|Bid||0.00 x 2900|
|Ask||0.00 x 21500|
|Day's Range||11.49 - 11.58|
|52 Week Range||11.25 - 13.11|
|PE Ratio (TTM)||N/A|
|Beta (3Y Monthly)||0.15|
|Expense Ratio (net)||0.25%|
Combined, these are the most significant gatherings of institutional investors and gold companies in the world. As usual, we found some interesting discoveries and developments to follow up on with the smaller companies that attended the Precious Metals Summit. Fortunately, there was a heavy presence of corporate development teams from gold producers globally at the event.
Bank of America (or BofA) contends that gold prices (GLD) should surge over the next year as US budget deficit and trade war concerns start to have an impact on the US economy (SPY) (IVV). Bank of America expects gold prices (IAU) to average $1,350 per ounce in 2019 as the effect of US tax reforms wears off.
A record number of fund managers in the BAML (Bank of America Merrill Lynch) September survey believe that gold (IAU) is undervalued, trading at a 17-year low. The SPDR Gold Trust ETF (GLD) has fallen ~8.5% year-to-date and ~13% from its April peak. It’s usually considered a safe-haven asset in which investors take refuge in the event of uncertainty and risk. However, gold has not been able to draw safe-haven bids so far in 2018 since the strong US dollar (UUP) keeps weighing it down.
The CFTC (Commodity Futures Trading Commission) reports the position of major players in the futures market through its COT (Commitment of Traders) report. According to the COT report for the week ended September 4, money managers resumed building their short positions in gold futures. The money managers increased their net short positions from 75,772 contracts to 82,722 contracts in the latest week.
The US CPI (consumer price index) for August rose 0.2% sequentially compared to the 0.3% growth that was expected by economists. In the 12 months through the end of August, the CPI rose 2.7%, lower than July’s 2.9% rise. The core CPI, which excludes the volatile food and energy components, rose 2.2% in the 12 months through August, also lower than July’s 2.4% rise.
In August, the dollar came under pressure due to President Trump’s criticism of the Fed’s interest rate hikes as well as political uncertainty in the United States. The most recent speech by Fed chair Jerome Powell was slightly dovish (TLT), which led to a further slump in the dollar and a surge in gold. Year-to-date, the US dollar has gained whenever trade tensions have escalated and has weakened when trade tensions looked to be easing.
As reported by Morningstar, UBS strategist Joni Teves believes that the shorting of gold (GLD) “should ultimately be supportive” for the metal and allow “ample space for positions to be rebuilt ahead.” While UBS has lowered its expectations for gold prices in the third quarter, it kept the average for the full year unchanged. According to Business Insider, Bank of America Merrill Lynch (or BAML) chief investment strategist, Michael Harnett, says that gold prices (IAU) have weakened in 2018 along with emerging market (EEM) currencies as the US dollar (UUP) has strengthened while US interest rates (TLT) remain attractive. BAML expects gold prices to climb above $1,300 per ounce by the end of 2018.
The report comes out every Friday and shows open interest on the previous Tuesday. According to the COT report for the week ended August 24, detailing holdings as of August 21, money managers were net short on gold for the ninth straight week. This net short position in gold is unprecedented.
According to David Rosenberg, the chief economist of Gluskin Sheff, 14 economic reports in August thus far have missed expectations. Among those that have missed the expectations are home sales and Markit PMI (purchasing managers’ index). Rosenberg said in a tweet, “Here we have nearly 3 misses for every beat, and yet the bullish chatter on the economy shows no signs of abating.
AISC (all-in sustaining costs) is an encompassing measure that helps us compare gold miners’ performances. Barrick Gold (ABX) reported AISC of $856 per ounce and a cost of sales of $882 per ounce in the second quarter. Its cost of sales reached 22.0%, and its AISC was 21.0% higher YoY (year-over-year).
The US dollar’s (UUP) strength has been the primary reason for gold’s weakness in 2018. The dollar has been gaining against the euro as the region grapples with its economic and political woes.
As we’ve discussed previously in this series, the SPDR Gold Trust ETF (GLD) has fallen ~8.0% year-to-date and ~11.0% from its April peak. Historically, gold prices have declined in the summer months, only to climb in August onward due to the seasonal pattern of demand for gold. Physical gold demand from Asian countries such as India supports its price after that.
Usually, gold (GLD) is considered to be a “safe-haven asset” and gains due to economic or political turmoil. The latest evidence is Turkey’s economic and currency crisis. On August 13, gold prices (IAU) fell to 17-month lows despite the raging crisis in Turkey, which also seems to be spreading to other regions.
The US consumer price index (or CPI) for July rose 0.2% sequentially and 2.9% over the last 12 months. The core CPI, which excludes the volatile food and energy components, rose by 2.4% in the 12 months to July, which was the largest increase in core CPI since September 2008. In June, core CPI rose by 2.3%.
According to a Reuters poll of 35 analysts and traders, the average gold price (GLD(IAU) forecast for 2018 and 2019 is $1,301 and $1,325 per ounce, respectively. Heavy losses suffered by gold prices in the second quarter led most of the analysts to lower their price estimates for the precious metal.
Gold prices (IAU) have been on an almost one-way downward trajectory since mid-April. Although the Federal Reserve didn’t raise rates during its August meeting as was widely expected, it sounded more bullish on the US economy (SPY)(DIA). The Fed was also upbeat on household spending and business fixed investment in the US.
Fresh Sell-Off Hits Gold: Is $1,200 the Next Stop? Investors, market participants, and analysts have been puzzled by gold’s weakness in recent months despite escalating trade war tensions and geopolitical risks. The Fed’s aggressive stance on interest rate hikes has also been weighing on gold.
Many investors might seek to buy gold at a discounted price while some risk aggressive investors want to short gold for the near term via ETFs.
Gold prices (IAU) have been on a losing spree since mid-April due to the US dollar’s strength and diverging monetary policies in the United States (IVV) and the rest of the world. During the congressional testimony, Fed Chair Jerome Powell gave an upbeat assessment of the US (VOO) economy. The assets are attractive when interest rates (TLT) are high because gold doesn’t generate any income.
A record number of fund managers in the BAML (Bank of America Merrill Lynch) July survey believe that gold (GLD) (IAU) is undervalued. About 17% of them said gold was trading below its actual market worth, and 25% said oil (USO) is overvalued.
Gold tested the low end of its trading range in May. As gold has shown price weakness ahead of Fed rate increases, we expect gold to continue to drift around the bottom of the range until the expected rate increase on June 12. Futures positioning and flows into gold bullion exchange traded products suggest gold is poised for another post-Fed meeting rally. The immediate challenge comes from strong economic growth and robust jobs numbers that bolster the case for higher interest rates.