I don’t want to dive deeply into the gold situation this week. Not much has changed since last week and so my outlook remains the same.
That said, there’s one aspect of getting a trade deal done that I overlooked until recently and that is bullish for gold. That aspect is the strength of the Chinese yuan.
The yuan has been sold off on trade war fears, as investors moved toward the safe haven of the greenback instead. If we get a trade deal, which I still think we will even if it sidesteps the more contentious issues, investors will move back to the yuan, and the dollar will likely lose some ground.
A weaker dollar is, of course, always good for gold, as it is for base metals as well. So add ‘weaker dollar,’ at least initially, to the list of reasons why commodities will do well in the wake of a trade deal. Gold will get some lift from being in the commodity crowd, but will more so benefit as all the investors not willing to risk their bull market gains in the market’s final-hurrah move to the safe haven of the yellow metal.
And investors have certainly been doing so already.
According to a new report from the World Gold Council, holdings in gold-backed ETFs around the world rose by 72 tonnes in January to reach 2,512 tonnes, a 6-percent increase that brought gold ETF holdings to their highest level in almost six years. January was the fourth consecutive month of new inflows for gold ETFs; including December’s standout inflows, global gold ETFs saw $8 billion flow their way.
As interest in gold becomes more apparent, the movers and shakers of the sector are frantically working to get their deals done and their investments placed before things take off. One example: Sprott Inc. and Tocqueville Asset Management just announced a new partnership to co-manage a gold equities investment strategy.
Sprott has a long history of financing explorers and miners, through equity and debt, to the benefit of its investors; it is truly a leader in the resource banking space. John Hathaway, the senior portfolio manager and face of Tocqueville, is similarly esteemed as one of the most respected investors in the gold space. The new partners haven’t revealed much about their plans but it looks likely to be a managed gold exploration and mining fund.
The best investors in the metals and mining space can pick companies and opportunities, of course, but what makes them especially successful is timing. They enter when everyone else is too scared to buy and sell when others are still piling in … before things turn and liquidity dries up. For Sprott and Tocqueville to be partnering now is notable in my books. And it will probably pay to pay attention to the deals they invest in.