgence of the “safe-haven” appeal, given global economic uncertainty; 3) with gold significantly underperforming the S&P 500 in the past two years and valuations looking extended, a reversion is overdue.
  • Roxgold announced that the exploitation permit for its Yaramoko gold project in Burkina Faso has been issued following the endorsement of the Mining Decree by the President of Burkina Faso and other government authorities. This was the last permit required for Yaramoko and the company expects to commence initial site works in the coming weeks.

Threats

  • Greece’s new left-wing government is opposed to a Canadian gold mine that is one of the biggest foreign investment projects in the country, the energy minister announced on Friday. The gold mine operated by Vancouver-based Eldorado Gold in northern Greece was the flagship project of the previous government’s foreign investment drive and was considered a test case that would reveal whether Greece could protect foreign investors despite local opposition.  Eldorado’s share price fell by more than 14 percent.
  • President Joseph Kabila of the Democratic Republic of the Congo (DRC) has made plans to run a census, a move the opposition views as a ploy to extend his time in office rather than stand down next year as planned. In response, four days of violent protests occurred last week, with human rights groups reporting 42 people killed.
  • The DRC is jeopardizing billions of dollars of potential investment by seeking to rewrite the mining rules and raise royalties during a downturn in commodity prices. This is the view of Moise Katumbi who is the governor of the mineral-rich province of Katanga. There is speculation that he is positioning himself as a potential successor to Joseph Kabila. His opinions contrast sharply with those of the current prime minister who might remain in his role if Joseph Kabila remains in power.

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 -- Published: Monday, 2 February 2015 | E-Mail  | Print  | Source: GoldSeek.com

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