Strengths
- Silver was the best performing precious metal this week, falling just 0.63 percent. Short sellers apparently did not care if silver traded lower as over 18,000 gold contracts, or $1.9 billion notional, was dumped in overnight markets as U.S. participants woke from the Thanksgiving holiday on Friday morning.
- The U.S. Mint has sold out of its 2015 one-ounce American Eagle gold coins, according to Bloomberg. In an email statement this week, the Mint confirmed that inventories have been depleted and no additional 2015-dated coins will be produced. According to bullion traders, the purchase of gold jewelry for wedding season demand, along with a firm global trend, contributed to a recovery in the price of the precious metal earlier this week. Silver bounced back a bit as well on increased offtake by industrial units and coin makers.
- James Steel, chief precious metals analyst at HSBC, sees gold’s trading range at $1,025 to $1,275 for 2016, according to a November 24 report. Further 2016 forecasts from Steel include demand exceeding total supply, mine production falling and jewelry demand climbing.
Weaknesses
- Palladium was down 2.29 percent and platinum was not far behind with a loss of 2.16 percent for the week. Despite half the platinum mines making losses as the prices dip below $1,000, the PGM’s were the worst performing precious metals this week.
- Precious metals funds posted their biggest outflows in almost 17 weeks, according to Bank of America Merrill Lynch, who said investors pulled out $1.0 billion in the four trading sessions to Tuesday. On the flip side, investors continue to pour money into money market funds – a net $12 billion brings the accumulated inflow to a “huge $132 billion in eight weeks,” reported BAML.
- China’s net imports of gold from Hong Kong dropped for the first time in four months, according to Bloomberg. Net purchases fell to 87.8 metric tons from 96.6 in September on holiday-shortened October as well as lapsed demand in a “lean season” prior to the New Year.
Opportunities
- Precious metals bulls want to know why metals prices keep falling despite what appears to be great fundamental reasons for the contrary. A huge demand for precious metals hidden behind an enormous glut in paper supply could be why, according to Goldseek, who stated that the market has been overwhelmed by an increase in leverage. Referencing a chart in Zerohedge last week, the amount of paper gold has tripled in the past few months relative to registered stocks available for actual delivery.
- Mauldin Economics says there is one “universal deficiency” in most investors’ portfolios – gold. Calling the metal the “ultimate hedge against any unforeseen crisis,” the group says most professional investors agree that this asset should represent between 3 and 5 percent of a portfolio. They go on to reference Ray Dalio’s portfolio which has a 15-percent allocation to gold and similar assets in 2015, along with Marc Faber’s suggestion in August that investors allocate 10-15 percent to gold.
- BCA points out that worldwide savings rates point to continued downward pressure on interest rates. In recent years, there has been a trend of increasing investment, especially in emerging economies. However, the pattern appears to be changing, so there is an overabundance of savings as compared to investment. The shift toward lower investment rates in emerging markets may be another downtrend in real interest rates, despite the possibility of nominal interest rates increasing on December 16. Lower real interest rates should be supportive of gold prices despite the lift in nominal rates.
Threats
- Hedge funds don’t believe that gold’s decline is over and money managers are holding their first net-short position in the precious metal since August. Talk of the U.S. raising borrowing costs for the first time since 2006 are leading investors to flee the asset class, according to Bloomberg. Assets in exchange-traded products backed by gold have reached their lowest since 2009.
- Goldman Sachs believes the U.S. could see four interest rate hikes by the Federal Reserve next year. The central bank is expected to raise the short-term Fed funds in December, and according to a Bloomberg article, Goldman predicts the U.S. will continue to grow fast enough to spur the Fed to raise rates by an average of once a quarter.
- Gold dropped to its lowest level since February 2010, as a looming U.S. interest rate hike in December has curbed the metal’s appeal. Fed funds rate data shows that the probability of an interest rate increase rose to 74 percent on Friday from 72 percent the day prior.
