Gold Bullion Rebounds After US GDP Data Released

July 30, 2018

Strengths

·         The best performing metal this week was palladium, up 3.41 percent on tensions residing over tariffs on automobiles. Gold traders turned bullish this week, as prices rose from their lowest in a year, after being the most bearish since December in last week’s survey. Bullion rebounded from a loss after U.S. GDP data was released showing growth at the fastest pace since 2014, which actually missed estimates.

·         Net imports of gold by mainland China from Hong Kong were 81,304 kilograms, which is the most since March 2017. Gold reserve holdings in China have long been a mystery, as the nation often goes years without reporting increases or decreases, but reserves could be rising. China has kept its official gold holdings unchanged at 59.24 million ounces since October 2016, valued at $74.1 billion. The growing trade war with the U.S. and a slump in gold prices are reasons that China could be buying gold.

·         Newmont Mining Corp. beat its earnings estimate for the second quarter coming in at an adjusted earnings-per-share of $0.26 versus estimates of $0.21. The mining company announced a $275 million acquisition of a 50 percent interest in the Galore Creek project from NOVAGOLD. The acquisition will be a staged investment with an initial payment of $100 million then subsequent payments over five years after certain feasibility studies are completed. The Galore Creek project contains one of the highest copper grades in North America.

Weaknesses

·         The worst performing metal this week was gold, down 0.74 percent. Gold is set for its third weekly decline as the focus this week was U.S. GDP growth and anticipation of the Federal Reserve policy meeting next week. Two major players won dismissal from silver and gold price-fixing suits, in a blow to hopes that suppression in the precious metals markets would come to an end. Barclays and UBS won dismissal in their silver and gold price fixing suits, respectively, as judges ruled that there was a lack of evidence of price fixing or suppression.

·         Several gold miners reported poor results in the second quarter of this year, led by New Gold, which saw a 20 percent decline in pre-market trading on Thursday due to disappointing results at its key project. Goldcorp, Agnico Eagle and Barrick also experienced misses in the second quarter. Torex Gold Resources Inc. was downgraded to a hold from a buy by TD Securities analyst Daniel Earle, reports Bloomberg.

·         Bloomberg writes that AngloGold Ashanti Ltd. has appointed Kevin Dushnisky as its new chief executive officer, who is currently the President of Barrick Gold Corp. He will join the company on September 1 to replace its outgoing CEO. Barrick said that it will announce a replacement for Dushnisky in due course; however, questions have been raised on whether this successor will have more or less power at the world’s largest gold producer.

Opportunities

·         Two mergers and acquisitions were announced this week. Lundin Mining Corp. announced that it offered to acquire all of Nevsun Resources Ltd., for which Nevsun shareholders will receive CAD$4.75 in cash for each share – a significant premium of 82 percent. Additionally, Bonterra Resources Inc. and Metanor Resources Inc. announced they have entered into a definitive arrangement to merge and become a Canadian gold exploration and development company focused on the Urban Barry Quebec Gold Camp.  Deals in the gold sector are happening but have yet to get much attention quite yet.

·         SilverCrest Metals Inc. announced extremely strong drill results for the Las Chispas Property in Sonora, Mexico. The company reported silver grams-per-ton (gpt) results of 2.2 meters grading 7,436, 2.1 meters grading 1,286 and 1.4 meters grading 6,695. SilverCrest CEO Eric Fier said that “We continue with our successful Phase III expansion drill program with further high-grade silver-gold intercepts in multiple veins at Las Chispas.” AngloGold’s hiring of a former Barrick executive, mentioned in the section above, emphasizes that the company is pivoting to North America. This could be positive for Corvus Gold and Pure Gold, both companies in which AngloGold holds an interest in. Northern Empire has a strategic land position surrounding the Corvus’s Motherlode discovery which would likely require its participation should any transaction surface.

·         Pimco money manager Nic Johnson wrote on Friday that falling gold prices in the absence of rising real yields means gold has cheapened versus other haven assets. Coupled with the fact the President is concerned that a rising U.S. dollar will derail their growth plans, this could reignite interest in the yellow metal. Johnson also notes “Over the past decade, gold has traded like an asset with nearly 30 years’ duration, meaning that a 100-basis-point move lower in Treasury real yields has translated to a roughly 30 percent increase in the price of gold.” He points out that gold has fallen as real yields have remained stagnant. This may be too much focus on the dollar versus real interest rates.

Threats

·         South Africa’s gold industry, once the world’s largest, has been facing big production declines for many years and fell 16 percent in May from a year earlier. AngloGold Chairman Sipho Pityana told Bloomberg in an interview this week that “gold is a sunset industry” and that “it doesn’t matter what you do, it doesn’t matter how you do it, you are not going to be able to change that,” citing rising costs for having to dig deeper at its South African mines.

·         The National Association of Realtors’ report released on Monday shows that sales of previously owned U.S. homes unexpectedly fell in June, indicating a shortage of affordable listings while rising prices continue to limit demand, writes Bloomberg. The housing market in cutthroat areas appear to be headed for the broadest slowdown in years as buyers are being squeezed by rising mortgage rates and prices climbing twice as fast as incomes. Robert Shiller, a Nobel Prize-winning economist says that “this could be the very beginning of a turning point.” Cornerstone Macro noted that that the performance of homebuilder stocks and lumber prices has been abysmal. These indicators often correlate to, or lead, the business cycle.

·         Cameco, a Canadian mining company, announced this week that it will be indefinitely extending the shutdown at one of the world’s largest uranium mines, amid concerns of tariff uncertainty. Bloomberg writes that this decision comes as President Donald Trump threatens to extend metals tariffs to uranium imports. Energy Fuels Inc., with U.S.-based uranium assets, could be a beneficiary if tariffs come into effect on uranium imports upon which the U.S. imports the bulk of its needs.

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Frank Holmes is the CEO and Chief Investment Officer of U.S. Global Investors. Mr. Holmes purchased a controlling interest in U.S. Global Investors in 1989 and became the firm’s chief investment officer in 1999. Under his guidance, the company’s funds have received numerous awards and honors including more than two dozen Lipper Fund Awards and certificates. In 2006, Mr. Holmes was selected mining fund manager of the year by the Mining Journal. He is also the co-author of “The Goldwatcher: Demystifying Gold Investing.” Mr. Holmes is engaged in a number of international philanthropies. He is a member of the President’s Circle and on the investment committee of the International Crisis Group, which works to resolve conflict around the world. He is also an advisor to the William J. Clinton Foundation on sustainable development in countries with resource-based economies. Mr. Holmes is a native of Toronto and is a graduate of the University of Western Ontario with a bachelor’s degree in economics. He is a former president and chairman of the Toronto Society of the Investment Dealers Association. Mr. Holmes is a much-sought-after keynote speaker at national and international investment conferences. He is also a regular commentator on the financial television networks CNBC, Bloomberg and Fox Business, and has been profiled by Fortune, Barron’s, The Financial Times and other publications.  Visit the U.S. Global Investors website at http://www.usfunds.com.  You can contact Frank at: editor@usfunds.com.

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.

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