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    Posted April 21, 2014 by

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    Gold speculators trim net-long positions again

    This week’s Commitments of Traders (COT) report from the United States Commodity Futures Trading Commission (CFTC) shows a reduced net short gold futures position for commercials and a reduced net long gold futures position for non-commercials.

    Speculators again reduced their net long gold futures and options positions in the Commodities Exchange division of the New York Mercantile Exchange.

    The managed money accounts (for both futures and options) showed a further reduction in its net long gold positioning, closing at 90,137 on April 15, 2014, the lowest level since February. The CFTC’s report revealed that bearish attitudes continued as traders sliced 4,766 gross longs and added 3,588 gross shorts.

    Under the disaggregated report, swap dealers’ net short position fell as they cut 521 gross longs and 4,497 gross shorts. This is similar to the producers’ reduced net short position with a 3,561 gross long increase and a 5,083 gross short decrease. Meanwhile, other reportable stood at a net long position of 23,420 and non-reportables also at a net long position of 7,822.

    Non-commercials reported a reduced net long of 79,292 as they sliced 2,261 gross longs and added 7,046 gross shorts while commercials had a reduced net short of 87,605 as they added 5,963 gross longs and cut 8,175 gross shorts.

    The data came out amid gold prices closing at $1,302.41 on April 15, still beyond the $1,300 mark but down by $5.83 compared to the week before.

    Last week, Forbes quoted Standard Chartered analysts saying, “Though outflows were smaller than the previous week, they were still significant… However, prices rose 1.1%, bouncing from the lows of April 1. We expect the renewed upward momentum to ease, although geopolitical events are likely to curb downside momentum and prevent a sudden collapse in prices.”

    Gold prospects

    A report from Reuters said gold prices are expected to continue to fall until 2015 as the US monetary policy normalizes and investors eye higher-yielding assets.

    While buying gold is normally done to as a anti-inflation hedge, its demand lately is not that high because of improving economic forecasts. From an average of $1,410 per ounce in 2013, Reuters said gold prices are expected to dip to an average of $1,225 per once this year, the first time the average prices will go down in the last decade.

    It is important to note, however, that gold prices increased in the last several years because of financial uncertainty. Investors needed gold to secure their money and to keep its returns high. Nowadays, with the economy looking up, investors are not that concerned about risk anymore and are now starting to look for higher rates of return.

    While demand for gold was high in China and India because of the increasing gold jewelry fabrication demand, central banks’ purchase of gold fell by 25 percent last year to 409 tons, the report said.

    However, analysts also expect an upward trend by 2016 if physical demand increases with East Asia’s strong growth.

    In the meantime, lower prices mean better buying opportunities in the next several months.

    Consumer gold

    The World Gold Council’s (WGC’s) Gold Demand Trends report released in February 2014 pointed out that while improved macroeconomic outlook convinced investors to sell off their ETF, consumer demand rose by a whopping 21 percent. People were scrambling to buy gold jewelry, bars and coins because of the price drop last April.

    The jewelry sector reached ”the largest volume increase” in demand since 1997, with demand hitting 2,209 tons or 17 percent more than in 2012. Demand for gold bars and coins also increased by 28 percent.

    WGC said gold demand increased across “all sectors and geographies, with the exception of western ETF markets.”

    In the end, things are not looking bleak for gold as consumer interest remains strong.

    Gold supply

    Meanwhile, gold supply reached 4,339.9 tons in 2013, a two percent dip from the year before because of low recycling activity.

    According to the WGC, there were 174,100 tons of gold stocks above ground by the end of 2012. China remains the largest producer of gold with a 13 percent share in total production. On the other hand, East Asia as a whole produces 23 percent, Latin America at 21 percent, Africa at 20 percent, North America at 12 percent, and Central Asia and Eastern Europe with a combined share of 12 percent. It is interesting to note that one third of the world’s gold supply is from recycling accounts.

    Recently, merger talks between mining giants Barrick Gold Corp. (NYSE: ABX) and Newmont Mining Corp. (NYSE: NEM) broke down amid the two companies’ massive writedowns and a lower gold price.

    Barrick, the largest gold mining company in the world, has a market cap of $28.7 billion and sales of $14.55 billion as of May 2013. It is 659th in Forbes’ Global 2000 list of biggest companies in the world. Th Canada-based company has a number of gold mines concentrated in North America, South America and Australia & Pacific.

    On the other hand, Newmont, which is based in the United States has a market cap of $19.72 billion .87 billion. It has active mines in Nevada, Australia, New Zealand, Peru, Indonesia and Ghana.

    But with the bigger companies riding the wave of uncertainty in gold prices, attention is shifting to small caps that may either have new profitable projects or may be acquired by senior producers.

    There’s Alamos Gold, Rio Alto and Asanko Mining which, according to Rupert Hagreaves of The Motley Fool, are small caps that have quality assets, promising returns and strong balance sheets.

    Premium Exploration, Inc. (OTC: PMMEF; http://finance.yahoo.com/q?s=PMMEF&ql=1.) is currently banking on its Idaho Gold Project to produce multiple deposits of gold. Its explorations in the area has yielded recent encounter of gold. Its Friday deposit in the area has an indicated mineral resource of 647,000 ounces and an inferred resource of 590,000 ounces.

    The young mining player is eyeing a multi-million ounce target and an increased strike length from 1.6 kilometers to 4 kilometers. It has a market cap of approximately $8 million and recent share price at $ 0.0434 (http://www.premiumexploration.com/).

    Like other new mining companies, it may be useful to monitor its operations in the event that future projections pull through.

    While riskier than owning physical gold, gold mining stocks also provide leverage against gold prices and as a way of diversifying risk.
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