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SWOT Analysis: Gold on Its Best Run in Six Weeks


 -- Published: Monday, 15 October 2018 | Print  | Disqus 

By Frank Holmes

Strengths

·         The best performing metal this week was platinum, up 1.82 percent as hedge funds cut their net bearish position to a five-month low this week. For the eighth consecutive week, gold analysts and traders have reported holding a bullish outlook on the yellow metal in Bloomberg’s weekly survey. This attitude is supported by gold being on its best run in six weeks, as the dollar dropped to its lowest since October 2. Additionally, on Wednesday, exchange-traded funds (ETFs) saw the biggest one-day increase in gold holdings since March 22, totaling 259,116 troy gold ounces according to Bloomberg.

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·         Recent U.S. inflation data came in slower than expected. In light of this, gold investors took the opportunity to pile into bullion this week according to Bloomberg. “Gold bulls were unstoppable on Thursday as global risk aversion sent investors sprinting to safe-haven assets,” said FXTM research analyst Lukman Otunuga. Thursday marked the third straight day of gains for gold futures, the longest rally in seven weeks, and December gold contracts were over ten times the 100-day moving average.

·         India, the world’s second-largest gold market, more than doubled its gold imports for the second consecutive month in September, receiving 93.8 metric tons in 2018, up from 43.6 tons the year prior, according to Bloomberg. These massive inflows are largely due to the country’s strong Love Trade, as Diwali and wedding season are both traditionally golden affairs. British art dealer Sotheby are likewise preparing for celebration as its first ever “The Midas Touch” is scheduled for October 17. The auction will include a 1977 Ferrari 512 Berlinetta Boxer, an armchair from Tuileries Palace and a life-sized, golden sculpture of Kate Moss’ head. 

Weaknesses

·         The worst performing metal this week was palladium, down 0.38 percent despite hedge funds boosting their bullish position to a four-month high and Evercore ISI saying “There will be blood” in the automobile sector due to falling worldwide auto sales. Despite the Asian equity market seeing the largest selloff since February on Thursday, naysayers were a bit too early in their morning calls saying gold would not benefit as a haven asset. Despite starting the day weak, futures for the yellow metal managed to end Thursday up 1.5 percent, suggesting that analysts’ consistent call for gold not to perform may be getting long in the tooth.

·         Used car and truck prices took a tumble in September, experiencing a 3 percent monthly decline, the most in 15 years, according to government data. This dramatic change played a part in denting the core consumer price index, which slowed to 2.3 percent annual gain compared to the 2.4 percent forecast. August’s CPI also had a highly unusual anomaly where apparel prices plunged the most in almost seven decades, dropping the CPI to 2.2 versus the consensus estimate of 2.4. 

·         South Deep, owned by Gold Fields, continues to frustrate shareholders as the company has yet to curtail losses from the massive South African deposit. While South Deep is the second-largest known body of gold-bearing ore, it continues to miss output targets, with July being its tenth consecutive month of falling production. Chief executive officer Nick Holland expressed his understanding at shareholders’ frustrations, but insisted “we are not far away, we just need more time.” To date, the company has spent over 9 billion rand ($620 million) on the mine, in addition to 22 billion rand spent to purchase the land in 2006.

Opportunities

·         Despite negative headlines surrounding slowing global growth, this trend has the potential to benefit gold according to precious metals analyst Jim Steel. “During periods when world trade is very strong, gold tends to be very weak,” said Steel. “When the world trade contracts the gold market takes off, there’s a bit of a lag, but it does really well.”

·         After the International Monetary Fund (IMF) cut its global growth forecast on Monday, gold futures rose, supporting the yellow metal’s position as a haven asset. The IMF cited building trade war tensions and stressed emerging markets as reasons for its conclusion that the world economy is plateauing. IG analyst Joshua Mahony notes that “heavy U.S. debt burden” is likely to dissuade traders from viewing the dollar as a safe haven asset, especially if bond yields continue to rise.

·         TOMRA’s new COM XRT 2.0 could be a game changer for mining and for TOMRA too. TOMRA is one of the few publicly listed companies that sell these high-tech sorting machines for mining. These machines offer a rapid way to separate waste from ore as the material leaves the crusher circuit. The rejection of waste material from entering the milling circuit offers companies a way to process more materials in a more efficient, compact plant. In addition to its mining capabilities, TOMRA’s sorting machinery has gained attention from the European Commission which intends to use the machinery to sort plastic and aid in environmental clean-up efforts. “We have enormous potential to secure a more sustainable world for future generations,” says Harald Henriksen, head of TOMRA Collection Solutions. The company hopes to hire 2,000 new employees globally over a five-year period as their growth trajectory increases.

Threats

·         After the big stock market selloff on Wednesday, one clear trend has emerged, according to Bloomberg. Investors are selling their growth shares and moving to value, which are shares that trade at a discounted price. Charlie McElligot, Nomura Holdings Inc. strategist, said this week that investors are unwinding their momentum positions, much of which are growth shares that post consistent earnings, and are instead going to value. Growth shares are vulnerable to rising bond yields and interest rates because of their long-duration characteristics. Bank of America found that more than two times as many S&P 500 company projections were below Wall Street estimates than above – the most shortfalls in two-and-a-half years, a sign that analysts are too bullish on the market.

·         Just as borrowing costs are rising, a new supply of debt is slated to hit the $15.3 trillion Treasury market. The U.S. budget deficit is set to swell to roughly $1 trillion sometime in fiscal year 2019. Plus, interest on that debt is forecast to triple in the next 10 years to nearly a $1 trillion a year, according to the Congressional Budget Office. Demand at a recent Treasury debt action also fell to a decade low, writes Bloomberg’s Liz Cap McCormick and Alexandra Harris. Additionally, U.S. mortgage rates rose the most since the week President Trump was elected, rising to 4.9 percent, up from 4.71 percent the week prior. This is the highest rate since mid-April 2011, according to Freddie Mac. Rising mortgage rates cut into the affordability for buyers, which has led to a slowdown in sales, writes Bloomberg’s Prashant Gopal.

·         On Wednesday, the U.S. Department of Justice (DOJ) unsealed charges against a Chinese Ministry of State Security operative for conspiring to commit espionage and steal trade secrets from U.S aviation and aerospace companies. The U.S. went one step further and extradited the Minister to the U.S. from Belgium this week. The DOJ press release said “This case is not an isolated incident. It is part of an overall economic policy of developing China at American expense.”

http://www.usfunds.com/

 


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 -- Published: Monday, 15 October 2018 | E-Mail  | Print  | Source: GoldSeek.com

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