Gold SWOT: Gold Buying by Central Banks Just Posted Its Strongest Start to Any Year on Record

Strengths

• The best-performing precious metal for the past week was platinum, up 5.50%. Impala Platinum Holding reported quarterly production that increased from a year earlier and that customer orders remained robust. Over the past four years, Chinese platinum imports have run in the range of 2.8-3.6 million ounces per year (40-50% of total annual supply), well ahead of apparent demand of 2 – 2.5 million ounces. This tightens the metal balance in the rest of the world, according to Morgan Stanley.
• India’s gold buyers tend to be price-sensitive, so demand usually pulls back when prices ex-India rally. That said, the recent consolidation in gold has brought back some stabilization, with premia of domestic prices in the Asian country relative to prices in London rallying, according to Bank of America.
• Gold buying by central banks posted its strongest start to any year on record in 2024, helping drive overall demand for bullion higher in the first quarter. The public institutions added 290 tons of gold to their official holdings during the three-month period, with China being the biggest buyer, the World Gold Council (WGC) said Tuesday in a report, according to Bloomberg.

Weaknesses

• The worst-performing precious metal for the past week was silver, down 2.92%. Penoles reported EBITDA of $197 million in Q1, down 4% quarter-over-quarter and 22% year-over-year, came in 18% below the $240 million market consensus. Earnings per share (EPS) in the quarter of $-0.10 came in well below the consensus at $0.22, according to Scotia.
• Resolute Mining’s production of 76,000 ounces at an all-in sustaining cost (AISC) of $1,487/oz was lower than Canaccord’s estimate of 84,000 ounces at $1,409/ounce. The miss was largely driven by a two-week maintenance shutdown at Syama and mining delays at Syama oxides (since resolved).
• Gold fell, with market watchers saying the previous day’s rally in response to Federal Reserve Chair Jerome Powell’s comments was overoptimistic. Bullion dipped to about $2,300 an ounce after ending 1.5% higher in the prior session, the biggest one-day gain since mid-April. Treasury yields tumbled Wednesday — buoying bullion — as Powell struck a less hawkish tone than expected, saying policymakers need more evidence that price gains are cooling before reducing borrowing costs, according to Bloomberg.

Opportunities

• Great Pacific announced that it has received notification from the Papua New Guinea Mineral Resources Authority of the grant of the advanced stage and past producing Wild Dog Exploration License, according to Bloomberg. Recent samples collected from a historic stockpile near the Wild Dog Zone include Sample 30104, which assayed 242 grams per ton (g/t) of gold, 601 g/t of silver and 9.52% copper, and Sample 68001, which assayed 122.5 g/t of gold, 350 g/t of silver and 11% copper. Besides near-surface, high-grade epithermal gold occurrences, the land position there are three identified copper-gold porphyry targets.
• Bitcoin ETFs have reached saturation point and may be showing some signs of fatigue. The $16 billion iShares Bitcoin Trust share price closed 1.7% below its net asset value. Other Bitcoin ETFs are also trading at discounts. The value of Bitcoin has declined more than 15% since its peak in March. Bloomberg reports that Bitcoin derivatives traders are positioning themselves for a lull in summer trading activity. Bitcoin and cryptocurrency investors need a new catalyst, post the creation of all the Bitcoin ETFs, which are now just competing on which trust can offer the lowest management fee.
• Gold had another good month, hitting a fresh record. Prospects remain broadly positive over the balance of 2Q, including further evidence of sustained central bank buying, especially from China, according to Bloomberg. Active gold fund managers will again be reaping the reward of arbitraging the gains away from passive investors parking their money in VanEck’s gold ETFs rebalancing since the new weightings have been announced and they must weight a set time period before they can execute their trades. 

Threats

• With platinum and palladium fundamentals challenged, and commenting on making operations more efficient, Impala’s spokesperson Johan Theron said, "Labor is a big cost component, so you always start with labour by offering voluntary separation packages,” adding that “We aim to ensure every operation in our portfolio can stand on its own and remain, at minimum, cash neutral through the cycle given prevailing metal prices. This approach is premised on operating performance and metal prices — if performance slips [or] metal prices deteriorate further, we will have to take more drastic action to remain profitable.”
• Safety protocols need to be followed and training must be ongoing to reinforce these safe work habits. Unfortunately, a rock-drill operator died after a fall-of-ground incident at Harmony’s Doornkop mine in South Africa on May 2.
• Saba Capital Management, the largest common shareholder of ASA Gold and Precious Metals Limited, commented on the outcome of the Fund’s 2024 Annual Meeting of Shareholders. Based on preliminary results of the Annual Meeting, shareholders voted to elect Saba nominees Ketu Desai and Paul Kazarian to ASA’s Board of Directors, according to Bloomberg.