Gold SWOT: Could We See $40 Silver Within the Next 12 Months?

Strengths

• The best performing precious metal for the week was platinum, up 4.64 percent on perhaps sentiment that demand should pick up with more hydrogen research and production. Gold edged up on Friday as the U.S. dollar weakened on German data showing factories recovering solidly. The yellow metal finished the week positive after a steep drop last week.

• Gold exports to the U.K. from Switzerland hit a one-year high in September, according to data from the Swiss customs authority. Bloomberg reports bullion bars are being sent to London vaults to meet requirements for physically backed ETFs.
• Russia’s largest gold producer, Polyus PJSC, announced its Skuhoi Log deposit in Siberia holds the world’s biggest gold reserves, according to a new audit. Data shows the deposit has 40 million ounces of proven reserves with an average gold content of 2.3 grams per ton. 

Weaknesses

• The worst performing precious metal for the week was gold, but still up 0.15 percent. Gold fell more than 1 percent on Thursday after hopes disappeared for a pre-election stimulus package. Gold ETF investors have been selling, with funds poised for the first back-to-back weekly outflow this year. Ole Hansen of Saxo Bank says investors might be selling because they view a Biden election win as largely priced in, limiting gold’s upside potential.
• The Perth Mint is being investigated for links to global organized crime syndicates and for failing to conduct identity checks required to prevent money laundering, reports The Financial Review. The refinery’s failure to conduct background checks on Euro-Pacific customers raises the possibility that it sold and is storing precious metal holdings of tax cheats and foreign criminals.
• Lundin Gold’s large-scale Fruta del Norte gold mine in Ecuador could soon face production shutdown due to protests. Local protesters blocked access to the mine to push for the reconstruction of a bridge over the Zamora River that collapsed on Saturday, along with other demands, reports Bloomberg. Lundin had pledged $2.6 million to finance the bridge.

Opportunities

• Citigroup estimates silver could surge to $40 an ounce in the next 12 months due to a recovery in industrial demand and strong investor appetite for precious metals. Analysts including Max Layton wrote in a note that silver will outperform gold because it is “more levered than gold to inflation overshoots, rebounding manufacturing activity.”
• Billionaire hedge fund manager John Paulson said that gold “is going to gain relevance in the near future” and that it is not a “get-rich-quick investment,” but a long-term store of value to protect against inflation. Bloomberg notes Paulson made the comments at Grant’s 2020 Fall Conference on Tuesday. The investor expects a strong economic recovery after the pandemic, with expanding credit and inflation.
• Petra Diamonds made a deal with its creditors to save the business with almost $700 million of debt maturing in two years. Bloomberg reports the deal will see bondholders swap debt for equity and own 91 percent of shares and will have a partial reinstatement of existing bonds. Petra was once worth $1.5 billion but had suffered from debt and falling diamond prices before the pandemic hit. CEO Richard Duffy said the deal “provides the business with a stable, deleveraged capital structure that will ensure the short and long-term viability of the company.”

Threats

• Echelon Capital Markets sales desk wrote in a note to clients this week that reports of Kinross considering selling its Americas assets and moving its primary listing to London is likely to do the miner more harm than good. The firm added that Kinross’ potential move could leave investors concerned the stock’s share price performance has run its course, up more than 90 percent this year.
• Centamin Plc, an Egyptian-focused miner, fell as much as 19 percent in London trading on Wednesday after announcing it will produce less gold than expected in 2021. Centamin operates the Sukari gold mine in Egypt, seen as one of the best gold deposits in the world not owned by a major producer, but the company has long faced operational and political challenges. The company said 2021 output will be between 400,000 and 430,000 ounces, which is below analyst consensus of around 500,000 ounces, reports Bloomberg.
• Sibanye Stillwater is no longer actively pursuing buying assets from companies they were previously in talks with due to higher metal prices that are pushing valuations higher. Bloomberg notes Sibanye is famous for its deal-making and wants to buy gold mines in North America, but assets are now considered too expensive and might not add value to investors.