Gold Bounced Back After Attempts To Knock Down Price

Strengths

The best performing precious metal for the week was silver, up 2.53 percent. It has lagged behind the other precious metals this year and speculators have raised their net long position this week. Gold bounced back positively after several attempts to knock down the price. Last Friday, over 4 million ounces of gold changed hands within minutes. Then, this past Tuesday, more than 2 million ounces changed hands, spurring a price drop. Bullish investors responded two hours later with a surge in buying to help boost prices.

Lawrie Williams writes that the attempt to lower gold prices mentioned above reflects positively for those who consider gold to still be in a bull market.

Ray Dalio of Bridgewater went on a gold-buying spree to increase his holdings by 575 percent and enter the gold ETF space. Perhaps buyers following Dalio’s lead are using these sell-offs to pick their entry spots.

Weaknesses

The worst performing precious metal for the week was palladium, up just 0.05 percent for the week. “Palladium prices could plunge 90 percent by 2040 as cars become electric,” reported ABN Amro. According to Reuters India, gold prices flipped to discount as wedding demand for the yellow metal were lower than expected. Additionally, the Federal funds futures show a possible rate increase in December at 92 percent.

BMI cut the average price forecast for gold next year to $1,300 per ounce from $1,350 previously. As a result, UBS strategist Joni Teves reversed her position on gold from bullish to neutral, believing there is no catalyst to justify a strong rally in gold prices or one to cause a substantial fall in prices.

Operations at one of Banro’s mines in the Democratic Republic of Congo have been suspended since September. This week, the company announced doubt at continuing the project as they are unable to raise enough capital.

Opportunities

Marlin Gold announced a plan to spin off a subsidiary, Sailfish Royalty, to enhance respective business operations and provide shareholders with additional investment choices and flexibility. Investors will receive one Sailfish Royalty share for every five common shares of Marlin Gold. Typically, such spin-out opportunities have resulted in enhanced values for shareholders.

This week, Zimbabwe’s military seized power from the only leader they’ve ever known, President Robert Mugabe. Zimbabwe is a nation rich in minerals and the change in power could be an opening for economic growth to be reestablished.  Caledonia Mining Corp. (TSX: CAL) is one of the few listed gold mining companies operating within Zimbabwe.

Klondex Mines’ Fire Creek exploration results demonstrate the potential for resource expansions with senior vice president of exploration Brian Morris saying, “the surface drill results are extremely exciting” at 8.25 ounces per ton of gold over 1.7 feet. In addition to rising stock price, analysts raised consensus earnings estimates for quarter four to 6.6 cents per share from 5.6 cents per share, according to Bloomberg. Klondex Mines also saw insider buying of company stock which signals optimism of future growth.

Threats

Uncertainty arises as Federal Reserve officials push for a radical revamp of the playbook for guiding U.S. monetary policy as growth and productivity have been tepid under the current 2 percent inflation target.  Measures may allow for flexible play book as a new Fed Chairperson takes the reins.

Economists at Goldman Sachs and JP Morgan are forecasting that the Federal Open Market Committee next year will likely tighten four times, rather than three times as implied in policy maker projections, according to Bloomberg. Economists stress that inverted yield curves prove a reliable indicator of an impending recession and that when the spread between short- and long-term debt shrinks, it hurts bank earnings and the real economy.  The yield curve is at its flattest level in a decade, not leaving the Fed much room to maneuver.

The Federal Reserve is shrinking its balance sheet and raising interest rates, which leads some to believe that it’s unlikely gold will thrive in that environment, according to Ranjeetha Pakiam at Bloomberg. Matthew Turner from Macquarie Group says that it’s cheaper to hold a non-interest bearing asset such as gold when rates are low because higher rates are thought to be negative for prices. He continued to say that gold was strong in the last cycle and flat in the other cycles with a historical analysis of gold in a tightening cycle showing no safe conclusion.

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