Political Risk Building into the Gold Market? The Holmes SWOT

By Frank Holmes – CEO and Chief Investment Officer, US Global Investors


  • The best performing precious metal for the week was palladium, up 5.49 percent.  Citigroup forecast that platinum could see a deficit of 172,000 ounces in 2016, but palladium’s deficit could be short by 847,000 ounces, thus the group is more bullish on the later.
  • Esturo Honda, who according to Bloomberg News has emerged as a matchmaker for Prime Minister Shinzo Abe in finding foreign economic experts to offer policy guidance, is opening his ears to Ben Bernanke.  In April, Bernanke noted that helicopter money, in which “the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them,” could work as the strongest tool to overcome deflation, says Honda.
  • Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, says there is political risk building into the gold market, including the Italian referendum and U.S., French and German elections. Blanch adds that in the past, gold used to be driven more by the U.S. dollar and commodity market movements, but “in this day and age, it’s a new world.” He also mentions that one-third of government bonds are yielding negative. The chart below shows that $9.2 trillion of sovereign bonds are trading with negative yields.


  • The worst performing precious metal for the week was silver, down -2.97 percent.  With silver generally more volatile than gold, a strong rally in stocks, up 10 of the last 11 days and with new record highs, had investors chasing returns in the broader market.
  • Gold traders and analysts are bearish for the first time in four weeks, reports Bloomberg. The precious metal headed for its first back-to-back weekly decline since May, with gains in equity markets and the dollar hurting prices. David Meger, director of metals trading at High Ridge Futures in Chicago, says that the dollar’s strength continues to pressure most commodities, gold in particular. “Safe-haven demand has been diminishing, obviously with equity markets moving to new record highs,” Meger said.
  • A group of armed men stormed one of Agnico Eagle’s mines in northern Mexico early Tuesday morning, reports the Canadian mining company, injuring a security guard and making off with a haul of gold and silver. Last April a similar situation occurred when armed men entered McEwen Mining’s El Gallo 1 mine in northern Mexico, reports Reuters, even though thefts within mines are “relatively rare in Mexico.”


  • The World Gold Council and the Accounting and Auditing Organization for Islamic Financial Institutions are drafting new standards for investing in gold to comply with Sharia law, reports an Energy and Capital article. If the proposals for the changes (expected in the fourth quarter) are accepted, a flood of new investors could help send gold prices soaring, the article continues. A similar situation took gold prices to $1,900 in 2011 when surging demand came from China following the government’s urge for its citizens to own the yellow metal.
  • With the U.S. presidential election seen as the next big catalyst, Bill Beament of Northern Star Resources believes that gold’s rally is set to endure, reports Bloomberg. He says the overall trend is up and that “the U.S. vote will have more of an impact on bullion than the U.K. referendum.” The IMF also scrapped its forecast for a pickup in global growth, the article continues, yet another positive for gold.
  • Commerzbank raised its year-end gold estimate by $100, reports Bloomberg, to $1,450 an ounce. Similarly, DBS Group Holdings says that gold is in a major bull market and could surge past $1,500 an ounce as “low interest rates buoy demand and the U.S. presidential election looms.” The long-term gold price has been adjusted higher at Numis Securities as well, up to $1,400 an ounce from $1,350 an ounce.  While it’s good to see the street starting to take their price forecast higher for gold, investors should remain disciplined as the late summer can be a seasonally weak period for prices and many of the expected price targets being raised are capitulation moves to higher price levels.


  • According to data compiled by Bloomberg, investors pulled $793 million out of SPDR Gold Shares last week, the most since November. As Citigroup’s U.S. Economic Surprise Index rose to its highest since January 2015 (a sign of an improving economic outlook), demand for ETFs backed by gold has diminished some. Holdings in gold-backed ETFs around the world fell 3.9 metric tons last week, reports Bloomberg.
  • Sovereign gold bonds issued in India were trading at a 27-percent premium over the fixed price when the bonds were first issued in November, reports LiveMint. Prices of physical gold have risen 23 percent during the same period. According to the article, “Investors get a fixed interest rate of 2.75 percent per annum on these bonds over and above the capital gains that may accrue if the price of gold rises in the spot market.” The gold bonds are part of the government’s gold monetization efforts aimed to “wean the public off physical gold.”
  •  Will gold miners maintain their capital discipline? Bloomberg reports that as the price of gold rises to its best first half of the year in nearly four decades, earnings reports could indicate that miners are preparing to ease in terms of spending. “Historically there’s been a very high correlation, almost a one-to-one correlation, between costs and the gold price, implying that with higher gold prices you will likely see costs rise at the same time,” Josh Wolfson of Dundee Capital Markets said. Wolfson added that a majority of miners structured spending based on the assumption that gold will trade between $1,100 and $1,150 an ounce.  Let’s hope the miners learned something over the prior three painful years of falling gold prices.

Indian summer for gold and silver. Can it go on?

Indian summer for gold and silver.  Can it go on?

By: Lawrence Williams

According to the latest official figures out of India, gold and silver imports during November were enormous – right back to the kinds of levels seen when India, not China, was the world’s largest gold importer.  Indeed real figures will have been even higher – particularly for gold.  Although some import restrictions have been eased by the government (the withdrawal of the 80:20 rule whereby 20 percent of the volume of imported gold had to be re-exported) there will still have been a substantial amount of smuggled gold coming in to bypass the 10% import duty which is still in place.  Indeed the official import figures had been rising very sharply before this restriction was lifted after dipping enormously early in the year to a fraction of previous level.

The official gold import figure for November is thus 148 tonnes – the highest level since May 2013 and back then traders had been stocking up ahead of the telegraphed 10% duty imposition.  One can see the huge impact on Indian gold imports as a result of the government restrictions, imposed because gold imports were a huge factor in an unacceptable Indian Current Account Deficit, by checking out the chart published below which we have taken from Koos Jansen’s article on the latest Indian gold and silver import figures published on www.bullionstar.com.  Do click on this link direct to the article to view Koos’s opinion on this and for the silver imports chart too – more of which later.

Koos India 1

148 tonnes of gold is worth around US$5.7 billion at current prices so imports at this kind of level are very significant to a country already running a Current Account Deficit, which it has been trying to bring down to help arrest the fall in the value of the rupee.

Jansen puts official gold imports into the nation as running at 745 tonnes year to date suggesting a year end figure of 800 tonnes plus.  But add to this smuggled gold.  Some estimates of smuggled gold into the nation put this as high as 300-400 tonnes.  The World Gold Council puts the figure at a more conservative 200 tonnes but India’s own Directorate of Revenue Intelligence is reported as estimating gold smuggling at 500kg a day with less than 1% being intercepted.  This estimate was made in late 2013 and there are indications that the figure could be even higher in 2014.  So the suggestion is that Indian gold imports (including smuggled gold) could be in the region of 1100 to 1200 tonnes this year – much on a par with Chinese imports which are probably a little higher.  Jansen, again, puts the likely Chinese figure at around 1,300 tonnes plus this year.  Chinese total demand (excluding possible Central Bank purchases) is seen as reaching over 2,000 tonnes with the balance made up from its own new mined production (around 430 tonnes) and scrap and recycling making up the balance.  There is some argument as to whether there is, or is not, some double counting relating to recycled gold going through the Shanghai Gold Exchange, the source of the overall Chinese gold demand figures, but if so it may not be very significant with total scrap supply seen as being around 200 tonnes.

For the follower of gold fundamentals it thus appears that Chinese and Indian demand between them pretty well account for total global new mined gold supply on their own.

For India now the big questions are a) whether imports will continue at this kind of level and b) will the government revert and re introduce new gold import restrictions?  This observer thinks the answer to both is no – at least for the moment.

The big October and November surges coincided with the major Indian festival of Diwali and the start of the festival season in earnest and the beginning of the Indian wedding season, all of which are heavily associated with gold gifting.  This all starts to wind down after the year end and we should see a sharp fall in official imports in Q1 next year as trade returns to a more normal flow.  If the Current Account Deficit is then seen as getting under control again there may not be a necessity to reintroduce additional restrictions – indeed there has always been an intimation since the election of the new Modi Government that even the 10% import duties might be reduced.  The Reserve Bank of India would likely be against this but they would bow to the wishes of the Administration, as we saw when the 80:20 rule was dropped.

And what of silver?  Although also subject to the 10% import duty Indian silver imports have also been huge, both for jewellery and for general industrial usage.  Silver imports are largely ignored by the media but Koos Jansen, yet again, does much more research into such matters.  He points out that India’s silver imports in November alone were an enormous 1,254 tonnes and total imports are headed to over 7,000 tonnes this year (6,789 tonnes so far).  But unlike gold where Indian production nowadays is minimal, India does mine an important amount of silver, largely as a byproduct of its lead/zinc mining industry.  Last year its new mined production was just over 370 tonnes, so adding this to this year’s likely silver imports suggests Indian 2014 consumption could be as much as 8,000 tonnes – or nearly one-third of global new mined silver output.

Recently analysts at HSBC suggested an 11 million ounce silver supply deficit next year, so as for gold silver fundamentals are beginning to look better and better – but whether these factors will impact positively on prices for either precious metal remains to be seen.  Control still seems to be in the hands of players of the COMEX and LBMA futures markets.