Strengths

• The best performing precious metal for the week was palladium, up 3.96 percent.  In a note this week Richard Hatch at RBC Capital Markets outlined his preference for palladium over platinum as government policy is shifting to smaller, gas-powered vehicles versus the use of diesel engines.  China earlier this year extended its tax incentive scheme to get buyers to favor smaller, gas-powered vehicles in the world’s fastest growing market for cars.


• Following the Fed’s anticipated 25 basis point rate hike on Wednesday, gold bounced over $20, reflecting that the decision was already baked into the price, reports Joni Teves at UBS. Federal Reserve Chair Janet Yellen says the Fed intends to keep its monetary policy accommodative for “some time,” reports Bloomberg.


• Bargain hunters had their eye on gold after its biggest weekly slump in almost four months, writes Bloomberg. On Monday, investors poured nearly $264 million into SPDR Gold Shares, the most since February 7. In a note from Adrian Day this week, more positive news came out of this year’s PDAC conference. Day says that many exploration companies noted that the senior companies seemed more interested in doing deals than they had been the last few years. Lastly, a comment from OceanaGold CEO Mick Wilkes, “It feels like the gold price goes down reluctantly. Every chance it gets, it pops up again.”

Weaknesses

• The worst performing precious metal for the week was a tie, with both gold and silver up 2.03 percent.  Even after two straight months of gains, gold’s shine could be dimming due to equities, reports Bloomberg. “There’s little need for gold as a diversifier when the stock market goes up with such high velocity,” Bloomberg Intelligence strategist Mike McGlone said. “Gold is unlikely to go up until the stock market goes down.”


• The outlook for mining in the Philippines remains uncertain as lawmakers deferred a decision on Tuesday about whether to confirm or reject Regina Lopez as the country’s resources minister, according to ScotiaBank. Last month Lopez ordered the closure of more than half the nation’s mines to protect watersheds.


• Chile’s Supreme Court revoked a temporary closure permit this week for Barrick Gold’s Pascua Lama project, reports Bloomberg. The permit, granted by the country’s mining regulator, meant that Barrick didn’t have to make annual payments of $3 million. The project has been shuttered since 2013 when it was court ordered to halt construction due to environmental concerns, the article continues.

Opportunities

• According to Wayne Gordon, executive director for commodities and forex at UBS, gold will rise after Fed Chair Janet Yellen indicated she is going to stick to three interest rate hikes this year and three next year. “That means real interest rates go deeper into negative territory in the U.S., that means a weaker U.S. dollar and it means a better gold price,” Gordon said. In addition, Joni Teves of UBS writes that the risk of a pullback in equities could also boost the yellow metal.


• In a note from Macquarie Research this week, David Doyle writes that lower equilibrium yields mean a flattening yield curve. “Our view on lower potential output growth underpin our estimate for the end-cycle neutral fed funds rate of 1.5 to 1.75 percent range (current FOMC estimate is 3 percent,” the article explains. The group continues that over time as the capacity constraints on the economy intensify, it believes the neutral policy rate will decline modestly rather than rise. Lastly, Doyle writes that the group sees the 10-year treasury yield finding a “fair value” at 2.3 percent, well below the consensus of 3.5 percent.


• Those expecting gold to falter following the Federal Reserve’s rate hike, should take a closer look at history, reports Bloomberg. As you can see in the chart below, gold fared well in earlier rounds of rate increases, rising 52 percent in the June 2004 to June 2006 tightening cycle, and 5 percent from the June 1999 to the May 2000 cycle. One reason for this, the article continues, is the Fed tightens monetary policy when it’s concerned about inflation, and that’s good for gold.

Threats

• According to Senate Democrats on Monday, Republicans should be wary of attempting to take funding away from Planned Parenthood or pay for President Trump’s border wall in a spending bill that must be passed by April 28, reports Bloomberg. Otherwise, a partial government shutdown would begin on April 29. The threat from Senate Minority Leader Chuck Schumer sets up a climactic first showdown with the president where he would need 60 votes in the senate, the article continues.


• The European Parliament has approved legislation to hold smelters and refiners that import mineral and concentrates to follow a due-diligence process regarding sourcing ores from conflict zones around the world. The law seeks to ensure that the metals produces are sourced responsibly.


• Construction economist Ed Zarenski, who teaches at the Worcester Polytechnic Institute, writes that any economists or investors who are talking seriously about $100 billion in new infrastructure spending each year for a decade are dreaming. An article from Bloomberg recaps Zarenski’s reasoning – he notes that only three times in history has the entire construction industry ever seen a $100 billion increase in a year. Zarenski estimates there is perhaps room for an additional $26 billion per year in infrastructure spending.  He notes that industry capacity, not the money itself, is the big constraint on the president’s ambitious budgetary plans.

By Frank E. Holmes

Contributing to kitco.com

Follow @bulldogholmes

fholmes@usfunds.com