In his weekly market review, Frank Holmes of the USFunds.com summarizes this week’s strengths, weaknesses, opportunities and threats in the gold market for gold investors. Gold closed the week at $1,166.20 dwon $9.35 per ounce (0.80%). Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 2.62%. The U.S. Trade-Weighted Dollar Index gained 0.63% for the week.
Gold Market Strengths
The U.S. Mint’s gold coin sales in June rose 57 percent year-over-year. Additionally, customers bought 1.4 million tonnes of gold in the first half of 2015, three times as much as the previous year, according to BullionVault.
Early in the week gold and silver rose in tandem as Greece closed its banks and imposed capital controls. However, the bounce faced rising opposition as the week progressed towards the employment report out on Thursday, which equity bulls were talking up as the catalyst to move equities out of the deep hole they have fallen into in the prior trading week.
The Shanghai Gold Exchange will allow use of foreign currencies and bonds as collateral for gold transactions, according to its vice general manager. China continues to improve the liquidity of their gold trading platform for international investors.
Gold Market Weaknesses
Phillip Futures said he expects a strong U.S. labor market report to send gold prices downward to $1,150 an ounce. Conversely, a number below 230,000 could send the price rallying back towards $1,180 an ounce. Actual results came in at 233,000, and gold rallied higher after being down more than $10 prior to the release of the report.
Barnabas Gan, an economist at Oversea-Chinese Banking Corp., predicted that gold will drop to $1,050 an ounce by the end of 2015, marking a five-year low. Gan topped 19 of his peers from banks to become the most accurate analyst over the past two years. However, not everyone is bearish. The 31 gold analysts tracked by Bloomberg see prices at a $1,212 average in the fourth quarter.
In Japan, jewelry owners are unloading unwanted jewels for cash at a record pace and shipping them off to buyers in China and India. According to the Ministry of Finance, exports of used diamonds are up 77 percent this year. Platinum posted the longest run of quarterly losses in 18 years amid concern that demand is waning just as mine supply rebounds. Zinc posted the fourth straight weekly decline, the longest slump since September 2013, as the Greek turmoil spurred concerns over economic growth and commodity demand.
Gold Market Opportunities
Jeb Handwerger, in an interview with The Gold Report, debunks the myth that when the U.S. Federal Reserve raises interest rates later this year, it will prove negative for gold. He argues that we’ve had a four-year parabolic rise in the Dow without a meaningful correction, and history has shown that usually every four years you see a 30-50 percent correction. He said rising interest rates may be the catalyst that causes investors to flee the general stock market, which has proven attractive in a low rate environment. Thus, higher interest rates concurrent with a pickup in inflation could result in a rush to safe-haven assets such as gold.
A series of reports produced for the LBMA Bullion Market Forum 2015 highlighted the rise of Asia and its future economic impact. According to one, Asia’s ascension will be led by 10 economies made up of China, India, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Those 10 economies could account for 50 percent of global GDP by 2050, while the U.S. and the eurozone could account for less than 30 percent combined. A particularly interesting report is that by Zhang Bingnan, Chairman and Secretary-General of the China Gold Association, looking at the historical opportunity for China to develop the world bullion market. Another report, by Yao Yudong from the People’s Bank of China (PBOC), argues for the need of a new reserve currency. Please visit SharpsPixley.com for links to the slide presentations for more a more detailed review.
Canada is grappling with the risk of a recession as real GDP by industry for April showed a contraction for the fourth consecutive month. This was counter to the consensus expectation for growth in the month. More importantly, it also runs counter to the message from the Bank of Canada in its April Monetary Policy report that much of the impact of the oil price decline occurred in Q1. The release increases the likelihood that the Bank of Canada will decrease its growth forecast at its meeting scheduled for July 15. Another rate cut is also on the table according to David Dole of Macquarie Capital Markets.
Gold Market Threats
According to McKinsey & Company, the world now sits beneath a mountain of debt worth an astonishing $200 trillion. That’s greater than twice the global GDP, which is currently $75 trillion. If that was distributed equally to every man, woman and child on the planet, each person would owe around $28,000. Further, if gold backed total global debt 100 percent, it would yield an equivalent value of $33,900 per ounce.
Ernst & Young’s latest mining risks survey sees a switch to growth leading the risks concern. The report outlined the top 20 business risks that miners are facing, showcasing the about face in the major concerns for operators as the industry shifts from boom to bust, with only three of the top ten risks from this year also featuring in the 2008 survey at the peak of the super cycle. This year’s survey saw a switch to growth leading the risks concerns, followed by productivity improvement, and capital access. Gold miners are struggling to maintain production when growth capital is scarce.
Barrick Gold has pioneered a way to produce gold without having to depend on cyanide’s chemical ability to separate the precious metal from ore. However, researchers have been working on this type of technique, using non-toxic thiosulfate, since the 1970’s. So far the technique has not proven to be suitable for all mines and may add to production costs. It will not be a panacea for increased global gold production but will allow some ores, previously untreatable to yield their gold.