SWOT Analysis: Gold May Reach $2,500 Due to Fed Stimulus

SWOT Analysis: Gold May Reach $2,500 Due to Fed Stimulus By: Frank E. Holmes, Chairman/CEO/CIO of U.S. Global Investors, Inc.,

Strengths

  • The best performing metal this week was palladium, up 37.90 percent, essentially regaining all the losses from the prior two weeks. Platinum and silver also rebounded strongly. Gold headed for its biggest weekly gain since 2008 while platinum and palladium were on track for their biggest weekly increases on record. It was a smashing week for precious metals due to supply concerns over mine shutdowns in top producing South Africa. Palladium surged more than 20 percent on Tuesday, its biggest ever gain, after South Africa announced a 21-day coronavirus lockdown. Dmitry Glushakov, head of metals and mining research at VTC Capital, said the country “accounts for some 70 percent of global platinum mined supply and 35 percent of palladium, with a 21-day lockdown possibly resulting in a 4 percent and 2 percent of 2020 supply reduction respectively.”
  • CME Group is planning to offer a new futures contract with expanded delivery options that include 100-troy ounce, 400-troy ounce and one-kilo gold bars, reports Bloomberg News. Derek Sammann, senior managing director and global head of commodity and options products for CME Group, said that “this time of unprecedented market conditions has led to growing demand for a broader range of delivery needs for our clients worldwide.” Silver demand is finally seeing some love. The Perth Mint reported a surge in demand, so much so, that it is diverting production resources to meet demand for the popular one ounce Silver Kangaroo coin. The U.S. Mint sold out of American Eagle silver coins and the closing of the Royal Canadian Mint has squeezed supply even further.
  • Gold had its best two-day gain since 2016 on Monday, climbing 3.8 percent since last Thursday, after the Fed announced a huge second wave of initiatives to support the U.S. economy. Ole Hansen, head of commodity strategy at Saxo Bank A/S, says “it’s a really aggressive message made by the Fed” and is a long-awaited relief for risk-on assets and gold, which had suffered recently from deleveraging. Economic damage expected from the virus has boosted bullion’s safe haven appeal.

Weaknesses

  • The worst performing metal this week was gold, up 8.64 percent. The gold market was thrown in a frenzy this week as investors rushed to get their hands on the metal amid a supply crunch. Logistical disruptions led to a wide divergence of prices in the U.S. and London. Contracts for delivery in New York were trading at a $60 premium to London – the highest premium since the 1980s. Bloomberg reports that most banks and traders ship gold around the world on commercial flights. But with most flights canceled and refineries closing due to lockdowns, it has become more challenging to buy and sell the metal.

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Gold Seek

Various authors presenting analysis and commentary on the precious metals, economy and precious metals mining markets.