25 Straight Days Of Inflows Into Gold-Backed ETFs

Strengths

• The best performing metal this week was gold, down 3.51 percent. As of Wednesday, gold-backed ETFs saw 25 consecutive days of inflows and rose to the highest level ever of 2,624.7 tons. Bloomberg reports that after rising 18 percent last year, gold extended its rally into 2020. Turkey’s gold reserves rose $1.1 billion from the previous week to now total $29.7 billion as of February 21, according to weekly figures from the central bank in Ankara.

• Russia’s second largest gold producer, Polymetal International, says it plans to boost its share of female employees as the government opens more mining jobs to women, reports Bloomberg. Polymetal says it wants women to make up at least 30 percent of its workforce. For decades Russia has banned women from working in jobs that are deemed physically challenging, which are most jobs in mining, but it is now reversing that policy.
• New Gold Inc. formed a partnership with Ontario Teachers’ Pension Plan that gives the miner $300 million in exchange for selling a portion of the free cash flow from its flagship mine, Bloomberg reports. New Gold will sell a 46 percent free cash flow interest from its New Afton Mine. This is a common practice of selling a stream or royalty to help finance developments.

Weaknesses

• The worst performing metal this week was platinum, down 11.19 percent. After surging early in the week, gold joined the bloodshed of the stock market and saw its biggest selloff since 2013. Investors are selling the metal to cover margin calls and some is profit taking. Bloomberg writes that during the later phases of a selloff, gold generally recovers and outperforms, but in the early stages it gets thrown out.
• The coronavirus fears helped gold rally, but investors largely overlooked silver as a safe haven. With most precious metals rising, silver is the cheapest, as the ratio of gold to silver rose to 92. Hopefully investors start to realize this and show some love for the white metal.
• OceanaGold entered into a forward gold sale arrangement to deliver 48,000 gold ounces between September and December 2020, with a pre-payment of $78.5 million, according to a company statement. Although OceanaGold could benefit if gold prices fall, because it locked in the current price, it is not ideal that the company had to make this arrangement in the first place. If gold rises above the price it locked in, OceanaGold will have lost money.

Opportunities

• Gold could continue its upward trajectory because many investors aren’t even exposed to the metal. Peter Grosskpf, CEO of Sprott Inc., said that fewer than 10 percent of investors own gold and the metal probably makes up less than 2 percent of portfolios on average that do hold it. Grosskopf added that “investor participation in gold is still anemic” and argues that a portfolio should have 5 percent exposure to the yellow metal as a form of insurance. Goldman Sachs boosted its forecast for gold to $1,800 in the next 12 months on Thursday as the coronavirus, depressed real rates and focus on the U.S. election continue to drive haven demand, reports Bloomberg.
• Impala Platinum Holdings is bullish on both palladium and rhodium as the precious metal price rally led to its first dividend in more than six years. CEO Nico Muller said “we are confident about the market, we are confident about the future.” Palladium extended its rally and rose 2.5 percent on Wednesday to $2,849.94 per ounce. Norilsk Nickel asked the Russian government to pay for half the cost of renovating its housing stock, reports Bloomberg. The company said the project is the start of a new investment program worth over 2.5 trillion rubles.
• Sibanye CEO Neal Froneman said in an interview at the BMO Global Metal & Mining Conference in Miami this week that the company hopes to buy a gold miner for $4 billion to $5 billion in the next six to nine months. Sibanye already has several takeover targets and met with various companies at the conference. TriStar Gold Inc. announced several positive drill results from its Castelo de Sonhos gold project. Highlights include 3 meters at 9.3 grams per ton from 39 to 42 meters.

Threats

• Gold hit a wall this week despite a brutal selloff in global equities. The yellow metal is typically seen as a safe haven during periods like this. Bloomberg’s Ranjeetha Pakiam and Alix Steel write that there is always a risk during periods of turmoil that investors sell gold, which happened during the 2008 financial crisis. Suki Cooper, precious metals analyst, remained positive on bullion and said in a Bloomberg TV interview that “we think that there will be opportunities to continue to add to long exposure.”
• Credit default swaps surged this week as insurance costs jumped by the most on record. Fears about the coronavirus essentially shut out almost all borrowers looking for fresh cash in the U.S. and Europe. Fed Chairman Jerome Powell said that the virus outbreak poses evolving risks for U.S. growth and signaled that the central bank is prepared to cut interest rates to support expansion if necessary, reports Bloomberg.

Goldman Sachs Group Inc. economists said on Friday that they now expect the global health concerns to inflict a “short-lived global contraction” on the world economy. They also think it will force the Fed to cut interest rates in the first half of this year as a result.

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