Why Exploration Budgets Are On The Rise

Strengths

• The best performing precious metal for the week was palladium, up 4.22 percent on improving expectations for the automotive industry where palladium is principally used to clean gasoline emissions.
• According to ZeroHedge, a new trend is gaining popularity in China – digital gold “gifting.” Tencent’s digital gold packets, known as microgold, are backed by the country’s biggest bank and allow users to send funds that track the real-time value of gold over the WeChat platform. An ICBC document shows that during the Lunar New Year, WeChat users sent 70,000 microgold packets across the platform worth $14.5 million.
• Gold ETFs recorded inflows over the past two days totaling nearly 9 tons, reports Commerzbank, reversing more than half of outflows previously seen this month. Noting a drop in net long positions to their lowest level since the beginning of the year during the run-up to the Fed meeting, one analyst wrote that this means there is ample upside potential for gold. As seen in the chart below, we are seeing the longest losing run for the dollar since November, reports Bloomberg, as gold advanced to its highest level in three weeks on haven demand amid a global selloff in stocks.

Weaknesses

• The worst performing precious metal for the week was platinum, down 0.03 percent. Investors are not as excited about platinum versus palladium, as the former is more important in cleaning up emissions from diesel engines. In fact, diesel engines have been cited for their high level of particulate output and may face greater regulation in the future.
• The Democratic Republic of the Congo warns that proposals by the Trump administration to suspend Section 1502 of the Dodd-Frank Act will undermine both stability and security, reports Bloomberg. A roll-back in this law would encourage an “escalation in the activities of non-state armed groups,” said Mines Minister Martin Kabwelulu in a letter to the SEC dated March 13. A London-based advocacy group called Global Witness even said that suspending the law would be a “gift to warlords and corrupt businesses.”
• Robert Burgess writes for the Bloomberg Daily Prophet this week, warning investors that it may be time to prepare for the Trump “correction” and forget about the Trump trade. Prize-winning economist Robert Shiller recently said that the last time he remembers equity investors being as bullish as they are now was in 2000 and that didn’t end well. If the markets really thought Trump’s policies would juice up the economy then the dollar would be the prime beneficiary, the article continues, but instead the greenback is on an epic slump.

Opportunities

• “By most objective measures, we are deep into the longest period ever of excessively easy monetary policy,” said Stanley Druckenmiller. Bloomberg reports that Druckenmiller sees the U.S. in the biggest and longest dovish deviation from historical norms during his entire career. His solution? “Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation.”
• A rebound in exploration by global miners could see spending hit $18 billion by 2025, writes David Stringer of Bloomberg. Exploration budgets are on the rise after hitting an 11-year low of around $10 billion last year when companies cut costs in the wake of a collapse in prices, according to Richard Schodde of MinEx Consulting. Ivan Glasenberg, CEO of Glencore, also notes the cut seen in gold production from mines run by majors, saying “there are no new big mines being built in the world today.”  A boost in appetite for exploration could lead investors to focus more on the exploration and development companies as we go forward, as those companies will be the ones making new discoveries.
• Golden Star Resources has announced its exploration strategy for 2017 in a note this week to investors. Sam Coetzer, President and CEO, had the following to say: “During 2016 our focus was on delivering our two underground development projects, but I am pleased that we are now in a position to turn part of our focus back to exploration. I believe strongly that our assets present an exploration upside opportunity, with both Wassa Underground and Prestea Underground having the potential to expand production on an annual basis and extend their mine lives beyond the current seven and five years, respectively.”

Threats

• Detour Gold released its updated life of mine plan this week, with the main impact being lower production, a higher strip ratio and higher costs over the next five years. The company also recapped its fourth quarter 2016 financial results, noting that its adjusted loss of 3 cents was well below consensus of a 4-cent gain. Investors that are in love with Detour, or worse, married to the company, could be feeling an “Allied Nevada”-like moment if the gold price doesn’t improve.
• In its annual report, Copperbelt Energy Corp says that Zambia’s High Court is expected to rule on a three-year dispute over tariff increases to the copper mining industry. If the court rules in favor of the increases by the energy regulator, Copperbelt will owe state-owned Zesco $276 million, reports Bloomberg, with the cost being passed on to Glencore and First Quantum.
• On Tuesday, equities dropped across the globe as investors start to question President Trump’s ability to enact his pro-growth policies, reports Bloomberg, casting doubt on the so-called reflation trade.

Courtesy of http://usfunds.com/