By Frank Holmes

Strengths

• Gold traders turned bullish for the week on speculation that weaker U.S. data will prompt the Federal Reserve to delay raising interest rates.

• Gold is going through a series of push and pull, with the metal’s 30-day volatility near the highest in seven weeks. Prices on Monday surged 2.4 percent, the biggest gain since January 15. The move came a session after futures tumbled by the most since early March. Then on Tuesday gold held the biggest gain in almost three months before Federal Reserve policymakers began their meeting. On Thursday gold headed for the biggest two-day slump since October after a government report showed that application for U.S. jobless benefits declined to the lowest in 15 years. 

• Lake Shore Gold continues to intersect significant gold mineralization, extending its high grade core of 144 Gap Zone 50 meters west. In addition, drilling in untested areas intersected new zones of gold mineralization.

Weaknesses

• Barrick Gold’s first quarter results missed the mark with negative free cash flow of $200 million. Further, second quarter costs may actually go up before coming down as second half production is back-end loaded.

• Barrick investors opposed executive pay after CEO’s Thornton’s excessive raise at the annual shareholder meeting. The company plans to re-examine its executive compensation after shareholders expressed disapproval of the company’s policies for a second time in three years. Also, Yamana Gold saw a similar situation with more than 50 percent of its shareholders voting to reject the executive pay plan. Influential advisory firm Glass Lewis sided with shareholders, recommending to vote against the plan and citing a significant disconnect between pay and performance.

• Goldcorp reported first quarter earnings that missed analysts’ estimates after costs increased amidst falling gold prices.

Opportunities

• Newmont reported strong first quarter results, with significant cost improvements and solid production across the assets driving earnings beat. The company was upgraded to outperform by Credit Suisse.

• The European Central Bank’s (ECB) 1 trillion-euro quantitative easing program has fueled appetite for EU stocks and the euros needed to buy them. This poses a threat to the dollar’s rally and has the potential to reverse its trend. Bloomberg’s Fear and Greed histogram flipped to the red in the week ending April 24, the first time since March 2014. This is an indicator that measures buying strength versus selling strength and is used to determine reversal points in a prevailing trend. A weaker dollar would be a positive catalyst for gold.

• The International Monetary Fund (IMF) will be holding a meeting in May which will start to discuss formally any revisions to the composition of the Special Drawing Rights (SDR). A second meeting will be held in October which will confirm any new changes and the revised SDR basket will come into operation on January 1, 2016. If the yuan is to form part of the new SDR, then the announcement of its unpegging from the dollar would have to take place prior to the October announcement. With the speculation that China has been building its gold reserves to a much more substantial level, this would be a positive development for the metal. On another note, while the price of gold has fluctuated in a narrow range this year, top gold mining stocks have actually seen impressive gains, perhaps anticipating an expected lift in the gold price. Even so, gold equities remain undervalued relative to the spot price.

Threats

• As of March 2015, net free credit stood at a new record low vs. the prior record from August 2014. This measure of cash to meet margin calls remains at an extreme level, below the February 2000 low. If the U.S. equity market drops and triggers margin calls, investors do not have cash in their accounts and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would exacerbate an equity market sell-off. 

• According to Bank of America, the effects from the plunge in oil prices and rapid appreciation of the dollar are serving as a bigger drag to growth than what had been anticipated. Consequently, the long awaited pick-up in growth remains a forecast.

• According to various sources, JP Morgan has accumulated more than 55 million ounces of physical silver. Over the past few years, the company has been voraciously buying up the metal and added more than 8 million ounces during the past couple of weeks alone. One reason for this could be that JP Morgan sees a potential stock market collapse ahead with a consequent surge in gold and silver prices. Another speculation is that JP Morgan has been holding a short market corner in COMEX silver futures which has depressed prices artificially, allowing them to buy physical silver at sharply declining prices.

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 -- Published: Monday, 4 May 2015 | E-Mail  | Print  | Source: GoldSeek.com

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