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SWOT Analysis: Trump's Latest Fed Picks Could Be Positive For Gold

Commentaries & Views

Strengths

  • The best performing metal for the week was palladium, which gained 2.11 percent as the market remains undersupplied with implementation of tougher emission standards in China. A Bloomberg survey of traders and analysts turned bullish for next week’s price expectations. Gold recorded its best monthly advance since June 2016, reports Bloomberg, although admittedly the U.S.-China trade tensions could test demand. In addition, American Eagle gold coin sales rose 25 percent to 5,000 ounces in June from a month earlier, according to U.S. Mint data. The Perth Mint also released figures this week showing gold coin and minted bar sales were 19,449 ounces in June, up from 10,790 ounces in May.

  • Despite gold prices falling back on Monday, sinking by the most in two years, that didn’t stop investors’ commitment to the yellow metal. Inflows into bullion-backed exchange-traded funds (ETFs) kept coming, writes Bloomberg, with holdings expanding for 16 of the last 17 days. This brought net purchases to over 3.22 million ounces. Commodity ETFs also saw inflows, with around $5.6 billion going into raw material funds this month, “the biggest influx in almost three years,” Bloomberg explains, while gold rallied to a six-year high.

  • Poland’s central bank boosted its gold reserves, the bank said in a statement, bringing its holdings up by 100 tons to 228.6 tons. Joni Teves of UBS wrote in this week’s Global Precious Metals Comment that central banks look to remain gold buyers, but the pace could vary. Preliminary data shows that at least 29 tonnes of purchases came from the more active central banks—Russia, China, Kazakhstan, Turkey and Kyrgyz.

Weaknesses

  • The worst performing metal the week was platinum, which fell 2.83 percent, but nearly all the losses for the week came on Friday with the stronger-than-expected jobs report. Gold futures also fell on Friday as payroll gains in the U.S. “called into question expectations for the Federal Reserve to cut interest rates.” Government data showed payrolls climbing 224,000 in June.

  • President Donald Trump said he would hold off imposing an additional $300 billion in tariffs, reports Bloomberg, and the world’s two largest economies agreed to resume negotiations. This truce hurt demand for haven assets, the article continues, sending gold lower by 1.8 percent to $1,384.06 per ounce—the biggest drop in a year.

  • Factory activity across Asia and Europe shrank in the month of June, while the U.S. showed only minimal growth, reports Bloomberg. Due to fresh strains on the economy (in the form of purchasing managers’ index data), however, gold rebounded from its biggest decline in more than two years. A global measure of activity showed a second straight contraction, which is the first time this has happened since 2012.

Opportunities

  • Some big names are backing gold this week—veteran investor Mark Mobius is one of them. As reported by Bloomberg, Mobius says that gold is set to push higher, potentially topping $1,500 an ounce, as interest rates head lower, central banks extend purchases and uncertainty surrounding geopolitics and cryptocurrencies fans demand. Strategists from Societe Generale are also looking at the yellow metal, particularly in the form of gold miners. In a note to investors, the strategists explain that gold equities tend to outperform physical gold through every cycle and have further to run. In addition, UBS raised its gold forecast to $1,450 on both trade and geopolitical risks.

  • President Trump’s latest “dove” picks to the Fed’s board could be positive for gold, reports Bloomberg. The two economists are both seen as likely to support the president’s call for lower interest rates, the article explains. In addition, weaker-than-expected U.S. payrolls and service industry data overshadowed a decline in jobless claims. Robin Tsui, Asia Pacific gold strategist with SPDR ETFs, says there are several bullish factors for gold right now. “There’s a lot of momentum trading right now into gold,” Tsui explains. “It’s definitely good as a hedge against all this uncertainty, as portfolio insurance, and as the ultimate safe haven.” UBS is raising its palladium forecast, analyst Giovanni Staunovo said in a note this week. Both six- and 12-month palladium forecasts raised to $1,600 an ounce from $1,500 an ounce previously, as prices move back toward records and the market remains undersupplied, Bloomberg reports.

  • According to an official filing, and as reported by Bloomberg, B2Gold and Calibre Mining announced that Calibre will acquire El Limon and La Libertad gold mines. Calibre will also acquire the Pavon Gold Project and additional mineral concessions in Nicaragua for an aggregate consideration of $100 million. B2Gold will own an approximate 31 percent direct equity interest in Calibre following the completion of the deal. In addition, Calibre announced a concurrent C$100 million equity financing. The management team at Calibre has a history of surfacing value from deals they have structured.

Threats

  • In an interview with Reuters this week, Governor Elvira Nabiullina said that the Bank of Russia has introduced discounts for purchasing gold to spur miners to export more of the precious metal. Previously, sellers were seeking to sell all gold to the central bank, reports Bloomberg. The discount should balance Russia’s domestic and export sales, with more now being offered to international buyers.

  • India’s Finance Minister Nirmala Sitharaman says that the finance ministry has received representations for reduction in basic customs duty on gold, Bloomberg reports, including from the trade ministry in the past. Such recommendations are examined as a part of the budget exercise. UBS’ Joni Teves reports that India raised its duties on gold to 12.5 percent from 10 percent during the Union Budget on Friday. Similarly, the tariff for silver dore was raised to 11 percent from 8.5 percent. The increase comes as a surprise “considering that expectations heading into today’s announcement were for a potential cut in import taxes.”

  • Recent issues with OceanaGold’s Didipio mine in the Philippines have intensified, reports CIBC Capital Markets. The governor of the Nueva Vizcaya province has ordered local authorities to restrain any of OGC’s activities at the operation. “As a result, a local government unit blocked a supply truck from reaching Didipio, and OceanaGold has now suspended all heavy truck movements to prevent any further escalation,” the CIBC report continues.
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