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SWOT Analysis: Gold Imports to India Rose 37 Percent

Commentaries & Views

Strengths

  • The best performing metal this week was platinum, up 4.3 percent as speculators cut their net bearish platinum positions. After being bullish for the previous three weeks, gold traders and analysts are neutral this week, according to a Bloomberg survey. However, the number of new investors for BullionVault hit the highest level since November 2016, according to the online gold vaulting firm.

  • Even as equities were record-high in 2017, investors still turned to gold as a hedge against uncertainty, pushing the Comex futures volume to an all-time high, according to Bloomberg.

  • The largest gold ETF, SPDR Gold shares, kicked off 2018 strong by continuing its record streak of gains. The gold price continues to increase due to a weaker U.S. dollar.

  • Record streak of gains for biggest gold ETF

Weaknesses

  • The worst performing metal this week was gold, still up 1.3 percent. Although gold has started 2018 strong, some think warning signs have flashed the gain may be overdone. Bullion’s 14-day relative strength index hit 74, which is above the level of 70 that suggest a pullback is imminent, according to Bloomberg. Gold fell after the Federal Reserve meeting minutes showed most officials support higher interest rates.

  • Gold futures were set for the longest rally since 1975 after a report showed a slower-than expected hiring rate. The U.S. dollar dropped at the initial reaction of the news, and then bargain hunters stepped in raising the price of the dollar and pushing the gold price down.

  • Home resales dropped in Manhattan, New York down 11 percent to 2,127 homes. More than 88 percent of homes sold in the fourth quarter of 2017 were below the asking price with the median resale price of $916,425. Many see this as a reaction to impending tax reform taking effect.

Opportunities

  • India’s December 2017 gold imports rose 37 percent year-over-year from 56.9 tons to 77.7 tons. This is very positive news given that India has the second highest gold demand behind only China, and might signal the return of a gold bull market.  India’s gold market has struggled the last year with demonetization and tax reform but Fitch recently ranked India number one of the top 10 emerging markets for GDP growth with the largest working-age population in the next five years.  A stronger Indian economy has historically been good for gold prices.

  • Gold mining companies are on the rise due to record high commodity prices and years of self-help measures that have strengthened balance sheets, according to Bloomberg. “Miners look to be in the healthiest position that we have seen for years,” says Paul Gait, analyst at Sanford C. Bernstein, but noted that the big M&A deals of the past were value destructive. “There is nothing wrong with being a cash cow,” Gait wrote in the report.

  • The yellow metal was off to a strong start this month and might rally for the remainder of the month, if not the entire year. David Lennox, resource analyst at Australian brokerage Fat Prophets said, “Higher inflation coupled with weakness in the dollar will push the price upwards.” Other evidence to support a bullish view is that gold remained strong in 2017 despite the U.S. stock market surging to record highs and interest rates rising three times.

Threats

  • According to Morgan Stanley, it might be too late in the market cycle to bet on high-yield bonds. The money management firm cut its junk bond allocation, citing excesses from the tax cuts might lead to a recession after growth in the short-term.

  • The U.S. trade deficit hit its highest level in almost six years with an increase in imports exceeding a gain in shipments. This could keep the gross domestic product from advancing at least 3 percent, according to Bloomberg’s Andrew Mayeda. Automakers saw their first annual U.S. sales decline since 2009 and projections for 2018 are down due to expectations of interest rate hikes.

  • In a Bloomberg interview this week, Former U.S. Treasury Secretary Jacob J. Lew said the recently passed tax reform is a ticking time bomb for debt that could leave the U.S. broke. Lew said the administration is “spending trillions of dollars you don’t have at a time that the economy is doing well.” Lew believes the tax cuts will lead to certain proposals cut or reduced such as medical insurance for the poor and Social Security and Medicare.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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