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Gold SWOT: Goldman targets gold at $2,300 next year

Commentaries & Views

Strengths

  • The best performing precious metal for the week was platinum, off just 0.23 percent on positive price forecast. Spot gold rose as much as 1.5% on Tuesday, recouping some of its losses from Monday after positive news of a coronavirus vaccine was released. The yellow metal also rose on Thursday and appears to have steadied after the dollar fell on news that COVID-19 cases are surging in the U.S.

  • Russia’s finance ministry is proposing allowing its sovereign wellbeing fund to invest in precious metals, according to a draft amendment of the law published on the government’s website. Russian giant Polyus said the prefeasibility for Sukhoi Log, the world’s largest untapped gold deposit, shows annual production of 2.3 million ounces at a cash cost of $390 per ounce, reports Kitco News.

  • In more Russian news, the country’s most expensive ever diamond – a 14.83-carat pink gem – was sold for $26.6 million at Sothbey’s in Geneva this week. The diamond was discovered by Alrosa PJSC and named “The Spirit of the Rose”.”

Weaknesses

  • The worst performing precious metal for the week was palladium, down 6.76 percent, tumbled this past Wednesday by nearly 6 percent on little headline news for the day. Gold ETFs had the biggest weekly outflow since March as the prospect of a coronavirus vaccine hurt demand for the haven, reports Bloomberg. Investors sold at least 18 tons of bullion from ETFs this week.

  • The London Bullion Market Association (LBMA) sent a letter to countries with large gold markets threatening to blacklist them if they fail to meet standards on money laundering and responsible gold sourcing, reports Reuters. The letter says nations that don’t declare support for LMBA standards by December 11 and share plans on how to implement them by the end of January won’t be able to supply LBMA-accredited refiners. This is the latest initiation to crack down on illegal or unethical gold trading.

  • SSR Mining cut its gold production forecast for its Seabee mine for the fiscal year. Production for the third quarter was down 37% year-over-year of 20,249 ounces. Despite the negative news, its stock rose as much as 10% in intraday trading on Thursday due to its start of a 5-cent quarterly dividend policy.

Opportunities

  • UBS Group sees platinum at $1,150 an ounce by the end of 2021 due to a resurgence of industrial activity and supply disruptions at Anglo Platinum’s converter plant. UBS also still believes that gold could trade to $2,000 an ounce in the coming months on expectations of another U.S. stimulus package.

  • Goldman is also bullish on gold. The bank is targeting gold at $2,300 an ounce next year due to reflation pushing near-term real rates lower. Analysts said in a report that gold is primarily bought as a hedge against dollar debasement, and the bank expects its to be more sensitive to short-term real rates, akin to currency markets.

  • Endeavour Mining Corp is in talks for a potential merger of equals with rival Teranga Gold Corp as it seeks to build scale. Bloomberg reports Endeavour is considering an all-stock purchase and may offer a low premium for Teranga, which has seen its stock surge 87% so far this year. This is a positive sign with more potential for deal-making in the industry.

Threats

  • Diwali began this week but record high gold prices in India could erode demand for jewelry. Festival season in the world’s second largest gold consuming country is usually a strong time for gold buying in the form of jewelry. Record prices and the ongoing pandemic will likely hurt sales this year.

  • Quarterly 13 F filing released over the coming days could show that big investors have sold gold positions in the quarter ended September 30. Bloomberg speculates that after bullion peaked above $2,000 an ounce August and then backtracked to below $1,900, big money managers could have sold their gold or gold mining stakes.

  • Last week Wall Street legend Bill Miller said he strongly recommend bitcoin, and this week Stanley Druckenmiller revealed he now owns bitcoin. Forbes writes that Druckenmiller, after made headlines last week for his bearish views on the U.S. dollar, said he expects his bitcoin bet to "work better" than gold, though he holds a gold position that is "many, many more times" larger than his current bitcoin holding.
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.