For qualified investors

Monthly Gold Report

20-Nov-2017
By BlackRock

October Report

Global macroeconomic data was generally positive during October, with strong US jobs figures emerging and China’s manufacturing PMI coming in at 51.0.

Performance Table

(all figures in US$)

Weekly Gold Report

Source: DataStream

Summary

Global macroeconomic data was generally positive during the month, with strong US jobs figures emerging and China’s manufacturing PMI coming in at 51.0. Towards the end of the month, Mario Draghi, the President of the European Central Bank (ECB), announced that basic interest rates would be kept at their present zero level and also announced the lengthening of its asset purchasing programme, albeit at a lower rate, meaning that as from January 2018, the ECB will be printing and injecting €30 billion a month into the Eurozone’s financial system as opposed to the current €60 billion. Elsewhere, the Federal Reserve (Fed) has voted to hold interest rates steady following two interest rate hikes this year, in response to signs of economic improvement. However, continued speculation that the US Fed would increase rates in December negatively impacted the gold price. In this continuing risk-on period for broader markets, gold has been relatively benign, with the precious metal falling by -1.1% to end the period at a price of $1,269/oz.

Gold ETFs were flat in October and are currently at ~2,157 tonnes. Meanwhile, the Comex speculative position decreased by ~66 tonnes to ~595 tonnes compared to ~661 tonnes at the end of September.

Gold & Gold Shares

Gold chart

Source: DataStream, data to 9thNovember 2017

The chart above shows that in more recent periods, gold shares are exhibiting a higher beta to moves in the gold price.

Outlook

We expect to see a relatively range-bound gold price environment over the next 12-18 months but with upside surprise risk. Global economic growth appears to be improving which is likely to be supportive for broader equity markets and could act as a headwind for gold. However, we see a lot of uncertainty today, given events such as Brexit, the new US administration and unrest in the Eurozone, and this doesn't appear to be being priced into financial markets today. With broader equity markets at all-time highs after an extraordinary bull-run that has appeared to have been fuelled by monetary policy, we continue to believe in the importance of an allocation to gold equities.

Over the longer-term, we expect the general trend of the gold price to be an upwards one as rising incomes in emerging markets support retail demand and the absence of new, large gold discoveries constrains supply. Gold equities are trading at attractive free cash flow multiples today as strength in the gold price has coincided with the companies having made strong progress in terms of improving their balance sheets and reducing costs.