Palladium At A Fresh New Record

December 2, 2019

Strengths

·         The best performing metal for the week was palladium, up 3.66 percent. Palladium reached a fresh record this week, reports Bloomberg, hitting $1,842.76 an ounce and extending this year’s rally to 46 percent. Gold also witnessed safe haven buying following Trump’s signing of a bill supporting Hong Kong protestors. Despite renewed hopes for a U.S.-China trade pact, holdings in gold-backed ETFs also rose the most since mid-October, helping support prices.

·         According to central bank governor Adam Glapinski, Poland repatriated around 100 tons of gold from the Bank of England in a bid to demonstrate the strength of the nation’s $586 billion economy, writes Bloomberg. Poland could generate “multi-billion” profits if it sold its holdings, but has no plans to do so, he said. In Turkey, official gold reserves, including deposits and swaps, increased 2.7 percent to $26.6 billion, compared to September, according to central bank in Ankara.

·         A news release from JP Morgan highlights that Impala Platinum Holdings’ $758 million acquisition of North American Palladium has received key regulatory approvals, with the deal expected to close on December 13. As the research note goes on to explain, the bank expects Impala to return to net cash in 2020, with under $1 billion estimated in 2021 if spot PGM prices hold. This would indicate strong capacity in 2020 to pay its first dividend since 2013. Impala may yet snatch up one of Canada’s long-life precious metals assets at a highly discounted valuation.

Weaknesses

·         The worst performing metal for the week was silver, up just 0.21 percent on little news during the holiday week. For the first time in three weeks, gold bears outnumbered bulls in a weekly poll of traders and analysts carried out by Bloomberg. Adding to that sentiment, gold headed for its biggest monthly drop in three years, as Bloomberg reports, as lingering optimism over a U.S.-China trade deal eased demand.

·         As the national bureau of statistics reported Monday, China’s gold imports fell in the month of October nearly two-thirds from a year prior. As mentioned above, another big contributing factor for gold falling this week was signs of progress in the trade talks sapping haven demand. As China and India gold imports slump as well, Capital Economics says the “gold price rally is now behind us, and that ongoing weakness in consumer demand will be one of the factors weighing on the price of gold over the coming year.”

·         Chinese consumers are grappling with the slowest economic growth since the early 1990s, writes Bloomberg, which could put a dent in gold consumption and the overall gold price in the coming year. Another Bloomberg headline could mean weaker gold prices as well – apparently a growing chorus of strategists and investors is calling for a weaker dollar. However, option traders are reluctant to bet against the greenback, the article continues.

Opportunities

·         The gold options market saw $1.75 million in block trades betting the precious metal could almost triple in more than a year (and surpass the record), reports Bloomberg. Mid-week in New York, 5,000 lots for a gold option giving the holder the right to buy the precious metal at $4,000 an ounce in June 2021 changed hands, the article reads. On a semi-related note, Goldman Sachs is looking positive at gold too. The group believes that late-cycle concerns, heightened political uncertainty, coupled with only modest growth acceleration, should support demand for the yellow metal moving into 2020, Bloomberg reports. Silver could also get a rally in the New Year, according to HSBC Global Research analysts, based on firm gold prices and rising investor demand.

·         An M&A spree is sweeping the gold mining industry, reports Bloomberg. Canada’s Kirkland Lake Gold has agreed to buy Detour Gold Corp. for C$4.9 billion ($3.7 billion). Kirkland CEO Tony Makuch is facing an uphill battle to convince both investors and analysts that he made the right decision. “We have to do work to create that value but we see opportunity to create value not recognized yet,” Makuch said in a Bloomberg Television interview. In a similar piece of news, Evolution Mining has agreed to buy Newmont Goldcorp’s Red Lake complex (Newmont’s highest-cost project). According to a statement by the company on Monday, Newmont will get $375 million in cash for the sale of the complex in Ontario, Canada, and as much as $100 million in additional payments tied to new resource discoveries.

·         Toronto-based Triple Flag Precious Metals Corp. announced plans to raise $360 million through an initial public offering (IPO) next year, reports the Financial Post. With gold prices rising and equity financings still slow for mining companies, Triple Flag said it plans to open up a 17 percent stake to public investment, by issuing 20 million shares, priced between $15 and $18. In other company news, AngloGold Ashanti has narrowed its list of bidders for its remaining South African assets, reports Bloomberg. The company is now evaluating offers from Sibanye Gold and Harmony Gold Mining.

Threats

·         Gold is the new obsession for East Europe’s nationalist leaders, reads one Bloomberg headline this week. Slovakia joined a host of countries seeking to repatriate gold while Serbia, Poland and Hungary all boosted their bullion reserves, the article explains. According to Slovakia’s former premier Robert Fico, parliament should force the central bank to bring back the nation’s gold stored in the U.K. But why? According to Fico, the gold isn’t safe in the U.K. because of Brexit and a possible global economic crisis.

·         Global central banks, including policy makers from the European Central Bank and the Federal Reserve, are approaching the end of 2019 with a collective shudder at the risky behavior their low interest-rate policies are encouraging, writes Bloomberg. “Stock indexes from the U.S. to India are at records, and low sovereign bond yields have pushed funds into property seeking better returns,” the article reads.

·         In a roundup of “Risks in 2020,” Bloomberg asked several experts what they have their eye on. Anne Richards, CEO of Fidelity International, had the following to say: “Negative bond yields are now of systemic concern. With central bank rates at their lowest levels and U.S. Treasuries at their richest valuations in 100 years, we appear to be close to bubble territory, but we don’t know how or when this bubble will burst.” Richards goes on to explain that another area of concern is with liquidity. She says that as capital becomes less free-flowing, it will weaken the ability of the financial system to respond dynamically to unforeseen liquidity events, such as an unexpected counterparty failure.

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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.

Domestic gold prices tumble on reduced demand