Strengths
· The best performing metal this week was silver, up 2.24 percent. A majority of gold traders were either bullish or neutral on bullion this week after being mostly bullish last week due to political uncertainty in Europe, according to the weekly Bloomberg survey. India saw a third straight session of high gold prices due to continued buying by local jewelers with prices hovering around $1,300 internationally.
· Silver saw five straight days of gains, and holdings in ETFs climbed 0.7 percent in two days, leading to the metal outperforming gold. This week saw the biggest weekly gain for silver since April 20, and demand is rising 2 percent year-over-year, according to Bloomberg. Adrian Ash, director of research at BullionVault, said, “With precious metals looking so boring across the spectrum, silver has the most attractive volatility outlook. There’s a lot more gas left in the tank for silver as funds are likely to all switch to net-long positions in the coming weeks.”
· European gold-backed ETFs added 25.6 tons of gold last month, joining Asian ETFs in recording inflows for the month, according to the World Gold Council (WGC). Juan Carlos Artigas, director of investment research at the WGC, said that “political turmoil in Italy has helped drive a second consecutive month of inflows into European gold ETFs, reversing declines from earlier this year.”
Weaknesses
· The worst performing metal this week was platinum, up 0.35 percent. Indian gold imports have declined for the fifth straight month and shrank 39 percent in the month of May. India is the world’s second largest consumer of gold, and summer is historically a weaker period for demand. Perth Mint gold coin and bar sales declined to 14,800 ounces in May, the lowest level since April 2017 and down from 15,161 ounces in April.
· Gold is at its cheapest relative to copper this year, which points to signs that investor optimism on global economic growth is slowing demand for bullion as a safe-haven asset, writes Bloomberg. The yellow metal is also headed for its first quarterly loss in a year. Commodity ETFs saw big outflows of funds this week, led by precious metals ETFs that saw $1.02 billion in redemptions. This is up significantly compared to the previous week’s withdrawal of $379 million.
· Bloomberg reports that Odey Asset Management has asked the U.K. securities regulator to stop Barrick Gold from voting on a deal they are negotiating for Acacia Mining, of which Barrick is a majority shareholder. Odey believes that it would be a conflict of interest for Barrick to vote on the deal, since it is currently working to resolve a dispute with the Tanzanian government. BlackRock, which is Acacia’s biggest minority shareholder, also asked Barrick to recuse themselves from any vote on the deal. Barrick responded that it does intend to exercise its rights to vote.
Opportunities
· According to Bart Melek, global head of commodity strategy at TD Securities, gold is set to shrug off its two straight months of declines and rise to $1,400 per ounce in 2019 on dollar weakness. Melek said that “as we move into 2019, the U.S. dollar will weaken, which is a very powerful fuel for the gold complex.”
· The dollar could be entering a corrective phase, according to Brown Brothers Harriman (BHH), due to its inability to rally on the back on a constructive jobs report and a re-pricing of the trajectory of Federal Reserve policy. BHH also writes that current U.S. trade practices and the weaponization of access to dollar funding could spark a change in the dollar’s status as a reserve currency and that the U.S. is moving away from the very multilateral trade system that they helped create.
· Fed rate hikes might not affect gold as much as we think. Bullion falls before a decision and rises after a decision has been announced, which is good for gold considering that the market has priced another round of tightening next week, writes Eddie van der Walt of Bloomberg. Gold equities might be safer than gold itself given that the Philadelphia Stock Exchange Gold and Silver Index, which includes the biggest gold miners, has outperformed physical gold in the month of May by nearly 400 basis points.
Threats
· Torsten Slok, chief international economist at Deutsche Bank, says the danger of newly implemented tariffs could be serious if it hurts business confidence and causes executives to put off capital spending and other investment decisions. Ten auto executives met with President Trump last month to discuss several issues, and just weeks after the Commerce Department began investigating whether or not imported cars threaten U.S national security and are now considering tariffs of as much as 25 percent. Brian Smith, Hyundai Motor America’s chief operating officer, said in an interview that “the scary thing is there seems to be a lot of conversation around import-based companies and not even much realization that there’s a huge amount of vehicles produced here by international companies.”
· CreditSights strategists Glenn Reynolds and Kevin Chun wrote in a note this week that the ratio between U.S. junk-bond yields and their high-grade counterparts have reached levels that “hearken back to the high risk appetite days of October 1997 and June 2007,” just before market downturns. CreditSights worries that event risks such as global trade and Italian political instability could cause things to worsen.
· China decided last week to scale back its subsidies on solar energy, due to massive increases in adoption. Installed capacity surged from 3.1 gigawatts (GW) in 2011 to 135.6 GW in 2017. According to Bloomberg New Energy Finance (BNEF), China’s national renewable subsidy fund had a deficiency of an estimated $19 billion at the end of 2017. This could be a headwind to silver consumption since it is used in the process of creating solar panels.
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