Confirmed Interest Rate Hike Inspiring Bullishness In Gold Traders

·         The best performing metal this week was silver, down just 1.37 percent. Gold traders and analysts were bullish on the yellow metal due to speculation that the now confirmed interest rate hike by the Federal Reserve could ease the dollar’s rally, according to Bloomberg.  It is of interest to note that over the last three weeks gold stocks, as measured by the NYSE Arca Gold Miners Index, have outperformed bullion by 121 basis points.  While too early to call it a meaningful trend, that gold stocks are outperforming bullion, the seasonal summer lift in bullion buying should start to pick up in July and investors may be positioning themselves now in the equities.

·         The World Gold Council is reportedly preparing a fund which would charge less than any other gold ETF, according to Bloomberg. Regulatory filings show that the SPDR Gold MiniShares Trust (GLDM) will cost 18 basis points in management fees. That is $1.80 for every $1,000 invested. For comparison, GLD charges $4 for every $1,000 invested.

·         Gold priced in euros is nearing the biggest gain since September as a result of the European Central Bank’s pledge to maintain the currently record-low borrowing costs over the next year. “That means there’s going to be a large disparity between U.S. interest rates and European interest rates,” says George Gero, a managing director at RBC Wealth Management, “and that is going to probably increase the demand for gold.” Additionally, green credentials will be required from the world’s biggest gold producers in order to be traded on London’s bullion market, according to the Financial Times.

Weaknesses

·         The worst performing metal this week was palladium, down 2.23 percent even with hedge funds adding more exposure to their net long position. The dollar headed for its best week since November 2016, which dropped gold prices as a result, according to Bloomberg. Kotak Commodity Services analyst Madhavi Mehta noted, “Weighing on [gold] price are sharp gains in the U.S. dollar against the euro amid diverse monetary policy outlook for the Fed and ECB.” During the past week, investors withdrew from commodity exchange-traded funds, reports Bloomberg. Precious metal funds saw $408 million in outflows, as opposed to $1.02 billion during the prior week.

·         In India, gold discounts are at their widest in nine months, according to Business Standard. Dealers are providing discounts as large as $7.50 per ounce over domestic prices this week, up from $5 last week. This is the sixth straight week of discounted gold in India. The falling rupee played a significant role in denting demand for gold jewelry, which is on track to decline 18 percent this year.

·         South Africa, the eighth largest gold producer globally, saw a drop in gold production for the seventh straight month in April, reports Bloomberg. Platinum-group metal production in South Africa similarly fell for the fifth straight month. In Mexico, the Penasquito mine suffered a 12-day blockade by a group of truckers who claim Goldcorp Inc. did not follow through on promises to hire locally. This mine is Goldcorp’s most significant asset. As of writing this piece, the blockade has been called off.

Opportunities

·         Wheaton Precious Metals and Colbalt 27 Capital signed separate streaming agreements with Vale for an upfront consideration of $690 million. In return for finished cobalt from Voisey’s Bay mine, Wheaton agreed to pay Vale $390 million upfront for 42.4 percent of Vale’s cobalt production, along with a future payment of 18 percent of spot cobalt price. The streaming company will be entitled to production starting in 2021.

·         Nighthawk Gold Corp. announced updated Inferred Mineral Resource estimate this week, of 50.305 million tonnes, with an average grade of 1.62 grams per tonne. This is for the 2.613 million ounces of gold for its 100 percent owned Colomac Gold Project, Bloomberg reports. Recent test work for the Colomac project confirms favorable recoveries for all process options including heap leaching, flotation and gravity separation. In other company news, Wesdome Mines has been raised to “strong” buy from buy, a recommendation made by Industrial Alliance Securities analyst George Topping. The company’s price target is set to C$5, implying an increase of 98 percent from its last close, reports Bloomberg.

·         Inflation in the U.S. accelerated during May to the fastest pace in over six years, reports Bloomberg. The consumer price index (CPI) rose 0.2 percent from April and 2.8 percent from a year earlier. Average hourly wages, however, were unchanged from May 2017 when adjusted for inflation, which shows employees’ incomes were stagnate.  The trend of no growth in real purchasing power for employees cannot go on forever.  The first rounds of teacher strikes this past school year likely won’t be a onetime event or one sector of the economy shock.  Labor markets are tight.  Immigration labor is being choked off from participation in the future which should lead to increased Unit Labor Costs.  Cornerstone Macro notes that Unit Labor Costs accelerated sharply in the 1970s driven by a jump in compensation gains which led inflation and gold during that decade.

Threats

·         Consumer debt is piling up in the U.S. while borrowers keep their credit profiles healthy for now, reports Bloomberg. Dean Athanasia, co-head of Bank of America’s consumer and small-business operation, noted in a recent conference that “people and clients are definitely leveraging up and we have to watch that.” Meanwhile, senior executives and directors at Netflix, Amazon, Facebook, and Google’s parent Alphabet Inc. have disposed of $4.58 billion of their own stock so far in 2018. “If they continue selling into that weakness, then that’ll be a strong indicator of insider sentiment,” says Jonathan Moreland, director of research at InsiderInsights.com.

·         Due to recent tax cuts and increased federal spending, U.S. deficit is ballooning towards 125 percent of gross domestic product after 2030, according to Congressional Budget Office predictions. “It is pretty much unprecedented that we’re seeing this level of debt expansion so late in an economic cycle,” says Jeffrey Gundlach, chief investment officer of DoubleLine Capital.

·         Grievances against Randgold Resources turned violent in the town of Kéniéba, Mali, resulting in one person’s death and at least six injured. The incident was sparked when 15 employees who staged a sit-in against Randgold’s hiring practices and the dismissive local government were let go, according to Jane’s 360. On another note, mining companies in the Democratic Republic of Congo are battling new legislation that voids existing agreements and increases costs. DRC is Africa’s largest copper producer and the source of two-thirds of the world’s cobalt.

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