Buyers and Sellers Square Off as Gold Limps to $1,392A two-day gold market sell-off that cut a big chunk off the gold price and sawed billions off small and large gold companies’ market capitalizations had abated to some extent by Thursday. 

Heavy physical buying in Asia and the United States was up against continued selling of gold exchange-traded funds, but on balance, buyers had the edge and the gold price was in the black by market close. Kitco’s Jim Wyckoff noted that the gold price received a leg up on Thursday from a fresh batch of weak US economic data, which lent credence to the notion that the US Federal Reserve will not back off from its $85-billion-a-month bond-buying program, known as QE3.

Spot gold was last quoted up $14.30, at $1,392.25, while COMEX gold futures for June last traded up $9, at $1,391.70 an once.

Buyers of gold jewelry, coins and nuggets are rushing to take advantage of lower prices and US gold coins “have flown off dealers’ shelves” according to a Reuters story.

However, great caution remains among bullion investors, and most observers believe that gold has been dealt a blow that it will take some time to recover from.

“The downward momentum has stabilised over yesterday and today, but we can’t say for sure if that’s abated or we will see more financial investors leaving the gold market and volatility is likely to remain very high in the next few sessions,” Reuters quoted Commerzbank analyst Daniel Briesemann, as saying. “The current support comes from exceptionally higher retail demand for coins and bars in all major markets including Asia, the United States and Europe.”

Gold fell to a two-year low this week, to $1,321.35, after plunging over $160 Monday, its worst one-day drop in 30 years. Holdings of the world’s largest gold exchange-traded fund, the SPDR Gold Trust (ARCA:GLD), have fallen to their lowest level in three years as sellers liquidate their positions.

The carnage has spread like a cancer to junior, mid-tier and major gold producers, as well as explorers, many of which have seen their market capitalizations severely diminished. The Financial Post published a story on Thursday that states that the FTSE Gold Mines Index has collectively lost about US$169 billion in market value since bullion peaked in September 2011. Gold equities, notes the Financial Post, are trading at their lowest level in 20 years after this month’s 14-percent plunge in the gold price.

A look at the stock prices of some of the companies affected is illustrative. Of the major gold producers listed on the New York Stock Exchange, Barrick Gold (TSX:ABX,NYSE:ABX) is down 28 percent over the last five days, Goldcorp (TSX:G,NYSE:GG) lost 12 percent, Kinross Gold (TSX:K,NYSE:KGC) fell 25 percent, AngloGold Ashanti (NYSE:AU) is off 18 percent and Newmont Mining (TSX:NMC,NYSE:NEM) is down 16 percent. Small producers were spared no less pain, with B2Gold (TSX:BTO) down 25 percent over the last five days, along with Osisko Mining (TSX:OSK), which is down 33 percent, and Gran Colombia Gold (TSX:GCM), which is down 23 percent. Even explorers not in production, but with multimillion ounces, were hit by the gold price drop. In the last five days, Continental Gold (TSX:CNL) has declined 34 percent, Seabridge Gold (TSX:SEA,NYSE:SA) has dropped 22 percent, Torex Gold (TSX:TXG) has fallen 23 percent and Pretium Resources (TSX:PVG,NYSE:PVG) has slipped 14 percent.

The way forward is fraught with uncertainty, but an interesting take on the situation comes from Ross Norman, CEO of bullion dealer Sharps Pixley. Norman argues in an editorial that the gold market is seeing a split developing between “paper” traders who are selling gold futures and continuing to short the metal — thus driving down the price — and buyers purchasing gold at its current discount, thus stabilizing the price.

“Rarely has the gold market seen such a clear split, with the paper traders heading south while the physical heads north. The former has the advantage of leverage (via the futures) while the latter has scale,” Norman states, before ending with a prescient, though ultimately unfulfilling, conclusion.

“This leaves the market with a large long and large short position — and they cannot both be right — gold is therefore set up over the next few weeks as specs take on investors — place your bets please …”

Company news

Montreal-based Dynacor Gold Mines (TSX:DNGachieved record gold production in the first quarter from its mines in Peru. Dynacor said its quarterly best of 20,027 ounces was a 7.7-percent increase from the last quarter and a 52.8-percent increase from Q1 2012. The company attributed a high average ore grade of 35.42 grams per metric ton for the impressive production figures.

Newmont Mining produced 1.165 million ounces of gold in the first quarter, 11 percent less than Q1 2012, the US-based gold major reported this week. The company attributed the production decrease to record cold weather in Nevada, which impacted mill availability, along with lower-than-expected ore grades at its Twin Creeks and Carlin mines. However, Newmont said it expects to increase production capacity in the second half in order to reach its full-year attributable gold production of 4.8 to 5.1 million ounces gold and 150 to 170 million pounds of copper.

Junior company news

Canadian junior explorer Aurania Resources (TSXV:AOZ) raised $2 million through an initial public offering announced last Thursday. The funds will go towards developing Aurania’s Mont Chemin project in Switzerland, where the company is also planning to explore two uranium targets.

Unigold (TSXV:UGD) announced a $5-million investment from IFC, a member of the World Bank Group. “Having IFC’s approval to their high standard of technical, environmental and social due diligence in this investment will mark a significant endorsement to the viability of the Candelones deposit and the Neita Property in general,” Andrew Cheatle, Unigold’s CEO, said in a statement.

Canada-based West Point Resources, a private exploration company, has filed its preliminary prospectus with SEDAR in connection with a proposed initial public offering. West Point holds an option to acquire the Ruby Range project, which consists of 416 mineral claims covering 1,296 hectares in the Yukon.

Magellan Minerals (TSXV:MNM) provided updates on the feasibility study at its Coringa project in Northern Brazil, which is expected to be completed in October 2013.

 

Securities Disclosure: I, Andrew Topf, hold an equity position in Goldcorp.

Related reading: 

Gold Drops Over 8 Percent in Worst One-day Decline Since 1983

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Has Gold Lost its Luster?