Metals Market Report Archive
Metals Market Report 05-25-2016

The Mike Fuljenz Metals Market Report

May 2016 – Week 4 Edition

Other Mainstream Analysts Are Also Turning Positive on Gold

Each week, we hear from more mainstream analysts turning bullish on gold or increasing their previous price projections for the yellow metal. Last week, we reported on one JP Morgan executive who predicted $1400 gold this year.  Now we hear from Bob Michele, JP Morgan Asset Management’s global chief investment officer and head of fixed-income and commodities. He said that “It’s certainly a time that people want to get into gold. I think there’s no doubt that central-bank policy response has unleashed the gold bugs. One of the big knocks on gold for a long time had been that it had no yield. Well, if you’re in Europe, if you’re in Japan, no yield is high yield. You throw on top of that a currency-devaluation war under way… toss into the mix China and Australia, and suddenly gold is an alternate currency, certainly to paper money. So I think the intermediate and longer-term trend for gold is very, very bullish.”

According to Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank, last week’s correction is a great buying opportunity.  “While a stronger dollar will create a more challenging environment for gold, the focus may turn to rising inflation, which, combined with very low interest rates elsewhere, will continue to support gold in the coming months.”  He also pointed out that there are trillions of dollars’ worth of government bonds offering negative yields, making gold attractive as a safe haven.  Saxo Bank has also updated its 2016 gold price forecast to $1,400, although there will be corrections along the way.

Dennis Gartman has long been a fan of gold, but he previously said he only likes gold in terms of the euro or yen. Now, he is bullish on gold in U.S. dollar terms, too.  Speaking on CNBC’ Squawk Box last week, he said that he is not a “gold bug” and does not believe “the world is coming to an end” but he does think that inflation is beginning to pick up. He pointed to rising prices in several commodities as signs of a new inflationary trend. He said the combination of these trends “have to argue for stronger gold prices.”  

Why Gold Fell Last Week

Gold Fell $20 from Wednesday to Friday last week after the minutes of the April 26-27 meeting of the Federal Reserve’s Open Market Committee (FOMC) were published. The notes mentioned the possibility of a slight increase in short-term interest rates at their next meeting in mid-June. In just 10 minutes after that announcement, gold fell $10 (from $1273 to $1263), then it kept falling further, down to $1244 on Thursday morning before recovering a bit to $1253 on Friday. 

Gold and Silver Demand Continue to Rise

Silver and Gold are still up nearly 20% year-to-date, and so are a few other notable commodities:

Commodity Price Gains in 2016

SOYBEANS                       +21.73%

SILVER                             +19.17%

GOLD                               +18.22%

LUMBER                           +17.69%

CRUDE OIL (WTI)             +16.60%

PLATINUM                        +14.74%

(Prices through May 22, 2016)

While these commodities are up double-digits, some other commodities are still down, such as oats (down 15%) and naturals gas (-14%).  Each commodity has its own specific supply/demand fundamentals.

Gold and silver have better supply/demand fundamentals than natural gas and many grains and other agricultural commodities (which – unlike gold – can be planted in the ground to create more supply!)   New gold supplies are stagnant or slowly declining, while physical and speculative demand is rising.

In the physical markets, sales of American Eagle gold and silver coins by the U.S. Mint (through May 20) have already surpassed the sales for all 31 days of last May – by a large amount. 

 

--- American Eagle Coin Sales in 2016 vs. 2015 ---

*For 2015, sales figures are through May 31; for 2016, figures are through May 20; source: U.S. Mint

George Soros Bought Over 100,000 Ounces of Gold Last Quarter

Every quarter, hedge funds must report their positions within 45 days of the end of the last quarter.  For the first quarter, the deadline fell last Monday, so we learned from the latest SEC filings that George Soros spent over $123 million to buy 1.05 million shares of the SPDR Gold Trust (GLD), representing over 100,000 ounces of gold. He also bought 19.4 million shares of Barrick Gold, worth $264 million. He also raised his bet against the overall U.S. stock market by doubling his position in S&P 500 “put” options.

Several other big hedge funds also bought gold last quarter. CI Investments nearly quadrupled its stake in GLD, thereby becoming the sixth largest shareholder in that gold ETF. In addition, Jana Partners reported that they bought 50,000 shares of GLD last quarter, worth $5.9 million. But surprisingly, long-time gold bull John Paulson of Paulson & Co sold some gold ETFs but he still owns 4.8 million shares of the SPDR Gold Trust, representing 480,000 Troy ounces, making his fund the third largest shareholder in GLD.

 

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