Gold prices on the spot market improved slightly on Thursday to $1,580.50 per troy ounce, up $6.30 following two days of downside pressure. Comex gold futures prices ended the period higher, tracking a weaker dollar index and higher crude oil prices. Investors can expect more sideways volatility for at least the next couple of weeks during a traditionally slower trading season. August gold last traded up $8.20 at $1,579 an ounce.
While the World Gold Council reports that gold prices have declined in most currencies during the second quarter partially due to a strong US dollar, exceptions to this trend include the euro, Swiss franc and Indian rupee. Fears of deflation and a global economic slowdown have weighed heavily on gold, which is also used by some institutional investors as a hedge against dollar depreciation. Gold experienced a relatively volatile quarter highly leveraged as a result of a busy period of “event-risks.” Despite a 3.8 percent decline during the second quarter, gold was still up 4.4 percent during the first half of the year and the council observed that gold has generally outperformed risk assets.
Gold discovery not keeping pace with production
Metals Economics Group (MEG) announced a study, Gold Discoveries Not Keeping Pace with Mined Production, which suggests that the quantity of significant (over 2 million oz) gold discoveries over the last 14 years could potentially replace only 56 percent of the estimated gold mined during the same period, if they are economical to mine.
The study notes that despite the apparent shortfall in new discoveries, the biggest challenge for the replacement of current reserves is not that there is “no” gold left, but that all the “easy” gold has been discovered. Part of this issue is connected to a broader theme of the economic viability of the discovered gold. This becomes heavily dependant on risks and variables including location, politics, capital and operating costs, and market conditions, which will inevitably affect the amount of resources that will reach production. The MEG believes that with the growing risks of operating in some jurisdictions the amount of gold available for production in the near term is likely far less than has been found.
The challenge of financing gold projects remains very difficult for junior exploration and development companies. Even within established exploration programs for top producers, companies are selectively focusing capital to the most prospective targets to ensure that they are positioned well in the future. The MEG believes that a seasonal trend will likely keep drilling steady for the coming months, but they are not expecting exploration budgets to reach the levels of last year.
Osisko Mining (TSX:OSK) was ordered by a court in Argentina to cease work on a gold exploration project. Authorities in the province of La Rioja, supported by environmental activists and residents, had asked a judge to issue a halt. Last August the company signed an agreement with the provincial government to start exploration work at the site. Argentina’s relatively underdeveloped mining industry compared with South American neighbors Chile and Peru has stimulated investment interest, reaching a record $2.6 billion last year; however, the strong local opposition for some projects from environmental interests and communities may suggest an increased risk premium in the future.
New Gold (TSX:NGD, NYSE:NGD) reported a 30 percent increase in measured and indicated gold resources to 7.1 million ounces at its Blackwater Gold project in central British Columbia. The gold producer already has operating assets in the United States, Mexico, and Australia with exploration and development projects, including the New Afton copper-gold project in Canada and a 30 percent interest in the El Morro project in Chile. The next step for the company will be to apply the latest resource estimate as the basis for a Preliminary Economic Assessment (PEA) for the Blackwater Gold project expected to be announced in September.
Junior company news
Canamex (TSXV:CSQ) announced positive drill results for its Bruner gold project in Nevada. Drill hole B-1201 intersected 118 metres at 4.08 grams per tonne (g/t). A five-foot (1.64 meters) section of the intercept saw spectacular gold grades of 132.5 g/t. The company stated these are the best intercepts to date at the project. The share price has appreciated approximately 255 percent since the news was announced Wednesday on high trading volumes.
GoldQuest Mining Corp. (TSXV:GQC) reported the results of the second hole drilled on the Romero discovery at Las Tres Palmas in Mexico. ”Results from hole LTP 92 are a significant addition to our understanding of the Romero mineralization, and extends at depth 138 metres below the initial discovery hole,” commented Julio Espaillat, GoldQuest’s CEO.
Corvus Gold Inc. (TSX:KOR) released the results from a series of bottle roll tests performed on samples collected from historical mine waste dumps at the Mayflower deposit. The market has demonstrated its confidence in the news as the share price rose approximately 16 percent since the news release.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.