Precious metals investors were optimistic that the ECB might resume its bond purchasing program after Draghi said a week ago that the central bank will “do whatever it takes” to preserve the embattled euro. That news helped gold rally to $1,629.10 an ounce, its highest level since the middle of June.
On Thursday, however, the precious metal slumped after Draghi indicated that no immediate measures will be taken and that the bank will hold the line on interest rates and defer a decision on any monetary stimulus. At the close of the trading session, spot gold was down just over $1 to close at $1,588.60 an ounce, while US gold futures for December delivery were down $18.30 an ounce at $1,589.
It now appears that the ECB will hold off for several weeks on purchasing bonds, a policy designed to hold down borrowing costs on countries like Spain and Italy, peripheral Eurozone nations that are becoming unsustainable.
Reuters quoted a senior manager at Danish investment bank Saxo as saying, “Draghi came and failed to deliver. It shows how fragile the situation currently is that people look more towards the central bank for support then their governments.”
Meanwhile, inaction was also the prevailing trend in the United States this week. The Federal Open Market Committee (FOMC) signalled that it will not, as gold investors had hoped, pull the trigger on quantitative easing (QE), although expectations that a third round of stimulus will take place next month remain. QE is considered to be bullish for gold because the new money is expected to stimulate demand and cause inflation, which makes commodities, especially precious metals, attractive as an investment vehicle.
This week South Korea continued the trend of central banks buying gold to build up their reserves. The Bank of Korea bought 16 metric tons in July for its third purchase of bullion in just over a year. The country bought 15 tons in November and 25 tons in June and July of last year, bringing total reserves to 70.4 tons currently, Bloomberg reported.
Kinross Gold (TSX:K,NYSE:KGC) CEO Tye Burt became the fall guy for the company’s dismal performance this year. The board at Canada’s third-largest gold producer decided Wednesday to dump Burt and promote Paul Rollinson, executive vice president of corporate development, to the top position. The news should come as no surprise to Kinross shareholders, who have been wringing their hands this year over Kinross losing $9 billion in market capitalization as its stock plunged 50 percent. The company has endured a number of setbacks, including a work stoppage at its Tasiast mine in Mauritania and a $2.5-billion writedown in connection with its acquisition of Red Back Mining, led by Burt, in 2010. The pain continued for Kinross on Thursday as its shares slipped 5.62 percent in Toronto.
Central Asia-focused miner Centerra Gold (TSX:CG) had a terrible first half, reporting a $69.3 million loss. Centerra said its profits dove 66 percent due to cash costs at its Kumtor gold mine in the Kyrgyz Republic increasing 117 percent. Nevertheless, CEO Ian Atkinson said in a statement that he still expects the company to reach its production guidance of 450,000 to 470,000 ounces of gold this year.
More bad news for Barrick Gold (TSX:ABX,NYSE:ABX) came this week in the form of a ratings downgrade from A- to BBB+ from Standard & Poor’s. The move followed last week’s announcement that Barrick, the number one gold producer, is delaying its Pascua-Lama mine in South America due to 60 percent cost overruns. Second-quarter results from most major gold miners have been disappointing, due mostly to lower production numbers and higher costs.
Junior company news
Australian junior Alkane Resources (ASX:ALK) saw a 4.09 percent bump in its stock price Thursday after getting its Tomingley gold mine approved by the New South Wales government. The project, consisting of three open-pit mines, is expected to start up in 2013 and produce 50,000 to 60,000 ounces per year, for a mine life of 7.5 years.
Yukon-Nevada Gold (TSX:YNG) reported some promising drill results from its Jerritt Canyon project in Nevada. Highlights of the eight-month underground drill program include intersections of 26.23 meters at 11.45 grams per tonne, 3.66 meters at 26.13 g/t, and 10.67 meters at 6.31 g/t.
Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article.