Precious Metals Update from Frank Holmes

Another Precious Metals summary from Frank Holmes and US Global Investors…..

  • Sentiment: Bank of America lowered its 2014 gold price forecast by 11 percent to $1,150 per ounce, arguing that physical purchases from Indian and Chinese buyers will weaken. In a similar note, ABN AMRO analysts say gold may drop back below $1,180 per ounce if U.S. macro data continues on the strong side.
  • Sentiment: Scotia Mocatta had a look at the continued redemptions in gold ETF products, which have not ceased in the new year. In its view, good macro data is encouraging further liquidations as investors continue to look for “risk on” trades. The most recent behavior revalidates the opinion of some analysts who argue the gold price has dissociated itself from ETF flows, forming a bullish, technical double bottom – a trait that has evidenced quite strongly this January.
  • Sentiment: After shedding some 30 million ounces of gold from a high of 85 million ounces, David Rosenberg of Gluskin Sheff believes it is fair to ask whether the fire sale is done. According to Rosenberg, sentiment could scarcely be more negative, with even the good macro data looking like it is priced in. What’s most interesting to see is that gold and bonds declined in the same year – a very rare phenomenon. The most recent memories of this trend occurring have coincided with gold market bottoms, in which market players shrug their shoulders at the mention of gold.
  • Valuations: Valuations of gold miners are approaching their cheapest relative to book value in at least two decades, precisely at the time when free cash flow generation has bottomed and cost reductions are kicking in. The current valuations present opportunities for junior miners to acquire mining assets, just like Northern Star Resources did by purchasing the Plutonic mine from Barrick, based solely on the value of the proven and probable reserves.
  • Demand: India’s Economic Affairs Secretary Arvind Mayaram announced that the restrictions on gold imports are likely to continue until at least the end of March, unless a significant improvement takes place with regard to the nation’s current account deficit. It is worth mentioning that pressure has been building as Central Bank Governor Raghuram Rajan has voiced his inclination to remove the restrictions, which encourages smuggling.
  • Supply: The Swiss National Bank’s gold holdings are the target of a national initiative and called by citizens collecting signatures, demanding that at least 20 percent of the central bank’s assets be in the form of gold. The measure would also bar the central bank from selling any of its holdings and would require the repatriation of the SNB’s gold holdings with the Bank of Canada and the Bank of England.