Frank Holmes
SWOT Analysis: Deutsche Bank Says Investors Should Prepare for Flight to Gold
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Strengths
- The best-performing precious metal for the week was palladium, up 4.18 percent. Bloomberg reports that rising automobile demand may be sending palladium futures toward the steepest rally since April 20.
- Bloomberg’s weekly poll of traders and analysts show the trending heading toward bullishness, with 10 bullish, five bearish and four neutral. Analysts point to concerns over terrorism, probes into President Donald Trump’s links to Russia and doubts that the Federal Reserve will raise rates in June, as factors that may spur investors to choose gold.
- China’s gold demand in 2017 is still the strongest in four years, reports Bloomberg. Although higher prices have deterred some buyers, dropping gold purchases from 15-month highs, the World Gold Council (WGC) sees demand growing to 900 to 1,000 metric tons for the full year.
Weaknesses
- The worst-performing metal for the week was gold, albeit still positive with a gain of 0.91 percent.
- The biggest gold miner ETF, the VanEck Vectors Gold Miners ETF, saw record outflows this week. On Wednesday, investors withdrew $662 million from the fund, making it the worst daily outflow since 2006. Similarly, the VanEck Vectors Junior Gold Miners ETF has had outflows of $804 million since March 31, after record inflows last quarter prompted the fund to change its portfolio structure. Bloomberg reports that the fund is now on track for the biggest quarterly outflow since the fund’s inception in 2009.
- A handful of gold mining stocks are experiencing challenges this week. Tragically, a fatal accident occurred at Torex Gold’s construction site at the El Limon Sur pit in Mexico. The ongoing ban on exports of mineral concentrate from Tanzania could cut Barrick Gold’s gold production by up to 6 percent this year, as Barrick’s equity interest in Acacia accounts for around 10 percent of its gold production. And Freeport-McMoRan has let go about 4,000 workers after a strike at the company’s Indonesian operations.
Opportunities
- Bank of America Merrill Lynch published a report this week on the company’s global mining conference in Barcelona. BofAML reports that most gold mining companies are in better condition than last year, due in great part to the better corporate discipline, with more focus on value over risk.
- Deutsche Bank published a special report on the global gold sector, stating “we feel investors should prepare for a flight to gold” in the uncertain global climate. The report also emphasizes the importance of looking for the gold stocks that offer better value, growth or leverage. Deutsche highlights the top global gold stocks as Newmont, Evolution Mining, St. Barbara Mining, Alacer Gold and Dacian Gold.
- Dacian CEO Rohan Williams told reporters that the recent deal between Eldorado and Integra signals the beginning of a cycle of mergers and acquisitions (M&A). More optimism for gold comes from Trump’s political troubles after Republicans criticized his budget. The gold price has risen, and gold’s open interest, a tally of outstanding contracts, has climbed to the highest since April 27. The chart below shows that the MACD (the gauge of price momentum) is above the “Sig,” or signal line, which is considered a bullish indicator. Yet another bullish indicator is that gold has experienced a golden cross, which happens when the 50-day moving average crosses above the 200-day moving average.
Threats
- Sibanye Gold recent acquisition of Stillwater Mining is under review in the courts. Some Stillwater investors contend that they were shortchanged with the purchase price of $18 per share. Sibanye is the U.S.’s only producer of platinum-group metals.
- South Africa is proposing to change the minimum black ownership of mining assets from 26 percent to 30 percent. Mines Minister Mosebenzi Zwane included this proposal in a mining charter. However, senior party policy officials said there may be negative consequences from such a measure, and that it may deter investment.
- Tanzanian Mines Minister Sospeter Muhongo was fired after an audit revealed that mineral exports had been understated. Acacia Mining has been investigated by a presidential committee, showing that Acacia reported certain containers held 26,000 ounces of gold, while the committee found those containers to hold 250,000 ounces. The magnitude of the discrepancy implies that the source mines, Bulyanhulu and Buzwagi, would actually be the world’s two largest gold producers. Those familiar with the events have called for an independent review. Acacia stock tumbled around 40 percent this week.
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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