Strengths
- The best performing metal this week was silver, up 1.57 percent with money managers raising their net long position by about 20 percent. The number of gold bulls outnumbered the bears for a third straight week, according to the Bloomberg survey of gold traders and analysts. Turkey increased its gold reserves overall in the month of November to 18.16 million ounces, up from 17.79 million in October. Kazakhstan also boosted its gold reserves last month to 12.28 million ounces, up from 12.13 million in October.
- Russia has taken steps to potentially limit gold exploration, which could be positive for the gold price with tighter supply. The Natural Resources Ministry will not raise the threshold for deeming a gold field strategic, leaving the number at 50 tons. Bloomberg reports that the Russian government can seize a gold mining license for a deposit from a company if exploration shows reserve exceed 50 tons – this should limit exploration by non-Russian companies. Australia hopes to dethrone China as the world’s top gold producer in 2019. Currently in the number two spot, Australia has seen gold production increase from 302 tons in 2017 to 322 tons in 2018, and expects to mine 337 tons by year end.
- Bloomberg reports that Alamos Gold intends to buy back 10 percent of the public float of its common shares, or 28.8 million class A shares, over the next 12-month period. QMX Gold Corp announced that Eldorado Gold Corp will make over a $4 million investment in the company in a private placement. Eldorado’s holding in QMX will be nearly 20 percent.
Weaknesses
- The worst performing metal this week was palladium, down 3.93 percent on what appears to be profit taking from a more than 50 percent gain in price this year. Although Turkey’s gold reserves were up for the month of November, they fell in the week ended December 13 by $840 million from the previous week. GDP in Ghana grew by 5.6 percent from a year earlier, slower than the 5.7 percent in the previous quarter. Bloomberg reports that the slowdown is mainly due to a 19 percent contraction in annual gold output and processing for value addition. The West African nation overtook South Africa earlier this year to be the continent’s biggest producer of the metal.
- De Beers announced that its diamond sales this year fell by almost $1.4 billion – capping a very bad 12 months. Bloomberg writes that there has been little good news this year for the diamond industry as an oversupply of rough diamonds hurt prices. In November the company cut prices across the board by 5 percent.
- A security contractor was killed in an armed attack at a Harmony Gold Mine in South Africa. The company reported that no gold was stolen during the attack. Bloomberg reports this was the second incident in just a few months with a security officer killed and 17 kilograms of gold stolen from DRDGold’s Ergo plant in the country in October.
Opportunities
- On Wednesday, Comex gold open interest rose close to a record high seen in November. ABN Amro Bank NV strategist Georgette Boele said investors “are opening positions because they hope or think that we have seen the low” for gold prices. Bloomberg reports that even though global stocks are close to all-time highs, several risks remain such as the yet to be finalized U.S.-China trade deal, President Trump’s impeachment and Brexit. Investors have flooded into gold in 2019. Long-only ETFs focused on gold have gained almost $18 billion so far this year, the most since 2016. Nitesh Shah, director of research at WisdomTree, says political turmoil in Washington may spur more interest in gold as safe haven demand.
- Conor Sen, portfolio manager for New River Investments, wrote in a Bloomberg opinion piece this week that the U.S. dollar might finally be poised to weaken. Sen writes that if the dollar’s rally does come to an end, it could push the global economy into higher gear in 2020. “A rebound in commodity prices could contribute to a new cycle of global investment. Higher import prices should put upward pressure on domestic prices, helping the Fed hit its 2 percent inflation target.”
- Equinox Gold Corp is acquiring Leagold Mining Corp for $586 million. Bloomberg reports the deal would expand Equinox’s production to 700,000 ounces in 2020, with the new company operating six mines in the U.S., Mexico and Brazil. This is another example of a major producer picking up a junior with one large deposit. With a need to replenish reserves, we could see more juniors being acquired by the majors. Sean Boyd, CEO of Agnico Eagle Mines, told Bloomberg in its 2020 outlook that “the greatest challenge for the industry is replenishing reserves.” CEO of Barrick Gold Mark Bristow said that “more mining consolidation is still needed, especially in the gold sector.”
Threats
- Fedex Corp. saw its shares plunge this week after cutting its profit forecast for the second straight quarter. Bloomberg reports that the retail giant Amazon.com Inc. ended most of its business ties this year as the online retailer is building out its own delivery network. This is yet another sign of consolidation hurting a longtime industry player, similar to what happened to Dean Foods after Walmart created its own milk production, resulting in Dean’s bankruptcy.
- In a bad sign for the economy, Bloomberg reports that personal income has been falling since March and real earnings have been falling since February. Disposable income was taken up largely by housing and medical costs. Additionally, November headline retail sales were less than half of what the consensus projected, rising just 0.2 percent, compared with an estimate of 0.5 percent.
- The Endeavour Mining Corp and Centamin Plc deal is looking unlikely to make the December 31 regulatory deadline. Endeavour suggested that Centamin seems unwilling to explore the benefits of combining the two Africa-focused gold producers, reports Bloomberg. Under the U.K. takeover code, if the end of year deadline passes then Endeavour won’t be able to bid again for six months. This is called a “put up or shut up” takeover timetable.
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