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Groundhog Day for gold

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Groundhog Day for gold

The U.S. dollar lost some momentum on Friday following comments that the Federal Reserve was not behind the curve in raising interest rates.

According to Patersons Securities, the market was expecting a more hawkish speech from Fed Chair Janet Yellen in the face of President Donald Trump's promise to get annual U.S. economic growth up to around the 4% mark.

U.S. stock markets also closed the week modestly higher following Trump's inauguration.

Investor expectations of global growth, meanwhile, have improved to two-year highs, while global inflation expectations remain elevated, according to the January Fund Manager Survey conducted by Bank of America Merrill Lynch.

Chief investment strategist Michael Harnett said prior to Trump's inauguration on Jan. 20 that investors were positioned for stronger growth and inflation, but were not willing to turn fully bullish with China-related risks on the horizon.

S&P Global Ratings believes that GDP growth of over 6% for China in 2017 will keep a banking crisis at bay for another year at least.

"A banking crisis is likely to be avoided yet again in 2017, in light of another year of GDP growth exceeding 6%, and a change in the credit mix to relieve asset quality," credit analyst Qiang Liao said. "However, the current trajectory is not sustainable."

In 2016, Chinese banks accelerated their lending to the public sector and households, as new loans to the riskier corporate sector slowed.

S&P said this change in the debt mix has helped keep a lid on nonperforming loans as a proportion of the total. However, overall economic leverage continues to rise, diminishing funding buffers and making banks more vulnerable to tail risks.

Price Ring

The Platts 62% CFR benchmark iron ore price shifted slightly lower to US$80.10 per tonne on Friday, Jan. 20, from US$80.45 per tonne at the end of the prior week.

Gold made modest gains, closing the week out at US$1,202.07, while palladium climbed 5% to around US$790.50. Platinum, however, slipped 1% to US$975.30.

Sharps Pixley forecasts that palladium will continue to rise in 2017, averaging about US$828 per ounce, but its sister metal platinum will continue to struggle to make headway at an average price of US$1,023 per ounce.

Of the base metals, zinc and lead made gains of 0.6% and 4% to close the week at US$2,736 per tonne and US$2,308.50 per tonne, respectively.

The LME cash price for copper and nickel, however, pulled back 1.5% and 3.8%, respectively. Copper closed at US$5,705.50 per tonne, while nickel finished at US$9,730 per tonne.

Talking points

The start of 2017 is looking very much like a replay of the start of 2016 when it comes to gold.

"I think gold is going to surprise on the upside," MineLife analyst Gavin Wendt told S&P Global Market Intelligence.

"It reminds me very much of where we were at the end of 2015 going into 2016. There was a lot of negativity around gold, gold had been falling, but it surprised everybody right at the start of January 2016 and it just kept rising and I think we're looking at a similar situation."

Following Donald Trump's election as president of the U.S., gold slid 13.5%. However, the downward trend lasted for only about a month before the price of the yellow metal started to head back up. It has since recovered nearly 8% of its losses.

Sharps Pixley expects gold to average US$1,310 per ounce, with a high of US$1,390, this year.

"For longer term investors, the rationale for owning gold is more compelling than ever — and that is the vulnerable macroeconomic environment," analyst Ross Norman said. "Gold has become opaque and unpredictable — as has the world — and that in itself is a good reason to own it. We think physical buyers will lift gold prices by 15%."

While there are concerns that the strong U.S. dollar may limit gold's appeal in 2017, the World Gold Council believes that gold will remain highly relevant as a strategic portfolio component.

The council sees demand for gold this year being supported by heightened political and geopolitical risks, currency depreciation, rising inflation expectations, inflated stock market valuations, long-term Asia growth and the opening of new markets.

Financings

Lithium Americas Corp. landed a US$112 million investment from The Bangchak Petroleum Public Co. Ltd. to fund the construction of its Cauchari-Olaroz lithium project in Argentina. The deal comprises a C$42.5 million placement and provision of a six-year US$80 million project debt facility.

The Canadian company also locked in a US$174 million investment, comprising a C$64 million private placement and US$125 million debt financing, from Ganfeng Lithium.

Galaxy Resources Ltd. secured a US$40 million debt facility from BNP Paribas to repay an outstanding debt with OCP Asia.

Uranium Energy Corp. upsized its previously announced underwritten public offering to about US$26 million, from US$10 million, due to increased demand.

Golden Star Resources Ltd. signed an agreement with a syndicate of underwriters for a bought-deal, including an overallotment option, to raise up to C$34.5 million.

Executive exchange

Resolute Mining Ltd. appointed Lee-Anne de Bruin as CFO, effective Feb. 27. de Bruin most recently held the position of regional CFO in Australia for Newmont Mining Corp.

Stellar AfricaGold Inc. undertook a board and management reshuffle, appointing John Cumming as president and CEO to replace Maurice Giroux, who took up the roles of COO and vice president exploration.

Timmins Gold Corp. named Greg McCunn as CEO and director, effective Feb. 1. McCunn replaces Mark Backens.

Integra Gold Corp. appointed Andree St-Germain to the role of CFO, starting on March 16.

Fortescue Metals Group Ltd., meanwhile, gave the role of CFO to existing board member Elizabeth Gaines, who has been with the Australian iron ore producer since 2013.

Westridge Resources Inc. added Michael Young as president and CEO.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.