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SWOT Analysis: Resurgence in Gold ETF Demand?


 -- Published: Monday, 14 August 2017 | Print  | Disqus 

By Frank Holmes

Strengths

  • The best performing precious metal for the week was silver, which was up 5.18 percent for the week on back of a strong 2.52 percent rise in gold amid soft inflation and a weaker U.S. dollar. Gold traders and analysts surveyed by Bloomberg are bullish for the eighth week. Looking over the longer term, gold-backed exchange traded products have seen a resurgence in demand, particularly in Europe.

http://www.goldseek.com/news/2017/8-14fh.png

  • Rising tensions between the U.S. and North Korea have boosted demand for gold as investors look to it as a “safe haven” and the gold price is beating U.S. stocks. In addition, Bloomberg reports that gold imports to India more than doubled in July.
  • According to CFTC data, gold net-long positions have been raised by 64 percent in the week ending August 1. UBS analyst Joni Teves stated that, “Although speculative positions on Comex have increased in the past couple of weeks, overall levels remain lean.”

Weaknesses

  • The worst performing precious metal for the week was palladium, which was still positive, appreciating 1.81 percent.  The U.S. consumer price index (CPI), the core measure of the U.S. cost of living, came in below forecast last month, rising just 0.1 percent. Bloomberg reports this dampens the likelihood that the Federal Reserve’s target inflation goal would be reached soon.
  • Labor unrest has “paralyzed” operations at Gran Colombia Gold’s Segovia mine. A paramilitary group, Autodefensas Gaitanistas de Colombia, is supporting protests by informal miners since July 21. Bloomberg reports that the informal workers are protesting against a senate initiative to formalize their work, and the company has temporarily suspended workers’ contracts. Labor disputes have also affected Primero Mining, as well as liquidity issues. Shares of Primero are down as much as 48 percent on the news after the second quarter update.
  • Investors are pulling assets out of silver-backed exchange-traded funds. Bloomberg data shows that holdings in silver-backed ETFs have fallen 1.6 percent, or 331 metric tons. This is the fastest drop since December.

Opportunities

  • Ray Dalio, the manager of the world’s largest hedge fund at Bridgewater Associates, recommends that investors place 5 to 10 percent of their assets in gold. Dalio states that with current geopolitical risks, odds of Congress not raising the debt ceiling leading to a technical default and shutdown of the government, and the loss of faith in the effectiveness of our political processes, it would make sense to have a portion of a portfolio in gold as a hedge.
  • Evolution Mining Ltd. chair Jake Klein commented on the challenges of passive investing, and said that mining companies could benefit from more investor activism. Activism campaigns have increased in mining centers like Australia and Canada, and Klein also commented, “Investors are almost too tolerant, and too accepting.”
  • Klondex Mines Ltd. announced impressive second-quarter results, with record revenue of $86.8 million and operating cash flows that increased 95 percent year-over-year. Klondex also raised its 2017 production guidance. A writer on Seeking Alpha who uses the handle “Simple Digressions” has urged investors to stop shorting Klondex shares and start covering. Going into their earnings announcement, there were 16.4 million shares of short sells on Klondex which is equivalent to about 14 days of trading volume. The share price of Klondex jumped 9.22 percent on Friday when the Seeking Alpha article was published.

Threats

  • Bullion Vault reports that China’s jewelry demand is at a five-year low for the quarter, but attributes this to changing consumer tastes in the younger generation. Younger buyers apparently have less affinity for gold, and are interested in spending on a variety of luxury alternatives, such as travel.
  • Jeffrey Gundlach is taking a conservative approach, saying that risky assets are overvalued. He is reducing positions in junk bonds and emerging-market debt, Bloomberg reports. Gundlach commented, “This is not the time period where you say, ‘I can buy anything and not worry about the risk of it.’”
  • The threats of war due to tensions between the U.S. and North Korea pose a wide risk to the markets in general.

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 -- Published: Monday, 14 August 2017 | E-Mail  | Print  | Source: GoldSeek.com

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