Gold SWOT: Gold Imports by India Surged 40% in August

Strengths

• The best performing precious metal for the week was palladium, up 4.88%, due to some short covering that occurred by hedge funds. Gold in China is trading at a record premium to international prices, a sign of Beijing’s escalating battle to defend its currency. Bullion on the Shanghai Gold Exchange traded at a premium of more than $90 an ounce on Wednesday, according to calculations by Bloomberg. That’s the highest since the exchange was founded over two decades ago, as a weak yuan drove up prices in recent weeks.
• According to BMO, Pan African reported its fiscal year 2023 financial results with costs in line and a slight beat on earnings driven by higher revenue. While the 2024 production guidance was announced earlier, the company provided costs and capital outlook with slightly higher AISC, but overall lower total capital spend.
• According to Morgan Stanley, the value of rough lab grown diamond imports increased by 16%-20% month-over-month (MoM) and year-over-year (YoY) and came in above the three-year high. At the same time, polished exports came in above three-year average and increased MoM (but down YoY). This suggests that lab-grown diamonds are gaining market share both at mid-stream and end markets.

Weaknesses

• The worst performing precious metal for the week was gold, but still up 0.16%, as the precious metal suffered a technical breakdown and selling occurred. Exchange-traded funds cut 64,945 troy ounces of gold from their holdings, bringing this year's net sales to 4.58 million ounces, according to data compiled by Bloomberg. This was the longest losing streak since August 9.
• Azerbaijan produced 1,376 kg of gold in the first eight months of 2023, down 30% from a year earlier, according to data published on State Statistics Committee website. Silver production in January to August declined 41% year-over-year to 2,717 kg.
• Gold retreated to the lowest level in more than two weeks after a breach of key technical support sparked selling. The metal’s slide extended after the spot price broke below its 200-day moving average of about $1,920 an ounce amid high volume in Comex futures.

Opportunities

• According to UBS, SSR Mining remains one of the group’s preferred gold picks for its free cash flow generation driven by modest growth capex and attractive margins versus peers. A strong second-half CY23 of 400,000 ounces gold should get it to the bottom end of guidance of 700,000-780,000 ounces gold at $1,365-$1,425 per ounce, which remains on track. In a sign of its strength, it recently announced a new buy-back of up to 10.2 million shares (5% of outstanding).

• According to RBC, gold producers have been challenged by considerable cost inflation and margin pressures, with senior producer costs rising 10% in 2022 and a further 8% estimated in 2023. However, RBC forecasts declining headwinds into 2024, with senior producer costs forecast to decline 2% year-over-year, but the group does note these estimates are currently 5% above consensus.
• Gold imports by India, the world’s second-biggest consumer of the yellow metal, surged about 40% in August on strong festival buying, a person familiar with the matter said, threatening to blow out the trade deficit that has already been high due to rising oil prices.

Threats

• RBC Global Mining Equities now incorporates gold price assumptions of $1,960 per ounce in 2024 and $1,975 per ounce in 2025. The group updated its long-term gold price forecast to $1,700 per ounce and has increased the base discount rate assumptions for producers to 8% from the conventional 5%. The net impact of these changes has resulted in a median NAV changing by -2% and median EBITDA over 2023-2025 changing by positive 23%.
• The Biden administration is recommending changes to a 151-year-old law that governs mining for copper, gold, and other hard rock minerals on U.S.-owned lands, including making companies for the first time pay royalties on what they extract. A plan led by the Interior Department also calls for the creation of a mine
  leasing system and coordination of permitting efforts among a range of federal
  agencies. This comes as the White House has been pushing to boost domestic
  mining for minerals needed for electric vehicles, solar panels and other clean
  energy.
• According to Morgan Stanley, India August trade data suggests that mid-stream diamond inventories continue to build while market share loss to lab-grown stones persists. Declines in polished prices intensified in August with Rapaport pointing to cuts of 2%-9% for 0.3-3 carat stones.

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