Tuesday, 11 February 2014

Gold - an interesting few days

Gold has had a positive last few days.  You don't need to be an expert technical analyst to see that it appears to have double-bottomed at c. US$1200/ounce.


There is lots of talk today about the reasons for this.  Certainly Janet Yellen announcing something unexpectedly positive, about the use of QE, at her first testimony to the House financial services committee today would be taken well - but the chances of this are modest and I don't think this is the real driver.

More insightful might be this Financial Times article (paywall required) which states that

'A 500-tonne gap in China’s gold consumption data is fuelling talk that the central bank took advantage of weak prices last year to bulk up its holdings of the precious metal'.

 
This should not be a great surprise.  China disclosing a significantly larger official reserve number was a macro theme for 2014 I noted at the turn of the year.  The Middle Kingdom may be working through some issues and challenges at the moment but it is still correct to generally be long anything that they are buying. 

The final related issue are the reactions by gold equities.  I thought the reaction to yesterday's corporate release by the Canadian-listed Yamana was insightful.  Seeking Alpha wrote it up well:

'Yamana Gold (AUY +3.7%) reports FY 2013 production that fell short of its forecasts, blaming the shortfall on problems at new operations that it says had been resolved by year's end'.

Note the juxtaposition of a report that actually fell short of forecasts with a share price rise.  Now admittedly the issues at Yamana were not structural enough to really hurt forward forecasts but a few months ago, even the merest hint of bad news was enough to send shares in the sector down.  The much-followed Gold Bugs index is at big levels - again in my amateur chartist opinion - given it is back to levels it rallied off from in July/August last year. One to watch.


Fundamentally though I remain long gold-related plays as discussed in my write-up of Randgold Resources just over a week ago.
 

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