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SWOT Analysis: Gold Falls – Can It Get Back Up?

 -- Published: Monday, 2 October 2017 | Print  | Disqus 

By Frank Holmes


  • The best performing precious metal this week was palladium, up 1.67 percent. Palladium prices rose above platinum prices on expectations there may be a surge in gasoline engines from China before clamp downs on their use comes into effect.  Gold traders and analysts surveyed by Bloomberg maintained their bearish bias for a third week despite North Korean tensions escalating after our military show of force last weekend with fly-by of their airspace.
  • Despite gold having a lousy month with negative price action and a spike in volatility, to four-month highs seen in the metal, holdings in exchanged traded funds rose to their highest levels since last November.
  • At this week’s Denver Gold Form, Randal Oliphant noted that the industry may be reaching peak gold production as major new discoveries have waned over the last couple of decades, despite industry spending or changes in technology.


  • The worst performing precious metal this week was platinum, down 2.20 percent. Platinum is suffering a continued loss of market share to palladium in the near-term play out.  Comments earlier in the week from Federal Reserve Chair Janet Yellen sent gold lower. Yellen said that it would be imprudent to leave rates on hold until inflation reaches 2 percent this year. Her comments overshadowed the earlier heated North Korean war of words.

  • The reversal in gold prices took price levels down to the 50-day moving average where support levels seemed to hold through the remainder of the week.
  • Gold exports from Hong Kong to China have slowed.  For the first eight months of the year, imports are down 70 tonnes from the same measurement point of last year’s 485 tonnes.


  • Dennis Gartman, who successfully called the gold rally in 2017, is now forecasting gold will be “demonstrably higher,” potentially rising to $1,400 per ounce in the coming months.  Gartman notes that the metal’s recent correction is merely a pullback leading up to much higher gold prices.
  • Sentiment from both the Precious Metals Summit and the Denver Gold Group meetings over the past few weeks reflects an attitude of focus on brownfield projects around existing operations to extend mine lives. In addition, it appears that merger and acquisitions are going to be inevitable, with a large focus on politically-safe jurisdictions.
  • Desjardins Securities recommended Wesdome Gold as a new buy along with Golden Star, which just commenced stoping at its Prestea Underground Mine.  Prestea is expected to achieve commercial production in the fourth quarter of this year.  In addition, Columbus Gold signed a definitive agreement to spin out its Nevada gold properties into a separate company later this year.  Columbus Gold’s other properties in French Guyana could be of interest to Nord Gold, its JV partner.


  • President Trump’s tax overhaul plan boosted the dollar this week and could potentially be a headwind to gold if corporate earnings rise due to reduced tax rates.
  • One Nation is threatening to form a bloc in the West Australian parliament to stop the government-proposed hike in the state’s gold royalty.  The government announced legislation to increase gold royalties from 2.5 percent to 3.75 percent when the spot price is above A$1,200.  Treasurer Ben Wyatt espoused the hike would be negligible, but the miners contend there will just be fewer jobs.
  • Morgan Stanley penned a report this week emphasizing the need for capital discipline in the gold mining space and highlighted that the industry needs to deploy capital into only the highest-return projects with low capital intensity that can still generate returns when prices fall.  They noted that at current capital intensity levels, a gold price of $1,350 an ounce is needed to cover the cost of capital.


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 -- Published: Monday, 2 October 2017 | E-Mail  | Print  | Source:

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