Gold SWOT: Silver an “Obvious Beneficiary” from Government Stimulus

Strengths

• The best performing precious metal for the week was silver, up 5.97 percent, perhaps related to Goldman Sachs suggesting investors go long with the boost seen from a greater expansion of solar energy. Gold rose for a second straight day on Thursday on hopes that Congress will provide another round of stimulus for the economy. The yellow metal was then up 2 percent on Friday morning on a weaker U.S. dollar.
• Investment demand for gold was strong in September even as gold prices saw their sharpest decline in four years. New data from the World Gold Council (WGC) shows that holdings in ETFs backed by gold grew by 68.1 tonnes last month. This latest surge in inflows has pushed global holdings for the year above 1,000 tonnes – a new record high. The value of these assets under management is also at a record high of $235 billion for 2020.
• Goldman Sachs Group said silver stands out as an “obvious beneficiary” from government stimulus programs that lean toward renewable energy, which boosts demand for the metal used in solar panels. Analysts said in a note that global solar installations will increase by 50 percent between 2019 and 2023. Goldman’s forecast is for silver to rise to $30 an ounce – about 26 percent higher than current prices.

Weaknesses

• The worst performing precious metal for the week was platinum, but still up by 1.30 percent. Hedge funds increased their bearish outlook on platinum by raising their net short positon to a 14-month high. An index of South African gold miners fell 1.1 percent on Monday after the country’s main stock index fell on lower gold prices.
• Ghana suspended plans to raise $500 million in an IPO for its gold royalty fund after a state prosecutor began an investigation into the sale over a lack of transparency. The sale was scheduled to begin in September and the fund would be structured to pay dividends from the government’s income from gold operations.
• Alliance Altyn, part of Russian Platinum Group, said it has shut its Kyrgyzstan gold mine after an attack. The country is facing violent uprisings over a disputed election result. A group of local citizens have tried to enter the production facilities of several gold mines.

Opportunities

• Northern Star Resources is buying smaller Australian rival Saracen Mineral Holdings. Bloomberg reports the deal will create a new top 10 global gold producer with a market valuation of $11.5 billion. After adding Saracen’s assets, Northern Star will be on track to produce 2 million ounces a year from 2027. Goldman Sachs says the merger would combine the “two best organic growth profiles in the Australian gold sector.”
• Barrick Gold CEO Mark Bristow says the gold industry needs more consolidation to increase exploration and boost reserves. Bloomberg reports that gold mining deals worth around $14 billion have been completed or agreed so far this year compared with $26 billion completed in 2019. Bristow said at a virtual conference this week that “Canada still needs more work on consolidation.”
• Union Bancaire Privee (IBP) says gold could reach $2,200 an ounce by December 2021 due to deeply negative inflation-adjusted U.S. interest rates. According to a report by authors including Michael Lok, gold miners position investors to benefit from the resumption of the long cycle bull market expected in early 2021 and the near-term earnings catalyst of increased output and the long-term driver of rising dividends.

Threats

• A British appeals court ruled in favor of the Venezuelan government of Nicolas Maduro, saying the legal battle over the country’s $1 billion in gold in the Bank of England vaults should be reconsidered. Bloomberg reports the appeals court reversed a lower court ruling that recognized opposition leader Juan Guaido as the interim president. This ruling gives Maduro another chance at getting his hands on the gold, which he would likely sell in order to support the struggling South American nation.
• Boston Federal Reserve President Eric Rosengren said on Thursday that high leverage points to a slow recovery from the pandemic recession, reports Reuters. “The increased risk build-up, such as the reaching-for-yield behavior in commercial real estate or increased corporate leverage, maker economic downturns including this one more severe. There are issues that I and others spoke about quite extensively in the years before the pandemic hit.”
• Coronavirus cases continue to rise again in the U.S., and in some areas globally, leaving investors concerned over potential new lockdown measures. President Trump contracted the virus last Friday and it has spread to other White House and top officials.