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Swot analysis: gold's biggest weekly loss in three years

Commentaries & Views

Strengths

  • The best performing metal this week was palladium, down 3.39 percent. Although gold, and all the precious metals, suffered a bad week due to optimism surrounding a U.S.-China trade deal, it did recover slightly on Friday after President Trump said there would not be a full rollback of tariffs. Platinum prices hit a five-week high on Monday after its longest run of gains since April. Palladium has attracted more attention this year as it is up around 44 percent; however, investors are now paying increased attention to platinum.

  • Turkey’s official gold reserves rose $522 million from the previous week to now total $27 billion as of November 1. According to central bank data, Turkish gold reserves are up 42 percent year-over-year.

  • South African gold miner Heaven-Sent Gold Group Co. is set to begin trading in Hong Kong on November 25. The company owns two mines in South Africa and will be the first gold miner initial public offering (IPO) in Hong Kong in more than a year.

Weaknesses

  • The worst performing metal this week was silver, down 7.18 percent. Gold had its biggest weekly loss in three years as progress in the U.S.-China trade war hurt demand for safe haven asses. The yellow metal fell nearly 4 percent for the week and silver lost over 7 percent. JPMorgan and Citigroup both closed out long bets on gold citing easing geopolitical tensions and synchronized monetary easing.

  • China has halted its 10-month gold buying spree. The People’s Bank of China, which purchased over 100 tons of gold from December to September, kept holdings at 62.64 million ounces from September to October. Gold imports by India fell for a fourth month to 20.8 metric tons in October, down 46 percent year-over-year. Bloomberg reports that the figure is a small improvement from 13.5 tons in September. Higher gold prices and a weak Indian economy are hurting demand in the world’s second largest consuming nation.

  • De Beers, the world’s biggest diamond producer, cut diamond prices by 5 percent at its November sale, reports Bloomberg. The diamond industry is suffering from an oversupply of polished gems, which has hurt prices.

Opportunities

  • Several major gold miners have boosted dividends as they work to cut costs and consolidate operations in the midst of higher bullion prices. Barrick Gold raised its dividend by 25 percent, Kirkland Lake Gold raised its quarterly payout by 50 percent and B2Gold Corp announced its first ever dividend, reports Bloomberg. Stephen Walker, RBC Capital Markets’ head of global mining research, said in a phone interview that “the ability to return a portion of excess capital to shareholders” is evidence of their improved cost performance.

  • Liberty Gold Corp. announced strong drill results this week at its Black Pine Project in Idaho. The company reported 3.4 grams per ton oxide gold over 62.5 meters and 6.21 grams per ton of gold over 21.3 meters. President and CEO Cal Everett said “the results to date, combined with modeling of historic results, continue to support our premise that Black Pine hosts a multi-million ounce gold system.”

  • Macquarie, an Australian bank, wrote in its latest report that gold is likely to stabilize around $1,400 an ounce in 2020 before rallying to $1,600 an ounce in 2021. Although gold faces potential headwinds of global growth improving or stabilization of geopolitical turmoil, the bank says prices should be supported by ongoing central bank buying and increased long-term investor allocations. Strategists wrote that “investors worldwide have already substantially boosted their exposure to the metal, net-length in CME futures and ETF holdings are oscillating around all-time highs.”

Threats

  • Barrick Gold Corp is fighting a $1 billion tax bill tied to the 2015 sale of its 50 percent interest in the Zaldivar copper mine in Chile to Antofagasta. Bloomberg reports that Barrick said it is appealing a determination by the Chilean tax authority that a subsidiary wrongly deducted a loss from an inter-company transaction in an effort to offset capital gains tax on the sale of that mine.

  • A convoy transporting workers of Canadian gold producer Semafo Inc. in Burkina Faso was attacked on Wednesday and killed at least 38 people. An ongoing conflict in the West African nation has displaced more than half a million people and has led to an increase in violence. This attack was the third in the past 15 months for Semafo and occurred just 25 miles away from a mine site.

  • The total amount of negative-yielding bonds globally dropped to $12.5 trillion, the lowest since July, after rates on French and Belgian securities rose above zero percent, reports Bloomberg. The improving relationship between China and the U.S. could be a factor driving bond yields up. A lower amount of negative-yielding debt is bad news for the price of gold, since it raises the appeal of bonds as an asset class.
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