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Swot analysis: Citigroup just cut its three-month gold price target

Commentaries & Views

Strengths

  • The best performing precious metal this week was palladium, up 3.85 percent. Shipments of palladium from Switzerland to Hong Kong rose to a five-year high in October. In the weekly Bloomberg survey of gold traders and analysts, most respondents were surprisingly bullish on the yellow metal for next week, expecting further tension between the U.S. and China over Hong Kong. President of Serbia Aleksandar Vucic told reporters this week that it has the largest amount of gold in Serbia’s history and that it will continue to buy gold based on the direction the crisis in the world is moving.

  • The Federal Reserve Bank of Atlanta’s GDPNow tracking estimate for the fourth quarter was cut to an annualized 0.3 percent gain, which could breathe new life into gold, writes Bloomberg’s Joseph Richter. Gold can often move in the opposite direction of the market.

  • Alacer Gold reported a 28 percent increase in its resource estimate for the Ardich project after an exploration-drilling program. CEO Rod Antal said the resource of 816,000 ounces at Ardich “has grown into a significant discovery” and that they expect “the deposit will continue to grow with additional drilling.”

Weaknesses

  • The worst performing precious metal this week was gold, down 0.46 percent. Turkey’s gold reserves fell 941,000 ounces to 17.3 million in the week of November 15 – the largest drop in 14 months. AngloGold Ashanti Ltd. is working to resume operations at its Siguiri mine in Guinea after protests forced operations to close for three days, reports Bloomberg. A company spokesman for AngloGold says that talks with community leaders who are demanding a tar road be extended to their village have been productive.

  • Citigroup cut its three-month gold price target to $1,485 from $1,575 an ounce. According to the note, they are still bullish saying, that they “remain bullish bullion in the medium-term and still project fresh cyclical highs being breached by 2021.” South African gold miner Heaven-Sent Gold Group Co. has cancelled its Hong Kong IPO due to unfavorable market conditions, according to Reuters TFR. The company, which owns two mines in South Africa, would have been the first gold miner to be listed in Hong Kong in more than a year.

  • Sibanye Gold announced that it has ended its membership in the World Platinum Investment Council – a big move as Sibanye is one of the largest platinum producers. The council’s focus is on stimulating demand; however, Sibanye says that it should consider a basket of platinum-group metals, not just one.

Opportunities

  • UBS says that gold will outperform cyclical commodities in 2020 and that political uncertainty could send safe haven flows into the metal. In a report led by Mark Haefele, UBS says “muted economic growth and now lower interest rates reduce the opportunity cost of holding gold.” The report adds that since gold is priced in U.S. dollars, a weaker dollar could push gold prices higher, reports Bloomberg. A report from Norilsk Nickel says that global palladium demand is expected to increase 4 percent next year compared with 1 percent in 2019. According to the Union of Gold Producers in Russia, Russian gold production is expected to increase 6 percent to 350 tons in 2019.

  • Silver’s gains are surpassing those of gold for a second straight week. The gold-to-silver ratio is still historically high, but is down from the 26-year record high in July, according to Bloomberg data. Commerzbank AG analyst Daniel Briesmann says that “from this point of view, silver seems to be too cheap and undervalued.” Barrick Gold announced that it has agreed to sell its entire stake in Australia’s Kalgoorlie Mine for $750 million – a big move toward selling non-core assets to raise more than $1.5 billion by the end of 2020. The stake was purchased by Saracen Mineral, which already owns two operations in the same region. CEO Mark Bristow of Barrick says that “the sale allows us to further focus our portfolio on core operations.”

  • K92 announced strong drill results from its Kainantu gold mine in Papua New Guinea. The company recorded a drill hole of 288.73 grams per ton of gold and another hole of 107.55 grams per ton of gold. TriStar Gold also reported strong drilling results from its Castelo de Sonhos gold project in Brazil, including 24 meters at 1.1 grams per ton from 95 to 119 meters.

Threats

  • Ray Dalio’s Bridgewater Associations has bet more than $1 billion that stock markets will fall by March, according to people familiar with the matter. The Wall Street Journal reports that there has been a surge in put options outstanding tied to the S&P 500 index, hitting the highest level in more than four years. This is a sign that more investors are becoming increasingly bearish on the market, especially ahead of the 2020 presidential elections.

  • The world’s wealthiest investors are becoming more rattled and are looking for traditional security in the form of highly secured vaults. IBV International Vaults is opening its sixth location, this one in London, where the company will offer apartment-sized spaces for securing valuables. Swiss Gold Safe says it has seen extraordinary demand for safe-deposit boxes since it started offering them in 2015. Sincona Trading AG, a precious metals dealer in Zurich, said it had many empty safety deposit boxes three years ago, but now they are renting about five a day and will soon be full.

  • According to Research Affiliates, value stocks are trailing growth at a rate that falls within the worst decile in history. The disparity between the two has only been larger twice before – during the global financial crisis and for more than a year at the peak of the dot-com bubble. Rob Arnott, co-founder of the firm, says that although value stocks have been frustrating investors for a decade, now is the wrong time to bail on them. Most gold stocks would be considered value stocks at current prices, while exploration and development companies border on deep value.
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