By Frank Holmes

Strengths

• The best performing precious metal for the week was palladium with a gain of 4.92 percent.  Most of the gains came on Friday after Sibanya Gold’s proposed acquisition of Stillwater Mining passed U.S. antitrust conditions. Not only does Stillwater produce palladium, it’s also one of the largest recyclers of used automobile catalytic converters. James Steel of HSBC noted that the supply of palladium has stagnated in recent years while auto sales have soared. 
• Gold traders and analysts surveyed by Bloomberg are bullish on the metal for a fourth straight week, citing uncertainty surrounding Donald Trump’s inauguration today. “As the inauguration of Trump draws close, I think people are realizing that potentially this could be a very stormy Presidency and gold may well benefit from that,” said David Govett earlier in the week, an analyst at Marex Spectron Group in London. The start of the year is usually positive for gold, reports Bloomberg.
• As you can see in the chart below, China attracted $52 million into commodity-linked ETFs over the past week. A weakening yuan and capital outflows from the Asian nation are adding to the global forces helping to boost demand for gold, reports Bloomberg. Investors are seeing an alternative after the yuan sustained its worst annual loss against the dollar in more than two decades, the article continues.

Weaknesses

• The worst-performing precious metal for the week was platinum, down 0.71 percent.   BofAML Global Research forecasted that there is little upside for platinum this week, despite increased demand, as South African producers are putting more ounces on the market at a time when discipline is needed.
• Following seven days of gains, gold finally snapped its best run since November as an interest rate outlook was eyed this week, reports Bloomberg. Vyanne Lai, an economist at the National Australian Bank in Melbourne, says there is recognition that an expected acceleration of rate hikes in 2017 by the Federal Reserve will be an important driver for the metal.
• Despite the chatter of faster inflation, gold traders are pricing in a relatively calm market, according to Bloomberg. Wagers on gold volatility are near a two-year low, diverging from a gauge of inflation bets by the most since September 2014. “The cost of hedging against SPDR Gold Shares declines in the next three months is falling back toward its annual mean, after surging to a more than one-year high following U.S. presidential election,” the article continues.

Opportunities

• Gold bulls looking forward to a rally in bullion with the arrival of a new U.S. president may have history on their side, says Bloomberg. “Gold has averaged gains of almost 15 percent in years marking the inauguration of a new president since the 1970s, advancing in five of those seven years,” the article continues. And because markets are seeing the first annual return for raw materials since 2010, many fund managers that played the last commodity slump want back in, according to Societe Generale SA and Barclays.
• An article in Advisor Perspectives this week highlights Jeffrey Gundlach’s response to the excessive debt, high price-to-earnings (P/E) levels and political uncertainty investors face as they enter the Trump era. He says that U.S.-centric portfolios should diversify globally and that investors should brace for moderately higher inflation. Gundlach notes that the U.S. is “richly valued,” so now is the time to look at other markets. However, he doesn’t recommend Europe due to “election risks” in France and the Netherlands.  Gundlach has advocated a “permanent” gold position for investors’ portfolios since 1990 and there are numerous gold miners that are based outside of the U.S.
• Bloomberg released an insightful piece this week on Paul Huet, CEO of Klondex Mines, calling him a “Canadian mining darling,” who finds profitable gold production in projects that no one else wants. Huet became CEO in 2012 when the company had just $400,000 in cash, one asset and $7 million in invoices. Five years later, writes Bloomberg, Klondex shares are outperforming its peers while remaining undervalued. The company has been profitable for nine of the last 10 quarters and, according to Huet, it could produce north of 250,000 ounces of gold equivalent in the “very, very near future.”  Production guidance for 2017 is expected to increase by 37 percent as the Hollister mine should begin production in the next six months.

Threats

• The cash ban in India is making it very hard for gold lovers in the country to purchase wedding rings and jewelry, reports Bloomberg. A majority of consumers have a lot less cash these days, and many retailers aren’t equipped to accept credit cards because India’s jewelry industry runs mostly on cash. According to the World Gold Council, gold demand in India probably tumbled to a seven-year low in 2016.
• Deutsche Bank WM is not bullish on gold in 2017, citing the outlook for a stronger U.S. dollar, and also noting U.S. inflation not going up significantly. The bank expects gold to trade around $1,200 by year-end, but still recommends it as a hedge to clients.
• Comments made by Fed Chair Janet Yellen on Wednesday spurred a rise in U.S. yields and the U.S. dollar, writes BBH in its CurrencyView report this week. “She spoke after headline CPI rose above 2 percent for the first time in a couple of years and reports of the largest rise in industrial output since November 2014,” the note reads. Some observers saw in Yellen’s comments stronger confidence in the economy which could bolster the case for a rise in interest rates.

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 -- Published: Monday, 23 January 2017 | E-Mail  | Print  | Source: GoldSeek.com

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