Opinion Independent Reports SWOT Analysis: Gold Production and Demand Fell...

SWOT Analysis: Gold Production and Demand Fell In China In 2019

Frank Holmes , U.S. Global Investors

0 Comments| January 27, 2020

Strengths

The best performing metal this week was gold, up 0.92 percent. Gold traders and analysts were split between bullish and neutral outlooks on gold ahead of next week’s Federal Reserve meeting, according to the weekly Bloomberg survey. Commodity ETF inflows topped $2 billion last week, expanding more than fourfold for a fifth straight week of inflows. Bloomberg reports that precious metals ETFs led the inflows.
Turkey’s gold reserves rose $159 million from the previous week. The country’s holdings are now worth $28.1 billion as of January 17 – a 38 percent increase year-over-year.
The number of worker deaths at mines in South Africa fell to the lowest on record in 2019 – a sign that safety is improving in some of the world’s deepest and least-mechanized mines. The Department of Mineral Resources and Energy said in a statement that there were 51 fatalities last year, down from 81 the year prior. Barrick Gold and the government of Tanzania signed an accord to a long-running dispute where confiscated resources will be released to Barrick’s subsidiary, now called Twiga Minerals Corp., for export.

Weaknesses

The worst performing metal this week was palladium, down 2.88 percent. According to the China Gold Association, gold output in China fell 5.2 percent year-over-year to 380 tons in 2019. Gold consumption also fell 12.9 percent to 1,003 tons. China is the top producer and consumer of the yellow metal globally. Lower demand could be attributed to the number of births falling to the lowest since 1961 and the number of marriages falling to the lowest since 2007.

Ghana is delaying the initial public offering and sale of $750 million of shares in a gold mining fund/royalty company as the government reviews the rules and processes related to mineral royalty payments, reports Bloomberg. The IPO will be delayed until March, according to sources, and the fund will be structured to receive royalties and pay dividends.
Power cuts by South African energy producer Eskom cost Anglo American Platinum 38,000 ounces in lost output in 2019. Power outages forced mines to shut down and impacted production throughout the year. Despite the challenges, total platinum-group metal production grew 9 percent year-over-year to 1.15 million ounces. Australia’s Resolute Mining announced it will be raising AUD196 million to repay a loan. The company’s shares slipped on the news. Resolute said it will place 22.7 million new shares at the same price to raise AUD25million. This reinforces the trend that when investors see gold companies with debt, the right share price valuation adjustment step is for investors is to repay debt with common at the current share price to arrive at diluted price targets.

Opportunities

David Rosenberg, well-known economist, expressed his bullishness on gold in an interview with Bloomberg this week: “Gold is a place you want to be. I think that it’s partly because it’s inversely correlated with interest rates. But it’s also an insurance policy when things go wrong. There’s no such thing as a no-brainer, but this is close.” Jeff Currie, head of global commodities research at Goldman Sachs, gave three reasons to hold gold in a Bloomberg interview: 1) it’s a good hedge against political risk, 2) de-dollarization and 3) a drop in investment, which leads to a savings glut.
Palladium saw a weekly decline after rallying for four weeks, but it could present a buying opportunity. Citigroup says that any substantive pullback from current levels would represent a buying opportunity since “our baseline is that 2020 will be a year of very strong palladium pricing.” Metals Focus estimates that global palladium inventories equal about 14 months of demand and stockpiles have fallen by half in the past decade – this should support high prices.

Morgan Stanley research from Ridham Desai and Sheela Rathi shows that gold was India’s best performing asset class in 2019. They found that a portfolio that equal weights gold and equities has delivered reasonably strong returns with lower average annual drawdown than gold or equities standing alone over the past 25 years. According to the All India Gem & Jewellery Domestic Council, gold imports by India may rebound in 2020 after hitting a three-year low. Gold imports to the world’s second largest consumer fell last year largely due to prices rising by nearly 25 percent. The group forecasts imports of 750 tons, compared to an estimated 690 tons last year.

Threats

Bloomberg reports that U.S. prosecutors are starting to build cases against traders suspected of manipulating markets as long as a decade ago. Cases involving conduct older than five years are already under way, after an obscure legal ruling extended the statute of limitations for spoofing cases. Spoofing is when someone places and then cancels large numbers of buy or sell orders with the aim of fooling others about supply and demand.
Scott Minerd, chief investment officer of Guggenheim Partners, said in an interview that the Federal Reserve is “inflating a bubble” in credit, reports Bloomberg. “Asset prices go up on an escalator and they go down in an elevator.” Head of Dutch bank ABN Amro Bank NV said at the World Economic Forum in Davos this week that negative rates are “not a good place to be.” The head of Deutsche Bank AG said the European Central Bank “missed the exit” from negative rates when growth was stronger.
Gold producers were hit with a surprise new fee. The Department of Energy issued a mercury fee rule where producers must pay a fee of $37,000 per metric ton of mercury stored. The rule was issued without documents to support its calculations. Gold producers are fighting this new rule, led by Nevada Gold Mines LLC.

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