Gold Tests $1,700 on Discount Buying, Possible European Rate CutGold has once again fallen victim to global economic concerns, dropping to a four-week low this week on the back of US budget talks and the ever-looming threat of the fiscal cliff. Investors engaged in another commodities sell-off, sending gold to $1,686 on Wednesday, its lowest price this week. But what goes down must, at some point, come back up — and after a two-session decline, gold investors can breathe a little easier: Thursday saw spot gold prices back to toying with highs above $1,700 per ounce.

On Tuesday, Bart Melek, head of commodity strategy at TD Securities, told Bloomberg, ”[g]old is being sold along with just about everything else in commodities with the worries on the fiscal cliff.” Gold, which is widely known as a safe haven asset, is just as susceptible to economic concerns as other commodities, as has been showcased by “knock-on effects” brought on by the threat the fiscal cliff poses to the global economy.

As volatile as gold has been of late, investors buy it up whenever the price is right. The yellow metal’s discounted price has presented investors with a good buy, and many were taking advantage of that on Thursday.

Also helping gold shake off some of its losses is renewed interest in safe-haven buying spurred by European Central Bank (ECB) President Mario Draghi’s comments at a press conference. Draghi hinted further interest rate cuts may be put in place to boost economic growth in Europe. The ECB has cut its growth forecast for the year, anticipating a contraction of 0.5 percent, 0.4 percent higher than originally expected. Low interest rates are considered inflationary and therefore bullish for precious metals.

Gold investors are waiting with bated breath for Friday’s release of the non-farm payroll data and the upcoming Fed meeting slated for next week, where hopefully a resolution will be reached regarding the fiscal cliff. If the US is unable to save itself from falling off the cliff, “the possibility that a $600 billion package of tax hikes and spending cuts due to kick in in the New Year could push the world’s biggest economy back into recession,” according to Reuters.

Does Goldman Sachs stand alone on the end of gold bull market?

Investment heavyweight Goldman Sachs (NYSE:GS) threw in the proverbial gold towel on Wednesday, cutting its 2013 gold outlook on mounting downside risks. The bank reduced its three-month gold forecast to $1,825 per ounce, its six-month to $1,805 per ounce and 12-month to $1,750 per ounce.

In the report, Jeffrey Currie, a Goldman analyst, commented, “[i]n the short term, the combination of more easing and weaker growth should prove supportive to gold. Medium term, however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in U.S. real rates on better US economic growth. Our expanded modeling suggests that the improving U.S. growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013.”

Gold analyst Ron Rosen, however, is not on board with Goldman’s call for the gold bull market, calling the outlook “ridiculous.”

“In spite of all of the negative press gold is receiving today on CNBC because of Goldman Sachs’ call for the end of the gold bull market, everything is right on schedule. The timing of this ridiculous proclamation by Goldman Sachs could not have come at a more perfect time,” Rosen said on King World News.

Rosen still expects a lot of upside potential for the gold market in the coming years.

Morgan Stanley has named gold an outperformer for 2013. The financial firm explained that “[h]igher prices in recent years have brought both a supply and demand response, bringing many to call for the end [of the supercycle]. We view this as too simplistic. Commodities are cyclical but the elasticity of supply and demand, as well as the length of the cycle, vary significantly.”

The close

Gold spot prices touched a high of $1,704.40 on Thursday and closed at an even $1,700.

Company news

In a move that riled some investors, Freeport McMoran Copper & Gold (NYSE:FCX) announced a diversification of its asset base on Wednesday with a $9-billion investment in two oil and gas acquisitions. The company is spending $6.9 billion for Plains Exploration & Production (NYSE:PXP) and $2.1 billion for McMoRan Exploration (NYSE:MMR).

Moody’s has downgraded Gold Fields (NYSE:GFI) to “junk” status following last week’s announcement of a South African spin-off company, Sibanye. In a statement quoted by Bloomberg, a Moody’s representative said, “[t]he negative outlook assigned to Gold Fields Ltd. (GFI)’s ratings is primarily driven by the near-term deterioration of free cash flow and higher reliance of cash flows from its operations in Ghana in the short to medium term, until the South Deep project is complete and can contribute towards healthy positive free cash flows.”

Gold Field’s share price is trading $0.04 lower, at $11.33.

PMI Gold (TSX:PMV,ASX:PVM) and Keegan Resources (TSX:KGN,NYSE:KGN) announced that they will merge and operate jointly under the name Asanko Gold. The merger is geared at creating a leading West African gold development company. The company will be headed by Keegan CEO and president, Peter Breese, and Collin Ellison, managing director and CEO of PMI.

Junior company news

Homestake Resource (TSXV:HSR,FWB:B6IH) announced the extension of silver-lead-zinc mineralization through surface soil and rock sampling on the Kinskuch project. The company has also identified a parallel copper-gold zone on the property.

Sandstorm Gold (TSX:SSL,AMEX:SAND) entered into a gold-stream agreement with Mutiny Gold (ASX:MYG) in order to acquire the Deflector project in Western Australia. Sandstorm will be making an initial upfront cash payment of US$9 million to Mutiny as well as future remittance of $29 million once Mutiny acquires the final permits for Deflector. Sandstorm will be purchasing an amount equal to 15 percent of the gold produced at Deflector.

Nolan Watson, president and CEO of Sandstorm, commented, “[t]he Deflector Project is expected to be a high-grade, low-cost producer and we believe there is significant exploration upside on the property. Australia has a number of excellent assets and we hope this deal is the first of many in the country.”

Puma Exploration (TSXV:PUM) announced that drill results from 11 holes at Henry East Lens on the Nicholas-Denys property confirm the presence of high-grade gold mineralization.

Queenston Mining (TSX:QMIreported that the final payment of $30 million for the sale of a 50-percent interest in its Kirkland Lake joint venture properties to Kirkland Lake Gold (TSX:KGI,LSE:KGI), originally due on December 3, 2012, has been delayed. Causing the delay is the pending transfer of the AK North property, part of a mining lease that is being renewed by Queenston. The company is waiting on the final signature from the Lieutenant Governor of Ontario.

Manitou Gold (TSXV:MTU) released the results from six of its diamond drill holes for the Gaffney Extension drill program. The program has showcased the “presence of significant gold mineralization over substantial widths and indicates the presence of a large gold system.”

Manitou has expanded its understanding of the gold mineralization as well as the exploration potential of the property, according to the company’s press release.

Pilot Gold (TSX:PLG) reported results from new diamond drill holes from the 2012 drill program being undertaken at the TV Tower project in Turkey. Included in the high-grade results being showcased through the drill program is hole KCD-50 which returned 193 g/t gold over 12 meters.

The company’s chief geologist commented, “[o]ur recent results reinforce that our drilling program is targeted and effective, and will help us further refine our drilling strategy to highlight high-potential targets going forward.”

 

Securities Disclosure: I, Vivien Diniz, have no investment interest in any of the companies mentioned in this article.