The best performing precious metal for the week was palladium, up 4.29 percent on hedge fund managers increasing their bullish positioning on the metal as expectations of increased usage in automotive catalyst to curb pollution. China’s purchase of bullion bars in the first half of the year rose 51 percent, reports Bloomberg, setting gold up for a sixth monthly gain in seven. China gold demand rose 545.23 tons, including gold bars to 158.40 tons. And as global gold prices retreat, China purchased more bullion from Hong Kong in June.
The dollar dropped as gold rose this week following signals from the Federal Reserve that inflation remains below target, reports Bloomberg, fueling speculation that the central bank will not rush to raise rates. The Fed commented that the balance sheet unwind will start “relatively soon.”
The dollar held near the lowest in more than a year, with gold futures reaching the highest since mid-June. “Dollar weakness and U.S. political concerns are lending support to gold,” said Guotai Junan Futures, a Chinese brokerage. The widening investigation into President Donald Trump, threatening to derail his economic agenda, has also spurred haven demand for the yellow metal, Bloomberg writes.
The worst performing precious metal for the week was platinum, essentially flat by the end of the week. Part of the weakness related to weaker diesel engine demand. In addition, The U.K. became the latest European country to mark the end of the line for diesel and gasoline fueled cars, reports Bloomberg, as the government said it will ban sales of the vehicles by 2040. “The global shift toward electric vehicles will create upheaval across a number of sectors, from oil majors harmed by reduced gasoline demand to spark plug and fuel injection makers whose products aren’t needed by plug-in cars,” the article reads.
Tanzania President John Magufuli is demanding Barrick Gold’s Chairman John Thornton to honor his pledge regarding how the company will compensate Tanzania over mineral concentrates, reports All Africa Global Media. If Thornton doesn’t come to the negotiation table with the government, Barrick could risk closure of its mines or losing the mines to locals so that they can pay tax revenue. Acacia Mining was recently handed a $190 billion tax bill and fine from the Tanzanian government. According to Bloomberg, that is 70 times the record penalty that the EU dished out to Google last month and would take centuries to pay.
Gold’s 120-day volatility is at the lowest since 2005, reports Bloomberg, and in the past four months gold prices moved in a 7.6 percent range, the least in 10 years. “While irritating for traders who make a living betting on strong moves, the sleepy gold market also reflects stability in other assets, with measures of global shares at record highs,” the article reads.
According to Bloomberg, bankers and accomplished financiers are leaving lucrative careers and salaries to get into one of the hottest financial instruments around right now: initial coin offerings (ICOs). As resentment mounts over central bank policies and negative interest rates, interest in untraditional investment vehicles has mounted – such as precious metals and cryptocurrencies (recently sparking comparisons of bitcoin to gold). Interestingly enough, due to the increased popularity of ICOs, U.S. regulators are now stepping in. The Securities and Exchange Commission’s Report of Investigation found that tokens offered and sold by a certain virtual organization were indeed securities and therefore subject to federal laws. With people moving their money into electronic currencies outside of the purview of regulators and their ability to collect taxes, this has given gold a run for its ability to attract investors. If regulators can force tax IDs to be attached to cryptocurrency accounts, that could portend a run on such speculation.
In a note to clients dated July 20, J.P. Morgan analysts commented that gold is set to benefit from slow U.S. inflation, a weaker dollar and “political wrangling in Washington,” reports Bloomberg. And if the yellow metal manages to break out from between two decade-old trend lines that are getting closer together, it could get a lot less boring, notes another Bloomberg article. “Since late 2015, the triangle pattern has kept prices between about $1,050 and $1,380 an ounce,” the article reads. Strategist Jonathan Butler adds that once these long-term trends get broken, it usually marks a turning point for the market.
India’s trade ministry sees scope for lowering the import tax on gold, reports Bloomberg, as the current account deficit improves. “It will be one of the strong recommendations on the budgetary side from the ministry,” said Manoj Dwivedi, joint secretary at the trade ministry. More encouraging news on the gold front comes from Kirkland Lake Gold and its Fosterville mine. As Macquarie reports, the underground reserves at Fosterville increased 110 percent to over 1 million ounces at 17.9 grams per ton, and well above expectations. Macquarie also put out a positive note on AuRico Metals, which has two high-quality royalties on Fosterville and Young-Davidson. AuRico’s target is up again on more production and a longer life at Fosterville.
“If trillions of dollars of asset purchases under quantitative easing helped ease financial conditions, will the reversal tighten financial conditions, and by how much?” This question from the Financial Times, and highlighted by MacroStrategy Partnership this week, puts quantitative tightening (QT) in the spotlight. The same way quantitative easing (QE) expanded money supply and nominal GDP, QT could gradually shrink money supply, a move that is “unlikely to be frictionless” in a vulnerable economy, writes MacroStrategy. The Fed hasn’t been waiting around for this topic to come up, since it has been experimenting with reverse repos to see the impact of QT. Unfortunately, the answer to the above question isn’t very pretty. One implication involves the collapse of first quarter 2017 U.S. bank annualized quarterly loan growth to 0.8 percent, from a robust 6.2 percent in the second quarter of 2016, the report continues.
Russia threatened to retaliate against new sanctions passed by the U.S. House of Representatives, reports Bloomberg, claiming it made it all but impossible to achieve the Trump administration’s goal of improved relations. According to Vladimir Dzhabarov, deputy chairman of the international affairs committee in the upper house, Russia has prepared “economic and political measures that will be adopted if the Senate and Trump support the bill,” reports RIA Novosti news. Relations between the two countries “are at such a low level that we have nothing to lose,” by retaliating, he said.
Looking to shore up government finances, Brazil has unveiled plans to raise revenue from mining royalties by 80 percent, Reuters reports. “This new condition will increase the risk of loss of competitiveness in the international market for ores,” mining industry body IBRAM said in a statement. A slow economic recovery in Brazil has forced the government to find new sources of revenue, Reuters continues. Other dim news in the mining sector comes from South Africa, where a handful of companies are preparing a multimillion dollar settlement with as many as 100,000 former workers who suffer from debilitating and deadly lung disease, reports Bloomberg.
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