By Frank Holmes

Strengths

• The best performing precious metal for the week was silver, up 0.31 percent, just edging out the gains in gold. Bloomberg reports that China’s holdings of U.S. Treasuries have dropped by the most on record last year. The second-largest economy has been seeking to rely less on U.S. currency. Japan, which is the largest holder of Treasuries, also sold nearly $202 billion in Treasuries last year. These countries seem to be backing away from financing the U.S. government in the era of the Donald Trump presidency, and concerned about the prospects of rising inflation. Flows into the largest exchange-traded debt fund, featuring Treasury Inflation Protected Securities, increased to $547 million during the past two weeks. Meanwhile, China's gold reserves have held steady.

• Gold has rallied in seven out of eight weeks lately on concerns that the stock rally is done and investors are anticipating that inflation will take off. Analysts at Commerzbank commented that gold is “finding support from a weaker U.S. dollar and falling bond yields. In addition, rate hike expectations have declined.”
• The Perth Mint reports rising sales this year. Neil Vance from The Perth Mint said, “Certainly in terms of geopolitical issues, we still see people moving into precious metals for that safe haven.” In addition to strong sales in the U.S., the mint reported exceptional sales in China, partly due to a popular rooster coin in conjunction with the Lunar New Year.

Weaknesses

• The worst-performing precious metal for the week was palladium, down 0.87 percent.  Hedge fund managers boosted their bullish bets on palladium this week to the highest level in three weeks. Jonathan Butler, a precious metals strategist at Mitsubishi in London, commented that “U.S. equities continue to ride high in expectation of Trump’s corporate tax reform, and this has weighted on gold.” Butler went on to say, “Gold is probably going to be on the defensive this week,” based on Federal Reserve Chair Janet Yellen’s testimony.
• Gold imports by India declined in January, due to the government’s actions to limit black money. According to an unidentified source in the finance ministry, overseas purchases were 58.6 metric tons in January, a drop of 28 percent from a year earlier. Imports dropped 41 percent in the first 10 months of the financial year.
• Freeport McMoRan has been on something of a rollercoaster with the government in Indonesia. In January, the company suspended shipments of copper from its Grasberg mine, and earlier this week, the company suspended copper concentrate output. By the end of the week, however, Freeport received approval for exports to resume. The approval would be good for one year, and then under review every six months.  The situation will likely remain tense as one analyst we spoke with noted that Indonesian business leaders are arguing over how they will divide up the foreign owned assets of the mining companies operating in country that are being challenged by a government crackdown.

Opportunities

• Gold may get a boost over additional uncertainty due to the turmoil regarding President Trump’s now-former national security advisor Michael Flynn. Flynn resigned Monday amid allegations that he lied about his contacts with a Russian official, and the U.S. intelligence agencies and the FBI are conducting multiple investigations into the extent of improper contact between other members of Trump’s staff and Russia. Trump responded that the real crime is illegal leaks of information.
• Acacia Mining is the latest gold mining company to announce that it is increasing its dividend. Both Pan American Silver and Randgold Resources announced hikes in their dividend in recent days. Acacia will more than double its annual dividend, and its stock climbed on expectations that gold production will increase after extending the life of one of its mines in Tanzania. This is the latest in a trend whereby management at gold mining companies is showing stronger confidence in its operations to increase dividends with more certainty that profits will be sustainable.
• Kyrgyzstan’s central bank is promoting gold saving with its citizens. The country’s rural population still values its assets in cattle, but Governor Tolkunbek Abdygulov says his “dream” is for each citizen to own at least 100 grams, or 3.5 ounces, of gold. Gold is also Kyrgyzstan’s biggest export.  “Gold can be stored for a long time and, despite the price fluctuations on international markets, it doesn’t lose its value for the population as a means of savings.”

Threats

• In the fourth quarter, U.S. home-loan delinquencies increased for the first time since 2013. This could be a warning sign for the strength of the overall economy. However, when looking at ETFs that track the Chicago Board Options SPX Volatility Index (VIX), assets have shrunk in an odd indicator of calm as investors are weary of volatility-based losses.
• The World Gold Council published its February issue of “Gold Investor,” which includes an interview with former Fed Chair Alan Greenspan. Greenspan stated: “If the gold standard were in place today, we would not have reached the situation in which we now find ourselves. We cannot afford to spend on infrastructure in the way that we should. The U.S. sorely needs it, and it would pay for itself eventually in the form of a better economic environment (infrastructure). But few of such benefits would be reflected in private cash flow to repay debt.” Greenspan essentially concludes that “the gold standard is a way of ensuring that fiscal policy never gets out of line,” which, clearly, is not a feasible option for the U.S. any longer.
• Inflation came in at 2.5 percent this week, a bit higher than the 2.4 expected. Yellen’s testimony indicated the potential for a rate hike in March, which would be sooner than many expected. Ward McCarthy, chief financial economist for Jefferies in New York, said, “The acceleration in the inflation picture along with the continued strong performance of the consumer sector opens the door and increases the probability that the Fed will raise rates as soon as March.”

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 -- Published: Tuesday, 21 February 2017 | E-Mail  | Print  | Source: GoldSeek.com

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