Will Gold Find A Better Environment to Move Higher? – The Holmes Gold SWOT

Strengths

  • The best-performing precious metal for the week was palladium, down slightly by 0.41 percent. In an overall down week for the precious metals sector, palladium remained flattish.
  • Following the release of disappointing U.S. economic data Friday morning, which reduces the chance of a rate hike next week, gold rebounded from near two-week lows (although still on track for its first weekly loss in three), reports Reuters. “Once past the FOMC, gold may find a better environment to move higher,” said Michael Armbruster, principal and co-founder at Altavest. “In the big picture, even if the Fed raises rates twice more a total of 50 [basis points], real interest rates will remain negative—a very bullish environment for gold.”
  • Copper posted the biggest gain in nearly three months, reports Bloomberg, as strong economic data from China fueled speculation that demand will strengthen in the country. Factory output, investment and retail sales all exceeded analyst estimates in the Asian nation. On the London Metals Exchange copper for delivery in three months rose 2.6 percent mid-week, the biggest increase since June 15, the article continues.

Weaknesses

  • The worst-performing precious metal for the week was platinum, down 4.18 percent. According to Bloomberg, platinum experienced a seventh week of losses (the longest run since 2013). John Meyer, an analyst at SP Angel Corporate Finance LLP, says investors are losing interest in both platinum and palladium on concern that the popularity of electric cars, which use less platinum and palladium than gasoline-fueled cars, will cut into demand.
  • Reports that U.S. inflation pressures are rising, with a rise in monthly inflation seeing its biggest jump since February, sent the U.S. dollar higher on Friday. Gold, which has an inverse relationship with the greenback, drifted lower on the news. “This continues the tennis match between bulls and bears, hawks and doves over whether or not the Fed will raise interest rates next week,” said Colin Cieszynski, chief market strategist at CMBC Markets.
  • Although 2016 started with a bang for commodities, the year could end with a whimper, reports Bloomberg. The Bloomberg Commodity Index is heading for a third-quarter slump after posting consecutive gains for the first two periods, the article continues. Investors pulled $791 million out of ETFs tracking commodities over the past month and hedge funds have cut their combined wagers on a rally for raw materials in nine of the past 11 weeks.

Opportunities

  • David Mazza, head of ETF and mutual fund research at State Street Global, doesn’t believe a rate hike in the U.S. will spoil investors’ appetite for gold, reports Bloomberg. “We’re still going to be in an environment where rates in the U.S. are still very low,” Mazza said. In fact, holdings in gold-backed ETFs are heading for a third quarterly gain, the longest streak since 2012, despite the rising odds of a rate increase, according to data compiled by Bloomberg.
  • Barrick Gold Corp. has turned to tech giant Cisco Systems Inc. to help digitize its global mining operations, reports Bloomberg. “We mean to create value and push the boundaries of our industry in entirely new ways,” Barrick Executive Chair John Thornton said. A flow of real-time data should help cut costs and wring additional value out of its existing mines. As seen in the chart below, Barrick’s debt is down 43 percent to $9 billion from a 2013 peak, with most of the heavy lifting done by Thornton, Bloomberg continues.

bswot

  • Klondex Mines announced this week its decision to put its underground True North Gold Mine in Manitoba, Canada, back into full production, reports Mining.com. This will be Klondex’s third operational mine and President and CEO Paul Huet sees it delivering “significant value” to shareholders. The positive production decisions estimates annual production at True North at 45,000 to 65,000 ounces of gold.

Threats

  • With the Federal Reserve’s interest rate decision due next week, some gold investors are getting a bit nervous, reports Bloomberg. Cohen & Steers Capital Management, for example, was overweight in the yellow metal until last week when it decided to pare its gold allocation. In fact, over the past week, investors pulled $698 million from SPDR Gold Shares (taking holdings to the lowest since June), the article continues.
  • Barrick Gold Corp. announced temporary suspension of operations at its Veladero mine in Argentina on Thursday, pending further inspections of the mine’s heap leach area. A new spill was confirmed in the area, but Barrick reported that no solution from the damaged pipe had reached any water diversion channels or watercourses. The impacted area has now been remediated. The company does not expect the incident to have a material effect on its 2016 operating guidance for the mine.
  • In South Africa, one of the biggest producers of gold, 60 mining deaths this year (through August) were reported, according to the Chamber of Mines, up 20 percent from the same period last year. Finding minerals is becoming more and more deadly in the country, reports Bloomberg. The annual tally is heading for its first increase in nine years, the biggest in at least two decades.

 

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Best read gold article 10 months old!

The power of the internet:  The best read story on Mineweb.com on Thursday with well over 2,000 page views was one I wrote titled Gold to fall to $1,100 then skyrocket – silver, platinum in behind.  With the gold price having been knocked back to the $1,150s with the potential for moving down further, one might say the article was perhaps timely  – but if one looks at the date of the article it was written on May 26th last year.  I suppose it could be seen perhaps as relevant today as it was nearly 10 months ago – it’s possibly just that the timing was out.  In the article I was reporting on a piece of Elliott Wave analysis which was then suggesting that a gold price fall to around $1,100 would probably take place over the following 3-4 months and that the bullion price would have begun its huge upwards surge by the end of 2014!

However as recently pointed out by GATA’s Chris Powell, perhaps such technical analysis has lost its value and relevance in these days where he sees the market as being manipulated by those who have a vested interest in controlling the prices of precious metals – notably central bankers, governments and their mega bank allies.  The analysts who came up with the research, and its conclusions, might say that any manipulation there may be is only delaying the inevitable, but the big question is how long can this ‘inevitable move’ in the price pattern  be pushed into the future.  By the time we know it may well be too late to take advantage.

But, despite perhaps my best read article of the week on Mineweb being so dated, there have been others which I would commend readers of Lawrieongold to view if they haven’t already.  On Monday Mineweb published Knives are out for gold and silver – again which was looking at how quickly some bank analysts are keen to downgrade their price forecasts at the slightest blip in price.  To be fair any sustained increase in price will also see forecasts raised but it does rather devalue the predictive assessments of these analysts who have to try to ensure they don’t get the call wrong, thereby being reactive to price moves rather than having a genuine long term view.  One may quibble with an analyst like Jeffrey Currie at Goldman Sachs over his $1,050 gold price forecast, but at least he has been consistent in his views and doesn’t change them every time the price deviates upwards or downwards.

On Tuesday I published an article titled All is not well on the metals commodities front  which was looking at the general price malaise afflicting metals commodities virtually across the board and on Wednesday World top 10 gold miners face negative free cash flows which pointed out that in Q4 2014 the world’s biggest gold miners combined had moved from producing free cash flow to negative cash flow.  Thursday saw the publication of a report on a London presentation by Willem Middelkoop: Very positive on gold but silver the big favourite – MiddelkoopWillem runs a Dutch precious metals fund which primarily invests in pre-development gold juniors and is very much in the gold bull camp.

Finally today an article entitled Not another groundhog year for metals – Wrathall set out the Head of Investec’s Global Natural Resources team’s rather gloomy analysis of the mining sector looking ahead.  Indeed the only really positive sector of the industry he could see over the next couple of years was diamonds.  He reckoned that to an extent recovery in most mined commodities sectors was being adversely affected by the strong dollar and low energy prices which have enabled many operations, which might have shut down otherwise to stay open and thus not help alleviate the global oversupply situation which now seems to prevailing.

If you haven’t read these, do follow the links perhaps and do so now.  They do give an insight into current thinking on what is going on throughout the mined commodities sector which has been having a pretty hard time right across the board.

The beginning of the end for gold and industrial metals price falls?

Lawrence Williams

Or the end of the beginning? … Looking at mixed fortunes ahead for gold, iron ore and base metals – positive, flat to negative and slightly upbeat respectively.

Latest article by Lawrie published on Mineweb.com.  Go to Mineweb.com to read this and other articles on precious metals, base metals, industrial metals and minerals and mining of all types.

The title of this article could be taken two ways, but our meaning in using it – courtesy of London metals and mining commentator David Hargreaves’ Week in Mining newsletter, which used aspects of the famous Winston Churchill wartime quote in its title and conclusions this week – is that are we perhaps actually nearing the bottom of the prices downturn virtually across the board in resources?

As the newsletter points out –  the Brent crude oil price has fallen through $50/bbl, iron ore is staring down the abyss, copper has a look of testing $6,000 per tonne on the downside, while gold has picked up to $1,200 plus etc.

In currencies, the US dollar continues its rise against all, or at least most, others, with the Euro testing nine-year lows. The Eurozone has moved into deflation as the forthcoming Greek elections could put in power a political party which could well implement a default on the country’s debts and lead to Grexit – the possible Greek exit from the European Union.

Further on the geopolitical front, Islamic fundamentalist-inspired terrorism has hit the headlines again with the Paris shootings at the Charlie Hebdo offices, the totally unprovoked murder of a policewoman attending a traffic accident and subsequent hostage taking leading to more deaths.  Rhetoric from leaders of ISIL, which now dominates large swathes of Syria and Iraq, preaches extending Paris-type events to other Western nations and calls for new attacks on airlines.  All very disturbing for a mostly rather less volatile and less religiously committed Western World.

These French terror attacks are probably partly aimed at stirring up anti-Islamic feeling within the majority populations in Europe in particular as a way of polarising potential civil strife to the ultimate advantage of the extremist elements involved.   It is estimated that around 5% of the European population follows Islam, and in France, with its strong former colonial connections in mostly Muslim North and West Africa, the Islamic faith may account for as much as 10% of the population – a very sizeable minority indeed.  Political parties with an anti-foreigner agenda are springing up across Europe and this could escalate as the ‘faith’ polarisation becomes stronger and stronger.  Virtually all the Islamic faith followers in Europe abhor the French killings, but if these result in anti-Muslim retaliation (which they are beginning to) the prospect of alienating this very big minority of the European population, leading to ever more blood on the streets, is very real indeed.

While the Russia/Ukraine situation has stayed out of the headlines since the beginning of the year, recently completely overshadowed by the Paris events, it has not gone away.  There remains the prospect of new European sanctions against Russia, ostensibly over its annexation of Crimea, but as we pointed out in a recent article these sanctions are damaging to Europe too, and could become more so should Russia raise the retaliation stakes.  Also the Russia/Ukraine situation may be much more complex than most observers have been prepared to recognise.

See: 2015 Black Swans – or another BRIC in the wall

This plethora of problematical geopolitical events has the potential to further destabilise the European economy, which is already in recession and entering a prospective period of deflation.  The events represent an almost unprecedentedly disturbing start to the year and we have to hope against hope that they do not continue throughout 2015 or the consequences for global economic recovery could be dire.

To all this we have to add China.  While the forthcoming year of the sheep suggests a period of calm and prosperity in the Chinese Zodiac, the slowdown in the country’s economy suggests otherwise, although GDP is still said to be growing at a rate of around 7% per annum.  Because of its huge impact on global metals demand, the Chinese slowdown from double digit GDP growth, with the major mining companies gearing up to meet the kind of demand growth those figures suggested, has had a dramatic impact on demand for raw materials – particularly for iron ore and copper.  There is the suggestion that inventories have been run down and demand could pick up as the year progresses.  However there is no doubt that the Chinese building and construction sector is slowing which doesn’t hold out great hope for an iron and steel pickup, although for copper the expansion of the country’s high speed rail network could provide some much-needed stimulus.

But Chinese individual wealth has still been growing over the last several years.  This is showing up in terms of automobile imports which are continuing to rise.  China, for example, is nowadays Jaguar/Land Rover’s biggest market on the luxury car front.  While an economic slowdown – but probably not a recession – is on the cards, the economy is still growing at a rate which Western nations would love to see.  While the government is no longer looking for growth at almost any cost, it does seem to be prepared to help counter any prospective serious economic decline through lowering interest rates and other measures and perhaps the hard landing which some have predicted will thus be held off.

So where does all this leave us in terms of metals prices going forwards?  Stagnation in Europe and lower growth in China, perhaps slightly alleviated by a weak recovery in the U.S., may not be auspicious for iron ore, although we suspect it won’t fall much lower.  Copper, as the main element in the base metals picture is a slightly more complex situation to forecast.  Assuming China does need to rebuild stocks and continues to invest in electrically intense infrastructure development, and, with many analysts predicting a supply deficit in the current year, then the red metal could well be at or near its bottom and due for at least a weak recovery in price.

Gold is another matter altogether.  The price is still seemingly being controlled by activity on the futures markets, but the European travails could lead to rising safe haven demand as a wealth protector should the EU start to unravel, while Chinese demand looks as though it should remain strong throughout the year ahead.  Continuing strength in the US dollar against other currencies would normally mean a decline in the dollar gold price, but recently gold has been holding up remarkably well in dollar terms, which means it has been a very good buy in other currencies – notably the euro.

So what is the overall view in our opinion?  Oil – flat to weaker as long as Saudi Arabia continues to pump it at current rates; iron ore flat to weak also with the three biggest producers all having expanded capacity heavily over the past year, but with demand, particularly from China, at best stagnant for the time being; base metals perhaps slightly positive, but not significantly so; gold’s fundamentals continue to look good, but then they have for the past couple of years and the price has still tanked.  Overall though gold, and the other precious metals, on balance, should probably continue to see positive gains ahead with the possibility of a major kick upwards should additional geopolitical problems materialise, or current ones escalate.

Top 100 mining companies: Ugly at the top, not so ugly below – Kip Keen

It wasn’t a good year to be a big miner. Ranking the top 100 mining companies by market cap near year end and tabulating their 52-week share price performance tells the ugly tale (see below). BHP Billiton, still the world’s largest company, shed an astounding $31 billion or 27% of its market cap. The next seven names at the top were all losers. Rio Tinto and Glencore’s share prices were off by about eight percent; Vale’s dropped 41%; Anglo American’s was down 10%; Norilsk’s was down seven percent; Freeport’s shareprice slumped 37%; and Southern Copper ended close to, but not quite, the even mark.

In looking back on 2014, it’s not hard to account for the share price pain of the top miners. Last year was abysmal for iron ore, oil and coal prices – chief commodities for many of the diversifieds. Meantime, investor sentiment toward the miners and their prospects seemed to reach new lows. In the past couple years, there was a great deal of shuffling in mining management reflecting shareholder unhappiness with business plans, share price returns, thin cash flow and capital expenditure blow outs.The cratering iron ore price, especially, caught many in the market off guard. Though a decline in iron ore was bound to come, BMO mining analyst Tony Robson notes in an email, “most of us were thinking late 2014 or 2015, not early/mid 2014.” And he, as others, expected a “steady decline not a savage collapse”. An unprecedented gulf between supply (growing) and demand (slowing) emerged in 2014, one that is by many accounts here to stay…..

To read part 1 of Kip’s analysis click on Top-100-mining-companies-ugly-top-pt-1

And Part 2:

If 2014 was a dismal year for many in the mining sector – especially in bulk commodities – there were bright spots and, in many cases, strong performances.

Those more heavily weighted to base metals had pretty strong showings. While the price of copper didn’t do much in 2014, it held steady at least, while zinc and lead prices climbed somewhat. This was evident in share prices. Lundin (65) was up 18%. Hudbay (86) gained 13%. And Hindustan Zinc (17) climbed 30%.

Meantime, the integrated aluminium producers/miners rebounded in 2014 after some hurtful years of plummeting aluminium prices. Notably, Alcoa (10) was up 47% and Rusal (19) 135% in the past year.

And even gold companies didn’t have that a terrible year overall. If the majors had a rough go of it (e.g. Barrick (13) down 33%) many fared quite well, posting decent rebounds and ending the year higher than they began it……..

To read Part 2 of Kip’s article in full click on Top-100-mining-companies-not-ugly-part-2