• Gold: 1,255.13 -0.67
  • Silver: 15.97 -0.07
  • Euro: 1.175 -0.001
  • USDX: 93.931 0.442
  • Oil: 57.26 0.11

SWOT Analysis: Silver In the Spotlight

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July 24, 2017 - 8:25am

Strengths

  • The best performing precious metal for the week was silver, up 3.34 percent as investors loaded up on ETFs that purchase the physical metal, perhaps speculating that silver would outperform gold if the latter rallied.  Gold traders and analysts remained bullish this week, for the fifth week, as the European Central Bank keeps its stimulus going, reports Bloomberg. In addition, as the dollar slumps amid an investigation into President Trump, gold heads for the first back-to-back weekly advance since early June, another Bloomberg article reads.
  • Gold bulls are keeping their faith in the metal, reports Bloomberg, as the equity rally pares the yellow metal’s gains. Gold bulls have pointed to slow inflation and Fed concerns that asset prices look “somewhat rich.” Similarly, a Bank of America Merrill Lynch survey shows fund managers are growing hesitant to buy U.S. equities. Jason Mayer of Sprott Asset Management says that the non-stop bull market has led to a lot of complacency where managers aren’t hedging. “Once that tide turns, that could prove to be bullish for gold and precious metals,” Mayer said.
  • After President Trump’s economic revitalization agenda once again faltered, the U.S. dollar fell to an 11-month low this week, reports Bloomberg. Opposition to Trump’s health-care reform bill, along with European shares dropping amid earnings disappointments, sent gold to its highest level this month.

 

Weaknesses

  • The only negatively performing precious metal for the week was palladium, off 1.62 percent.  Hedge funds and money managers seem to be losing their faith in gold, along with other precious metals, reports Bloomberg. Before posting its first weekly gain in six weeks, the net-long position in gold fell to the lowest in 17 months for the week ended July 11. Money managers are hitting the exit as they brace for monetary tightening in the U.S. and Western Europe, the article continues, and aren’t waiting around for signs that the Fed may change its rate trajectory.
  • U.K. Royal Mint sales dropped in the second quarter by 62 percent compared with the previous three months, reports Bloomberg. Sales are down 41 percent from a year earlier. And according to data on the Swiss Federal Customs Administration’s website, Swiss gold exports declined 169.5 tons in May. Month-over-month exports to India also fell, but exports to China and Hong Kong both rose.
  • Jaguar Mining previously had seen its 2017 gold production output at 100,000 ounces, but the company cut its forecast to 95,000-105,000 ounces, reports Bloomberg. Positive news, however, came after its decision to leave Turmalina at Level 9 and commence development and mining of Level 10 in Orebody A. Turmalina saw significantly stronger production in June versus April following this decision, the article continues.

 

Opportunities

  • Scotia Mining Sales notes that as silver has gotten cheap again, particularly when looking at the widening gold-silver ratio, investors have been piling into silver ETFs (while dropping out of gold ETFs). Interestingly enough, there seems to be a bearish outlook in the futures market, where hedge funds are now holding the first net short silver position seen in two years, the group writes. The risk of higher U.S. interest rates should drive silver prices lower, is the reasoning behind this. However, if the Fed “blinks” and silver prices rebound, they will rebound quickly and violently, Scotia continues.

 

silver etf holdings are on the rise as gold etf holdings slow down

  • Klondex Mines reported record, second-quarter operating results for its Nevada and Canadian operations this week, producing 66,629 gold equivalent ounces (GEOs), an increase of 94 percent from the first quarter. In the press release, the company also stated that it remains on track to meet its annual production guidance of 210,000 to 225,000 GEOs, up 36 percent from 2016. “As expected, the operating results for the second quarter were the best in the company’s history,” President and CEO Paul Huet said.
  • Roxgold Inc. announced an updated mineral resource estimate (MRE) and complete drilling results from its first half Infill and Extension drilling program at the Bagassi South deposit. The Bagassi South deposit is located less than two kilometers from Roxgold’s flagship underground gold mine at the 55 Zone. According to a press release, highlights of the estimate are as follows: 1) Indicated MRE of 352,000 tonnes at 16.6 grams of gold per tonne (g/t Au) for 188,000 ounces and 2) Inferred MRE of 130,000 tonnes at 16.6 g/t Au for approximately 69,000 ounces of gold. In other company news, Columbus Gold Corp. announced its intention to spin out its mineral projects in the U.S. into a separate publicly traded company to be named Allegiant Gold Ltd. The plan of arrangement would see shareholders of Columbus receive one share of Allegiant for every five shares of Columbus. This should unlock the value for their North American assets.

 

Threats

  • As Global Mining Research points out in a note this week, over the last few years there have been a number of companies that haven’t mined to their Life of Mine (LOM) plans. In particular, stripping requirements haven’t been met. One of the most well-known examples of this recently is Detour Gold, the research group points out, but clarifies that it certainly not the only one. Deferring the waste removal puts the company at risk for greater waste removal requirements in the future, which is obviously not a source of revenue.
  • Due to Goldcorp’s failure to properly consult with affected indigenous peoples on its proposed Coffee Gold project, the Yukon Socio-Economic Assessment Board decided to stop its assessment of the project, reports Seeking Alpha. This means the project’s timeline could be in jeopardy, along with costs associated with the project. This decision points to deeper troubles at Goldcorp in relation to the company’s Canadian operations, the article continues.
  • Special Counsel Robert Mueller is taking a wide-angle approach to his probe regarding President Donald Trump’s campaign and Russia in last year’s election. He is now looking into other Trump business transactions, despite the President’s caution not to do so. “The roots of Mueller’s follow-the-money investigation lie in a wide-ranging money laundering probe launched by then-Manhattan U.S. Attorney Preet Bharara last year,” the Bloomberg article reads.
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About Frank Holmes

Frank E. Holmes is chief executive and chief investment officer at U.S. Global Investors, which specializes in natural resources and emerging markets investing. U.S. Global, based in San Antonio, Texas, manages 13 U.S. mutual funds and other client accoun

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