Will Gold Find A Better Environment To Move Higher?

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.

• 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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