By Dave Brown — Exclusive to Gold Investing News
The price of gold has trended lower over the last week, down approximately 2.3 percent to the range of $1,639 per troy ounce. Earlier in the week prices were mainly driven by concerns about Spain’s ability to control its finances against default risk following reports of Spanish banks borrowing from the European Central Bank.
On Thursday disappointing initial jobless claims, reduced existing home sales, and tepid numbers from the Federal Reserve Bank of Philadelphia’s regional manufacturing index boosted arguments in favor of more accommodative monetary policy. All of these reports provide a potentially positive outlook for gold.
Running counter to this economic data were reports from a number of big companies such as Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), Southwest Airlines (NYSE:LUV), UnitedHealth Group (NYSE:UNH), and eBay (NASDAQ:EBAY) that beat Wall Street forecasts.
Out of Europe
Investment demand for asset classes considered higher risk, including euro-denominated securities and equities, fell slightly following the Spanish debt auction. Spain sold all the bonds at the auction; however, rising yields proved to be a concern for investors. The country wants yields to remain below six percent as that should inspire a level of confidence in fiscal solvency.
On the horizon
Investors will be keenly anticipating a Federal Reserve meeting next week, at which policymakers will discuss US monetary policy. Traders will be interested to note any clues on whether a third round of quantitative easing (QE) is expected. More QE would keep interest rates at historically low levels, and consequently affect the opportunity cost of holding gold positions.
Three independent European auditors issued a 260 page government-sanctioned environmental impact study of Newmont Mining Corporation‘s (TSX:NMC,NYSE:NEM) plans for its $4.8 billion Conga project in Peru.
Newmont had been planning to replace four alpine lakes with artificial reservoirs, which concerned community and environmental interest groups. The report said the gold mining company should consider leaving two lakes intact and increasing the amount of water held in artificial reservoirs. Additional considerations recommended increasing soil conservation, security of waste storage, and capacity in the artificial reservoirs.
Gold investors will be interested in the fact that trends toward government intervention and project impediments are inevitably increasing costs and time delays. Reconciling the interests of conflicting stakeholders is a challenge that all governments face, and it becomes part of the sovereign risk premium that affects share price volatility.
Junior company news
Calibre Mining Corp. (TSXV:CXB) announced positive drill results from its joint venture Primavera gold and copper project with B2Gold Corp. (TSX:BTO). Exploration at the project is set to continue with infill drilling on the main Primavera zone.
Strongbow Exploration Inc. (TSXV:SBW) plans to complete a sonic drilling program at the Midway and Ridgeway gold projects in South Carolina. The four-week program is expected to start during the first week of May, and includes the five holes already completed during a short test program in early April.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.