Frank Holmes – Mon 11 Jan, 2016

The Holmes Gold SWOT: Safe haven assets being sought out

Every so often Frank Holmes releases his SWOT analysis for gold. This is his latest breakdown. Frank, who is usually bullish on gold, outlines a couple positives that could move the gold price higher but after reading his full SWOT analysis I am not left with the feeling that he thinks 2016 will be a banner year for the metal.

Here is his SWOT…

Strengths

  • Gold opened the year with very a strong gain, climbing 4.02 percent, as rising sectarian tension between Saudi Arabia and Iran ratcheted up; North Korea announced the testing of its first hydrogen bomb; and twice on separate trading days, Chinese markets fell 7 percent, the maximum amount Chinese authorities allowed them to decline.  This sent shock waves through financial markets leading investors to seek out safe haven assets once again. In 2015 gold fell 10 percent, putting in three consecutive years of negative returns, its longest losing streak since 2000. Billionaire George Soros reiterated the precious metals’ status on Thursday by stating, “Global markets are facing a crisis and investors need to be very cautious.”
  • This week ZeroHedge pointed out a move in gold that many sell-side experts previously warned would never be able to happen again. On Thursday the publication shared a chart showing the precious metal finally broke out above the $1,100 resistance level, an encouraging sign going against a deluge of predictions calling for nothing but lower gold prices.
  • U.S. imports of gold jewelry rose to a seven-year high in October of last year, while platinum jewelry surged by more than 60 percent after precious metals prices dropped to multi-year lows, according to calculations from Thomson Reuters.

Weaknesses

  • The worst performing precious metal for the week was palladium, falling 12.11 percent, likely on weak manufacturing data out of China and its prospects for car sales to grow at a slower rate.
  • In Paradigm Capital’s 2016 Gold Sector Outlook, the group reviews 2015 share price performance by tiers – developers, seniors, and royalty companies.  They noted the “biggest surprise” came from the royalty companies. The report states that royalties didn’t have the best 2015, going on to explain that the recent poor performance has only happened during three out of the last 12 years.
  • Top gold forecaster Bernard Dahdah, of French investment and bullion bank Natixis, predicts that the yellow metal will drop through $1,000 per ounce in the first three months of 2016, according to an article on BullionVault. He states the move will primarily be driven by the “expected path of interest rate hikes” from the Federal Reserve, and even believes the price could gradually decline to end 2016 at $950 per ounce.

Opportunities

  • According to HSBC’s analysis of the Federal Open Market Committee’s (FOMC’s) minutes, the median Fed projections show total PCE inflation and core PCE inflation expected to rise to 1.6 percent by the end of the year. The FOMC inflation target is at 2 percent, as seen in the chart below. The Globe and Mail outlines four specific investment regimes defined by growth and inflation: 1) In high growth and high inflation, real estate and resources do best, 2) In high growth and low inflation, growth stocks outperform, 3) In low growth and low inflation bonds shine, and 4) In low growth and high inflation most stocks underperform, but gold does best!  With so many central banks targeting higher inflation, to deflate their debts, be careful what you ask for.swot3
  • Looking back on their 2015 strategy, UBS says last year’s rise in volatility was just the beginning of a dramatic rise in cross-asset volatility. In the group’s macro-view this week, UBS stated that the large cap-driven U.S. indices, as well as Japan and European small and mid-caps, are “the last men standing” at 2015’s close. In 2016 UBS expects these markets to top out also, falling into a full-size bear market which, worst-case-scenario, would last into early 2017. UBS noted with equities predicted to roll over, investors should consider owning gold for better diversification.
  • Over the past two years, nearly 50 percent of global gold demand has come from Chinese and Indian markets – with particular buying strength on dips in the renminbi or the rupee, according to RBC Capital Markets. The group continues to look to increasing global market volatility to allow gold to regain its safe haven status. In addition, lack of exploration and capital investment spending should lead to a reduced supply.

Threats

  • This year began with a rocky start, points out BMO Private Bank, as Chinese policymakers struggled to stabilize the Shanghai Composite after disappointing manufacturing data showed economic contraction in China. According the BMO’s current market update, as we move further into 2016 “investors increasingly believe that central bank ‘puts’,” are not as effective as they once were.
  • ZeroHedge points out that 2016 marks a presidential election year (which usually have a bullish track record), but also marks the eighth year of president Obama’s term. A closer look at this cycle shows a divergence between a normal election year and the eighth year of a term – since 1920 (more or less) all eighth years of a term were amongst the worst for market performance.
  • Julien Garran of MacroStrategy Partnership believes that deteriorating private debt conditions, tightening liquidity, declining returns and slowing growth have now entered a “self-reinforcing cycle in the U.S.” As credit and returns deteriorate, Garran says corporates will no longer be able to justify gearing up to do buybacks. In 2013, 60 percent of Garran’s sample could justify buybacks, and now only 35 percent make the grade.

Featuring:
Frank Holmes

Comments:
  1. On January 11, 2016 at 8:54 am,
    Matthew says:

    What’s up with Niogold Mining? It gapped up 39% today on no news that i know of and is up 100% in a month. Maybe a takeover is in the works…
    http://schrts.co/sWeIlq

    • On January 11, 2016 at 2:28 pm,
      Excelsior says:

      Interesting. We were discussing that one with Typhoon years ago, when Aurizon Mines had JVs with both of them, and then was acquired by Hecla. Niogold has a few different JVs in place with different companies if memory serves, so maybe one of them just decided to merge. Thanks for the heads up.

  2. On January 11, 2016 at 9:08 am,
    bb says:

    Morgan, Sachs, Glencore have lawsuit against zinc price conspiracy dismissed

    Two of the largest banks in the world and the biggest commodities trader have been found to be innocent of claims that they fixed zinc prices.

    A U.S. judge has thrown out a private lawsuit accusing Goldman Sachs (NYSE:GS), JP Morgan & Chase (OTCMKTS:JFTTL) and Glencore (LSE:GLEN) of conspiring to drive up the price of the metal used to protect steel against corrosion.

    The 87-page decision reached in a New York district court found that “purchasers failed to show that the defendants artificially inflated zinc prices by violating the Sherman Act, a federal antitrust law,” according to a January 7 Reuters story.

    The alleged conspiracy involved hoarding and moving zinc from one warehouse to another, falsifying records and manipulation London Metal Exchange (LME) rules. Metal purchasers claimed the moves caused artificial supply shortages that boosted prices, states the report. The judge however said other factors could have influenced prices.

    “It remains possible that shenanigans drove up the price of physical zinc,” Judge Katherine Forrest wrote. “But, at long last, plaintiffs have not adequately alleged that such price movement was due to a plausible antitrust violation, as opposed to parallel, unilateral conduct beyond the reach of that statutory scheme.”

    “Plaintiffs cannot adequately plead their broad, five-year conspiracy simply by noting developments in the zinc market, particularly when many of those developments occurred at vastly different times over the class period such that the possibility of causation is hard to assess,” the judgment also states.

    The proposed class action lawsuit claimed the conspiracy began in 2010.

    The accusations of price fixing of course are nothing new to metals trading. In 2013 investors tried to show that JP Morgan violated federal antitrust and commodities laws by distorting silver prices between 2007 and 2010, however their claims were dismissed. On appeal, the U.S. Court of Appeals for the Second Circuit said allegations that the bank took large and ‘uneconomic’ short positions in silver were not enough to prove that it intended to manipulate the metal’s price. “An inference of intent cannot be drawn from the mere fact that JP Morgan had a strong short position,” they said.

    The dismissed zinc lawsuit is similar to another case being heard in Manhattan alleging aluminum price manipulation, Reuters reports.

    Zinc prices have traded between US$0.70 and $1.10 a pound over the last five years. Since mid-2014 they have fallen sharply, and currently stand at US$0.67 a pound

  3. On January 11, 2016 at 9:09 am,
    Sd marc says:

    Matthew
    Do u have any opinions on Spanish mountain gold… They just had a successful private placement of 1.7 mil but I don’t know if it’s going to survive??? What is ur general opinion of the pm market this year? Happy new year!!

    • On January 11, 2016 at 9:42 am,
      Matthew says:

      Hi Marc, Happy new year. I don’t follow Spanish Mountain but I think it will survive. It has no debt, trades at just .07x book value, and is still able to raise money.

      I believe that the miners are very close to the end of their bottoming process and that the group will start to play catch-up with the special few (like Claude) that have been in a bull market for a year or two.

      Spanish Mountain type plays should enjoy surprising initial gains once it is clear that the bottom is in place for the sector, but then patience might be required since that end of the spectrum does best as a bull market matures and new entrants to the space start poking around for leverage.

      • On January 11, 2016 at 10:47 am,
        Sd marc says:

        Thanks Matthew! As always insightful and thorough answer I really appreciate it!!! Peace!!!

  4. On January 11, 2016 at 9:43 am,
    Matthew says:

    Looks like the loonie is heading for .69 and change.
    http://schrts.co/cB6XDU

  5. On January 11, 2016 at 10:05 am,
    Chartster says:

    Off topic question:

    Would Hitlery look better in an orange jumpsuit, or black and white stripes?

    http://www.zerohedge.com/news/2016-01-11/fbi-said-probe-if-hillary-clinton-who-made-millions-speeches-big-banks-violated-publ

  6. On January 11, 2016 at 10:27 am,
    Frank from moscow CCF says:

    helium …………shortage…………no more balloons………..

    • On January 11, 2016 at 10:29 am,
      Frank from moscow CCF says:

      balloons will be for the rich ……..Macy is the largest user, for the parades…means the circus and games are over………….lol

      • On January 11, 2016 at 2:30 pm,
        Excelsior says:

        funny.

  7. On January 11, 2016 at 10:48 am,
    Sd marc says:

    Good one jerry!!!! Happy new year lets talk soon….peace!!

    • On January 11, 2016 at 2:22 pm,
      Frank from moscow CCF says:

      ditto……..peace……..