Frank Holmes’ Precious Metals Outlook

Interesting Precious Metals summary from Frank Holmes and US Global Investors:

  • Sentiment: JP Morgan raised its outlook on gold, saying prices are likely to hit $1,450 by the end of the year as fundamentals have turned bullish.
  • Sentiment: The two “most accurate” gold forecasters are holding on to their bearish forecasts for 2014 even after the metal posted its best start to a year since 1983, according to a Bloomberg report. The report cites analysts at Societe General and Westpac Banking as the best forecasters over the past two years; however, what the report fails to convey is the fact that these analysts are permanently bearish on gold, and the 15-month recent downtrend favored their forecasts.
  • Sentiment: UBS boosted its forecast for gold in 2014 citing a change in investors’ attitude toward the yellow metal. According to the bank’s analysts, over the past year gold was either the favorite asset to short or was ignored completely. Recent developments suggest that this is no longer the case and momentum is turning, the analysts added.

Chart 1: Gold Miners remain extremely oversold on historical basis

Source: Frank Holmes & BCA Research

  • Sentiment: BCA Research published data showing gold mining shares were down more than 40 percent over the past year. As shown in the chart above, each decline of more than 40 percent since 1980 has given way to at least a tradable rally.
  • Demand Fundamentals: On a more positive note, gold demand in Japan jumped threefold in 2013 as investors sought refuge from Prime Minister Shinzo Abe’s campaign to stoke inflation.
  • Demand Fundamentals: India’s gold demand remained buoyant in 2013, rising 13 percent from 2012 despite the government introducing several restrictions to curb imports. India, which lost its crown to China last year as the top gold consumer, is likely to cut its import tax on gold before the end of February to 6 or 8 percent from the current 10 percent. The government initiative comes as pressure on the country’s current account deficit has scaled down, with recent data showing it has fallen by nearly 50 percent.
  • Demand Fundamentals: A recent report from the Swiss Customs Administration shows the European nation shipped more than 80 percent of its gold and silver bullion to Asia last month. The main destinations were Hong Kong, India and Singapore, while the main sources of gold imports were the U.K and the U.S. Despite the recent price recovery in gold, the demand from physical buyers in Asia continues to drive a wave of gold finding its way from weak hands into strong hands.