Analysing the good, the bad and the not so ugly of the gold industry
In the precious metal sector, palladium has gone up by 7.8%, by the 25 September because of China buying a lot of gold. The World Gold Council has reported that central banks have added 193.3 tons to the vaults in a six month period. This is 8% more than the amount recorded during the same period in 2017. Russia, Turkey and Khazakhstan have accounted for 86% of the central bank purchases during this period.
The Perth Mint reported an increase in Physical Gold ETF for the week of the25 September. Investors added $13.2 million into the Gold ETF. This increased the assets of the fund by 41%, the highest levels it has been since it’s inception.
In South Africa, AngloGold Ashanti Ltd reached a resolution to the wage issues that caused a number of labour groups to go on strike. They have signed a three-year deal, which stipulates a 6.5 percent pay rise for the first year and raise the rate in accordance with inflation over the next two years. This has brought some reprieve to the gold industry in South Africa and is positive news for the industry, which has faced a number of challenges over the years.
Weaknesses
As palladium prices rose, gold prices fell by 0.44%. There is a move by some countries to choose certain precious metals as strategic previous. Although the Democratic Republic of Congo produces gold, the country has chosen cobalt as a strategic metal. This will trigger a 10% rise in royalty taxes that will affect the production of gold. A new mining code was implemented in June which gives the government more say on the mining industry metals.
Gold has been trading above $1,200 per ounce for the past month, even as bullion-backed ETFs fell. Gold has struggled to gain traction because of the strong U.S dollar. The yellow metal has been trading sideways because of conflicting stories on tariffs on Chinese imports by the US.
Goldman Sachs revised its 3 to 12-month gold forecast to being $100 less than what was reported before. Goldman Sachs expects gold to hover around $1,250/oz. over next three months until it rises to $1,325 oz. at the end of the year.
Opportunities
The gold/silver ratio has hit its highest number since 1995. An ounce of Gold is now 85 times more expensive than silver. Both metals have been affected by the strong U.S dollar. Gold-backed ETFs fell 1.3 percent this year, while silver climbed 2.3 percent. Smart investors see more value in silver at these levels. The current ratio should attract more investors to silver.
A couple of gold miners have reported high drill results.
– Dalgaranga Gold in Western Australia reported high grade gold ore of more than 1450 grams per ton spread within an eight meter wide zone.
– Nighthawk gold at its Colomac Gold Project in Canada have reported 2.91 grams per ton over a drill intersection of 84.30 meter and 5.5 grams per ton over 24.55 meters.
– Cardinal Resources has reported favourable results of its Namdini Gold Project in Ghana.
Threats
There has been a widespread move to increase royalty taxes for miners. Chile’s is another country that is considering more royalty payment for copper and lithium mining. Chile is the world’s biggest producer of copper. The proposed tax is 3% on the nominal value of extracted metals, but will be applied to producers who extract 12,000 tones of iron and 50,000 tons for lithium. Chile produces more copper than any other metal.
In India, the government is trying to curb gold imports in order to check the Rupee’s movement and get a better handle on the current deficit. The rupee fell by 6% in August but the country’s trade deficit rose to a five-year high back in July. The government will use policy changes rather than raise custom duties. India’s gold imports rose by 93% in August, and demand is expected to go higher because of the wedding season and Diwali.
There have been a number of repatriations in the last couple of months. About $169.5 billion worth of gold was repatriated to the US by companies and certain countries. This means that the US holds $134.6 billions more than what they had, same time, last year. This additional hedging could strengthen the dollar. A strong dollar is not good for the price of gold. More repatriations are expected when Trump overhauls tax. By lowering tax from 35% to 15%, Trumps tax cuts could encourage companies to bring money into the U.S.
Sources:
https://www.kitco.com/news/2018-09-21/Goldman-Trims-Gold-Forecast-But-Sees-Prices-Rising.html
http://m.miningweekly.com/article/three-months-to-first-gold-at-dalgaranga-project-2018-02-15/rep_id:386