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SWOT Analysis: Gold Rises to an Historic High in Global Currencies

Commentaries & Views

Strengths

  • The best performing metal this week was palladium, up 7.97 percent on hedge funds boosting the net-long position to a 10-week high. Gold traders were bullish on their outlook for the yellow metal this week due to growing geopolitical tensions and the prospect of the Federal Reserve cutting rates, according to the weekly Bloomberg survey. Gold saw its fourth weekly gain.

  • Bloomberg reports that an ETF fund trader bought around $82 million worth of the iShares Gold Trust ETF, which was the fund’s largest block trade in almost two months. Central banks are also stocking up on gold. China has now added to its reserves for a sixth straight month. The People’s Bank of China has expanded its gold holdings by more than 70 tons since December. Turkey’s gold reserves rose $968 million from the previous week, according to central bank data.

  • In an array of different global currencies, gold has never been more expensive – from Australia to Brazil to Sweden. Bloomberg reports that hedge funds boosted their long position in gold bullion by the most in almost 12 years last week.

Weaknesses

  • The worst performing metal this week was silver, down just 1 percent on little news. Although gold is moving up, it has mostly pared its gains due to a stronger U.S. dollar. “The fact that gold has managed to trade over $1,340 is a positive sign for next week,” said Chintan Karnani, chief market analyst at Insignia Consultants. Gold touched 52-week highs on Friday, only to fall back down.

  • South Africa, once the world’s top producer, saw its gold output decline yet again in April and is now on a 19-month contraction streak. Bloomberg reports this is the longest streak of declines since the financial crisis a decade ago.

  • Who is now the top gold producer in Africa? Ghana. The small West African nation has dethroned South Africa to become the top producer on the continent as it benefits from lower cost mines, friendlier policies and new development projects.  Cardinal Resources could be a big beneficiary from the increased investments in projects in the country as their Namdini Project has 5.1 million ounces of proven and probable reserves, which is of sufficient scale for a major gold miner to have interest in its acquiring.

Opportunities

  • One policy both sides of the aisle are discussing? Managing the U.S. dollar. Senator Elizabeth Warren, who is running for president, says that managing the value of the dollar could help boost exports. President Donald Trump continues to slam the Federal Reserve for high interest rates, saying the euro and other currencies are devalued against the dollar. Historically, a weaker dollar has been positive for the price of gold.

  • A few notes from gold bulls this week. According to Rhona O’Connell, head of market analysis at INTL FCStone, gold may hit $1,400 an ounce this year as investors are looking to hedge risk. O’Connell says that “all the dominant asset classes have a question mark over them at the moment, which is generally when gold comes into play.” Billionaire hedge fund manager Paul Tudor Jones expressed his support for gold this week in a Bloomberg interview. Jones said if gold can reach $1,400, then it will follow to $1,700 shortly after. Edel Tully from UBS says that gold represents “insurance” against geopolitical risks surrounding the trade war.

  • Nikos Kavalis, director of research at Metals Focus, says that silver may hit $18 per ounce this year due to gold rising on the back of a weakening dollar and a Fed rate cut. “We maintain a cautiously optimistic outlook for silver and this is very much reliant on our expectation for gold." Agnico Eagle announced this week that it has offered to acquire Alexandria Minerals, which rose over 44 percent for the week.

Threats

  • The Trump administration’s urgency to end Fannie Mae and Freddie Mac’s conservatorships absent a clear guarantee of their securities, is worrying traders on Wall Street, reports Bloomberg. Credit rating companies, financial firms and real estate agents say such a move would be a disaster, as it might prompt big asset managers to curtail their bond buying. This in turn could dry up some of the financing that keeps the mortgage market humming, the article continues.

  • Financial concerns are affecting the mental and physical health of relatively wealthy Americans, according to a study by Bank of America Corp. Out of 1,000 respondents, 59 percent say financial concerns impact them mentally, while 56 percent say their physical health has been hurt.

  • The biggest union in South Africa’s platinum industry, the Association of Mineworkers and Construction Union, is demanding wage increases as much as 48 percent from producers in the world’s top supplier of the metal, reports Bloomberg. This sets up the state for a tough fight in upcoming pay talks. Now the producers are gearing up for the hefty demands, says Jana Marais, a spokeswoman for Anglo Platinum. “We expect another tough round of negotiations,” she explains. “Our employees’ disposable income has been under increasing pressure in a difficult economy, while the platinum industry also continues to face significant challenges.” In related news, Toyota has innovated to cut platinum use in its fuel-cell vehicles – breaking expectations that these vehicles can help offset the expected losses in PGM demand caused by adoption.
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