Gold News

Are Gold's Bullish Days Back?

Loose money policies roll, buoying gold worldwide as 20143 unfolds...
 
GOLD is coming back with a vengeance, experiencing a clear recovery and grabbing the attention of market cynics, writes Frank Holmes at US Global Investors.
 
Analysts from Nomura Securities even upgraded its outlook for gold, expecting bullion to climb over the next three years, according to Barron's.
 
Nomura analysts attribute their increased gold forecast to real interest rates that "don't seem to be heading anywhere at the moment." In addition, there appears to be "long-term demand support from Asian nominal income growth, an evolving post-QE macroeconomic environment and lower disinvestment potential."
 
Gold is also gleaming a little brighter in Japan, as its central bank announced that monetary policies will remain very accommodative. With a weakening Yen, gold will likely be seen as a store of value for Japanese investors.
 
Two global events recently colluded that also dramatically affected the palladium and platinum market. The situation in Ukraine and Russia along with six-week-long strikes in South Africa began raising concerns that these palladium-rich countries may not be able to continue supplying the commodity at normal levels.
 
Currently South Africa supplies around 37% of the world's palladium; Russia supplies close to 40% of the world's palladium.
 
What does this all mean for the palladium and its sister platinum? It seems that fear surrounding the international political landscape is helping to push the precious metals prices higher and higher.
 
You can see the effect the political landscape is having on palladium. Over the past year, the metal has mainly traded sideways, but this week hit its highest level in almost a year. The precious metal reached $775 per ounce while its sister, platinum, climbed to nearly $1500 an ounce.
 
 
In January, I indicated that platinum and palladium looked extremely compelling. There were supply and demand drivers I felt would drive the metals higher.
 
Just last week, the US Mint is "ending a four-year exit from the market" by selling one-ounce American Eagle platinum bullion coins, writes Frank Tang from Reuters. According to a wholesaler last week, initial demand is strong, as 1,000 coins have already been scooped up.
 
Like I discussed with Resource Investing News at the Vancouver Resource Investment Conference, industrial demand has been gaining strength. Take rising automobile sales in the US that I talked about a few months ago. With interest rates on car loans so low, Americans have been replacing their clunkers with more fuel efficient cars, which is positive for platinum and palladium.
 
It's a similar story in emerging markets. In Africa, the GDP without a leveraged economy is still growing at 5%, and you definitely need platinum and palladium for their vehicles, even if they are diesel.
 
In China, vehicle sales last year rose faster than expected, climbing nearly 14% compared to a year earlier, according to the China Association of Automobile Manufacturers. The country is already the biggest automobile market in the world and millions of new cars on the roads add up fast.
 
We're pleased that our technical models signaled initial bullish signs, as our palladium- and platinum-related holdings helped boost the returns of the Gold and Precious Metals Fund (USERX) and the World Precious Minerals Fund (UNWPX).
 
In BP's latest Energy Outlook 2035, meantime, you can see the incredible long-term growth anticipated in the renewable energy industry. In terms of volume growth, China is expected to surpass the European Union countries by 2035. Based on this secular transformation, the local clean energy sector should continue to benefit. 
 
 
Specifically, wind power and solar look especially attractive, especially given the excessive pollution in the Asian giant. Take a look at CLSA data: In 2009, the country had about 0.2% of the global market. By 2014, it's estimated to grow to one third of the global market.
 
 
China isn't the only country with a growing renewable energy market. After the massive earthquake hit Japan in 2011, the solar market is taking off there too.

Frank Holmes is chief executive officer and chief investment officer of US Global Investors Inc., a registered investment adviser managing approximately $4.8 billion in 13 no-load mutual funds and for other advisory clients. A Toronto native, he bought a controlling interest in US Global Investors in 1989, after an accomplished career in Canada's capital markets. His specialized knowledge gives him expertise in resource-based industries and money management.

See the full archive of Frank Holmes.

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