Investors Are Eyeing Gold Once Again

Strengths

• Palladium was the best relative performing precious metal this week, recording a fall of just 0.27 percent.  Palladium has been in a gentle decline post the Volkswagen story on emissions fixing, but rallied the last few days of this week.
• Gold traders are maintaining their bullish calls on the precious metal for the third week in a row. Of the 24 traders surveyed by Bloomberg, 13 hold a bullish outlook on gold.
• Gold got a boost this week as China announced further interest rate cuts and the ECB re-emphasized its pledge to use all the monetary tools at its disposal to support global growth. Furthermore, Russia boosted its gold purchases by the largest amount in a year throughout the month of September, adding 34 tonnes.

Weaknesses

• Silver was off 1.47 percent, making it the worst performing precious metal this week.  Silver is normally more volatile than gold, so during a week that gold declines we should expect to see silver be pared back more so than gold.
• India has officially announced the implementation of its gold monetization scheme that is set to replace existing deposit structure. The plan seeks to reduce imports as banks will now be allowed to sell or lend gold to retailers, thus boosting supply if owners of the gold trust the system enough to lend their gold to the state.
• Argonaut Gold is facing some operation issues as an illegal blockade has formed at its El Castillo mine in Durango, Mexico.

Opportunities

• Investors are eyeing gold once again as $393 million flowed into U.S. precious metals-backed exchange traded funds this month, through October 20. After a multiyear downturn in the precious metal, more bulls are emerging. Retail investors have depleted coin dealer inventories of silver coins, Russia and China are buying gold, and even Paul Singer of Elliot Management said recently that investors should have up to 10 percent of their portfolio in gold and/or gold stocks.

• The corporate sector could cause trouble for the U.S. economy as profits are contracting on a year-over-year basis. What’s more, every contraction in profits since 1980 has coincided with a rise in the corporate default rate.   The default rate also closely correlates with job cut announcements.
• Overall, credit conditions for U.S. companies are already deteriorating as the 10-month span through this year has seen more S&P downgrades than the prior two years combined. Even more concerning is that these downgrades are not solely limited to the energy space. Challenger Gray noted that they are seeing layoffs at major firms at a level they have not witnessed since 2009. 

Threats

• The largest hurricane the world has ever recorded could cause trouble for certain Mexican mining operators proximal to the Western coast.  The third-quarter rainy season just ended, normally playing havoc with heap leach operations.  Companies such as Primero, Alamos and Argonaut could be affected; potentially even Goldcorp or Agnico-Eagle, should the rainfall be intense.
• Goldman Sachs is expecting the Federal Reserve to hike rates in December and sees gold suffering as a result. The bank sees gold falling to $1,000 over the next 12 months.

Faced with significant debt repayments, the Venezuelan government may tap into its gold reserves to generate sufficient cash. Venezuela dumping its gold could put negative pressure on global prices. Venezuela also made the news when the country notified Guyana Goldfields that its mine, which is nearly finished with construction, is on land claimed to be owned by Venezuela and not Guyana. 

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Courtesy of http://www.usfunds.com/