Gold Sinks to 10-month Low on Bearish Fed Signal

Companies exploring for gold, silver and other precious metals took a beating this week, dragged down by a sell off that occurred on Wednesday and by a signal from the US Federal Reserve that quantitative easing could let up by summer. 

The week started off on even footing for gold, with traders returning from the Easter long weekend to find fresh safe-haven demand, the result of North Korea’s threats that it will attack South Korea and the United States. The metal closed up $2 an ounce on Monday to reach the psychologically important $1,600 level.

Gold slipped modestly on Tuesday, to $1,597, but on Wednesday, the bears were out in full force after John Williams, president of the Federal Reserve Bank of San Francisco and a prominent dove on the Federal Open Market Committee, said the Fed’s quantitative easing program could wind down by summer. The program injects $85 billion a month in Treasury and mortgage bonds into the US economy.

“Assuming my economic forecast holds true, I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens we could start tapering our purchases then,” MarketWatch quoted Williams as saying.

The market reaction to the news was swift and brutal for gold. In midday trading, the metal plunged as low as $1,539 an ounce before ending the day at $1,553, a 10-month low. Silver was also hit hard, with May COMEX silver slipping below the $27-an-ounce mark to end at $26.48.

Wednesday’s precious metals sell off was particularly felt by mining companies that explore for and mine such commodities. Mineweb reported that a number of gold explorers, even those with multimillion-ounce deposits, suffered at the hands of market participants, with Torex Gold Resources (TSX:TSG), Pretium Resources (TSX:PVG,NYSE:PVG) and Seabridge Gold (TSX:SEA,NYSE:SA) all seeing their stock prices pummelled. Producers weren’t spared either, with majors like Goldcorp (TSX:G,NYSE:GG), Barrick Gold (TSX:ABX,NYSE:ABX), Detour Gold (TSX:DGC) and Osisko Mining (TSX:OSK) all closing down on the day.

The dismal stock performance from miners reflected a generally ugly day in the North American stock markets, the result of the geopolitical uncertainty in Korea combining with negative US employment data. Kitco noted that the gold price was also pressured this week by investors selling their positions in gold-backed ETFs.

The NASDAQ and S&P 500 (INDEXSP:.INX) lost a respective 17 and 36 points, while the Dow, which this year has enjoyed an incredible run, gave up 112 points. In Canada, where markets have failed to keep pace with their US counterparts, it was more misery, with the TSX giving up all gains from this year to finish at its lowest level in more than three months.

The news was marginally better for gold on Thursday, with a weak US dollar pushing the yellow metal up slightly. COMEX gold futures for June last traded up $2.50 at $1,556 an ounce, while spot gold was last quoted down $1.20, at $1,557.25. Gold market observers are keenly awaiting the results of a key US employment report due out Friday.

Company news

Bloomberg reported that 36 bodies were recovered from a landslide in Tibet that buried 83 people at a copper mine owned by China Gold International Resources (TSX:CGG,HKEX:2099). The slide struck on March 29 at the Jiama copper mine, which is located about 68 kilometers from Lhasa. China Gold is China’s largest gold producer.

Russia’s two largest gold companies have reported starkly different 2012 financial results. The largest producer, Polyus Gold (LSE:POLG), said its net income increased 71 percent, from $573 million in 2011 to $981 million last year. Total revenue was up 19 percent, to $2.9 billion, on higher sales and gold prices. In contrast, Petropavlovsk (LSE:POG), the country’s second-largest gold producer, reported a net loss of $243.9 million in 2012; that’s compared to $240.5 million of net profit in 2011. Petropavlovsk said the losses accrued from “[n]et loss on disposals of a number of non-core assets of $26.9 million, $197.9 million fair value write-down of IRC’s net assets and $21.0 million of other impairments in IRC and $109.5 million impairment of Yamal and other non-core assets took their toll.”

South African producer Gold Fields (NYSE:GFI) said Wednesday that production was halted at its Tarkwa and Damang mines in Ghana after workers launched a wildcat strike. Gold Fields said in a statement that the dispute is regarding profit-sharing payments to workers, anger over the dismissal of an employee and allegations of discrimination between expatriate and Ghanaian employees.

Sibanye Gold (NYSE:SBGL) said Tuesday that it is talking with unions about potential layoffs at it Beatrix West operation after an underground fire hurt output and revenue. ”We are looking at ways to minimize the losses and depending on the discussions with the government and unions there may be layoffs,” Reuters quoted a company spokesman as saying. Sibanye Gold is a spin-off from Gold Fields that listed in February.

Junior company news

Pacific Rim Mining (TSX:PMUannounced Monday that its US subsidiary has filed a US$315-million damage claim against the government of El Salvador. A tribunal in the US will determine whether El Salvador broke the law by refusing to issue mining licenses for the El Dorador gold project. Pacific Rim notes on its website that the deposit hosts over 1.4 million gold ounces.

Pacific Booker Minerals (TSXV:BKMfiled a petition with the Supreme Court of British Columbia aimed at setting aside a September 2012 decision, made by two government ministers, to deny Pacific Booker’s application for an Environmental Assessment Certificate.

Happy Creek Minerals (TSXV:HPY) announced that it has received the results from its 2012 exploration program at Silverboss, a polymetallic deposit containing gold, copper and molybdenum. The survey results identify the potential for large-scale mineralized zones.

 

Securities Disclosure: I, Andrew Topf, hold stock in Goldcorp.