Despite Worst Week For Gold Futures, ETF Inflows Continue

Strengths

• The best performing precious metal for the week was gold, losing slightly less than a half of 1 percent, followed closely by silver with just a 0.78 percent decline.  These metals largely stabilized following the prior week’s significant decline.
• This week’s combination of weak export data from China and talk of a rate hike from the Federal Reserve sent traders rushing into the safety of bonds, yen and gold on Thursday, reports Bloomberg. “China’s trade data below estimates is an overhang in the market, and from Europe, we’re hearing about a hard Brexit that’s making markets more jittery,” said Jeff Zipper, managing director of investments for the Private Client Reserve of U.S. Bank. The Chinese data boosted gold, but sent copper lower as it undermined the confidence in the global economy.
• Despite weak gold futures prices, inflows into gold ETFs continue to strengthen, as seen in the chart below. The worst week for gold futures in a year actually attracted ETF inflows, reports Bloomberg, adding that it “may take a substantial sentiment shift and persistently lower prices to dislodge gold holdings.”

• Nighthawk Gold reported drilling results this week, noting an intersect of 72.65 meters of 5.58 grams per ton gold at Colomac. According to the company’s press release, these results show that the zone continues uninterrupted down plunge and supports its continuity of mineralization to depth. The note also points out similarities between Colomac and Kalgoorlie by President and CEO Dr. Michael Byron—Kalgoorlie is one of the world’s largest Archean gold camps. An additional announcement by the company on Thursday reported that Kinross Gold has made a strategic investment in Nighthawk, and will hold approximately 9.5 percent of Nighthawk’s issued and outstanding common shares on an undiluted basis.

Weaknesses

• The worst performing precious metal for the week was platinum, with a fall of 3.50 percent. Palladium was almost as bad, with prices slipping 3.44 percent.  Mineweb noted that the dominant union in the platinum industry in South Africa may be looking to sign off on wage package, thus potentially avoiding a strike.
• According to Bloomberg, the Fed has put gold bulls on the defensive again. Investors cut their bullish bets last week, sending gold’s open interest (a tally of outstanding contracts) near a four-month low, the article continues. Traders are pricing in the odds of a rate hike by year end—at the end of September the chance of a hike by December rose to 68 percent. During the Fed’s latest meeting, several officials said a rate hike was needed “relatively soon,” reports Bloomberg, sending spot gold near a four-month low.
• Bank of America has its own thoughts on how investors and traders should use gold, as recommended in a note out this week. The bank writes to go long Italian shares, while shorting the yellow metal as a source of funds. Their reasoning? A 23-percent slump in Italy’s FTSE MIB Index this year has pushed the gauge’s valuation to a four-year low, reports Bloomberg, while the Fed prepares to increase borrowing costs.

Opportunities

• Klondex Mines reported positive updates on recent and historic exploration results at its Hollister Mine in Nevada this week, noting multi-ounce per ton intercepts. In 2014 and 2015, a total of 36 underground holes totaling 17, 998 feet were drilled by the prior owner of the Gloria zone and not previously released. According to Klondex, these holes encountered multiple veins and extended the Gloria vein approximately 800 feet to the West and around 300 feet vertically. Several members of the company’s team have significant experience with and knowledge of Hollister. Klondex President and CEO Paul Huet also commented on its 2016 production guidance: “Our third quarter production was in line with our mine plans as we advanced waste development at both Fire Creek and Midas. We have positioned ourselves to finish the year on a high note and remain on track to achieve our annual production guidance.”
• Ronald Stoeferle, managing partner at Incrementum AG, believes gold could climb to a record over the next two years, suggesting the yellow metal could reach $2,000 in 2018. According to Stoeferle, rising inflation and sagging confidence in the ability of central banks to revive global growth will drive prices higher, reports Bloomberg, also noting that inflation may “surprise to the upside” which would be good for gold.
• Historically, the months of September and October have been a good time to invest in gold, according to Unum Capital. In an email note, trader Rob Pietropaolo says that over time, the gold price has become quite predictable for a very specific reason. “September is typically the month when traders start buying ahead of India’s festivals and wedding season,” he said. “Gold is India’s biggest import item after crude oil.”

Threats

• The German Federal Council adopted a bipartisan measure last week that would ban the sale of new vehicles with internal combustion engines by 2030, reports Noah Capital Markets. As one of the biggest producers of motor vehicles in the world, car makers like VW, Mercedes and BMW will likely lead the rest of the world, which will follow in the next few years, the note continues. Although small globally, Germany’s car producers do make many diesels driven vehicles, which are important to the platinum market since they are the main consumers of the metal. This new measure would account for a significant loss of market share for platinum, around 5 percent, in Germany. If the rest of Europe followed, it would rise to 20 percent.
• ABN Amro thinks gold’s uptrend is over, noting the price falling below its 200-day moving average. Citing the U.S. interest rate outlook and investors’ large positioning in futures and ETFs, the group has no expectation for substantial pickup in bar demand. It cut its 2016 year-end forecast to $1,200 an ounce, and its 2017 year-end forecast to $1,150. “It is unlikely that investors will add to their positions in the short term, which means that they will sell on rallies,” said strategist Georgette Boele.
• The University of Michigan reported that its preliminary consumer sentiment survey dropped to its lowest in more than a year, falling to a reading of 89 and well below consensus expectations, reports MarketPulse. Gold was in negative territory ahead of the report, and dropped a bit in reaction to the positive September retail sales data, although it’s rebounded a bit since then. “It is likely that the uncertainty surrounding the presidential election had a negative impact, especially among lower income consumers,” survey director Richard Curtin wrote in a release.

Courtesy of http://usfunds.com/