Gold Market Radar (June 16, 2014)

Gold Market Radar (June 16, 2014)




Gold Market Radar (June 16, 2014)

For the week, spot gold closed at $1,276.89, up $23.64 per ounce, or 1.89 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 6.65 percent. The U.S. Trade-Weighted Dollar Index rose 0.25 percent for the week.

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Strengths

  • Gold had one of its best weeks of the year, aided by a slew of data from China on Friday showing that the economy is stabilizing, supported by targeted stimulus measures from Beijing. May retail sales rose 12.5 percent on year, above analyst expectations for a 12.1 percent increase, while industrial output increased 8.8 percent. China, the largest global gold consumer, nearly doubled its first-quarter gold imports relative to the same period last year, according to a recent study by data provider Global Trade Information.
  • Dundee Precious Metals rose nearly 17 percent this week following an analyst site visit to its Namibian operations. The impressions from attendees were very positive, and the strong price action this week highlights how misunderstood the stock has been. With its Tsumeb Smelter overhaul now complete and ramping up to full capacity, the financial performance is set to improve sharply, largely thanks to its low cost basis and solid operations.

Dundee Precious Metals Outperforms Index Peers
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  • Pilot Gold announced results from its drill test of a new porphyry target at its TV Tower Project in Turkey. The drill hole assays show 153 meters of 0.99 gram per tonne gold and 0.39 percent copper. Similarly, TriStar Gold reported drill holes at its Castelo property in Brazil, with assays of 15 meters of 2.16 grams per tonne gold. Lastly, Platinum Group Metals announced a large increase to its inferred resource to a total of 287 million tonnes grading 3.15 gram per tonne 4E (Platinum, Palladium, Rhodium, and Gold).

Weaknesses

  • Platinum dropped 1.15 percent for the week while palladium dropped 3.68 percent as investors anticipated an end to the 20-week-long platinum strike in South Africa. The Association of Mineworkers and Construction Union held mass meetings with its members to present the latest wage proposals developed over the last three weeks of talks. The result was neither a total rejection nor a total success, yet miners are not back to work and unlikely to do so as a whole in the next few days. Investors continue to ignore the fact that metal inventories are being depleted quickly, a situation that will not be resolved by ending the strike since it will take a number of months before miners can ramp up operations. As such, a much larger supply deficit should be on everyone’s books for the fall, but it doesn’t look like it is. Both platinum and palladium have strong fundamental prospects, aided by the supply shortfall expected.

Global Auto & Component Equities Help Confirm Trend that Equities Tend to Lead
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  • Canada will make it harder for miners to comply with its anticorruption laws after small- and mid-cap miners have been targeted by allegations of corruption of foreign officials. The amendment to the Canada’s Corruption of Foreign Public Officials Act (CFPOA) has increased its maximum jail term to 14 years with no limit on fines and allows for Canadian law enforcement to prosecute Canadian individuals or companies for bribery, regardless of where the alleged bribery took place. A Grant Thornton report shows more than 1 in 4 people have reported having paid a bribe in the last 12 months.
  • South African police arrested 20 Sibanye Gold mineworkers this week for allegedly stealing ore at a processing plant west of Johannesburg after a six-month investigation. A spokesman for the country’s anticorruption unit declared this is the largest mass-arrest of mineworkers for gold theft in post-apartheid South Africa.

Opportunities

About the author

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

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