Gold’s Mini-Rally Runs Out of Steam

Did Gold Analysts Get the Price Right for 2012?Gold bugs had something to cheer about on Monday but the good mood was shortlived as the metal gave up gains and traded mostly sideways in the run-up to US monthly jobs data due out on Friday.

It wouldn’t have taken much for gold to show improvement over last week’s performance, when it dropped to low after low, eventually finishing at $1,180.50 on June 28, its lowest since August 2010.

Since a historic $200 drop in mid-April, traders and investors have been dumping gold over persistent fears that the US central bank will end quantitative easing by next year.

But on Monday, the start of the third quarter, the gold price surged nearly $40 an ounce to hit a daily high of $1,262. The gains were led by bargain hunters keen to snap up the precious metal at low prices, along with a weaker US dollar. Rioting in Egypt, where protesters are calling for the resignation of President Mohammed Morsi, helped to build up some much-needed safe haven demand for gold.

By Tuesday, however, the rally had fizzled, with early-session short covering and bargain hunting giving way to selling pressure due to the US dollar reaching a four-week high. Gold and the dollar have an inverse relationship, with the gold price generally appreciating as the dollar falls, and vice versa. Spot gold and gold futures for August delivery both moved down to $1,245 on Tuesday. Wednesday was a better day for the yellow metal, with a weaker dollar and more geopolitical tensions in Egypt pushing gold futures up to $1,252, but by Thursday gold was once again under the $1,250 an ounce mark.

Reuters reported that gold was falling today as investors wait for US jobs data that would provide a clue as to when the Federal Reserve could end its $85-billion-a-month stimulus program, and a slide in the euro due to a signal from the European Central Bank that interest rates should stay low.

Spot gold slipped 0.3 percent from the previous session to $1,249.31, while August gold futures were at $1,249.50, moved only by electronic trading, with the trading floor in New York closed due to the Independence Day holiday.

Indian jewelry companies hurting

Demand for gold is often described as either “the fear trade” or “the love trade”, and the latter has certainly characterized gold’s appeal in India, the largest consumer of the yellow metal where it is mostly bought as jewelry.

But the Indian government has recently tried to curb the enthusiasm, so to speak, of gold buyers through a hike in import duties meant to tackle the country’s yawning current account deficit.

That has had the unintended effect of hurting the stocks of Indian jewelry companies, reported Mineweb, because most gold jewelry retailers hold large inventories of gold. Gitanjali Gems, (BOM:532715) India’s largest gold and jewelry company, has shed $499 million in value with its stock price down 60 percent to its lowest level in 27 months. Other big jewelry names in India, including Titan Industries (BOM:500114), Shree Ganesh Jewellery House (BOM:533180), Tara Jewels (BOM:534756) and Tribhovandas Bhimji Zaveri (BOM:534369) are down between 2 and 17 percent, Mineweb said.

Company news

Barrick Gold, (NYSE:ABX, TSX:ABX) the world’s largest gold company in terms of ounces produced, said last Friday it will delay its Pascua-Lama gold and silver project in South America until the middle of 2016, resulting in a writedown of as much as $5.5 billion. The project is over budget by around the same amount, but Barrick said expenditures will be reduced by $1.5 to $1.8 billion.

First production is now targeted for mid-2016 using ore from Chile (the mine straddles Chile and Argentina), and Barrick says it will submit a plan to construct a water management system to Chilean regulatory authorities by the end of 2014, after which remaining construction will be completed included pre-stripping. Pascua Lama was originally slated to begin production in the second half of 2014.

Barrick’s rival Goldcorp (NYSE:GG, TSX:G) said Thursday it is evacuating employees from its Éléonore project owing to forest fires in the James Bay region of Quebec. The fire, currently about 100 kilometers away, is advancing toward the minesite with prevailing winds, the company stated. Goldcorp has completed a prefeasibility study on Éléonore and plans to pull 600,000 ounces a year from the mine, with first production starting in late 2014.

Teck Resources (NYSE:TCK, TSX:TCK.B) Canada’s largest diversified mining company, has become a shareholder in Midas Gold (TSX:MAX) through a $9.8 million private placement announced on Thursday. The purchase of 12,740,000 common shares gives Teck a 9.9 percent stake in Midas, which is developing the Golden Meadows gold-antimony-silver project in Idaho. The financing comes after a deal announced in May whereby Midas sold a 1.7 percent net smelter return royalty on production from Golden Meadows to Franco-Nevada (NYSE:FNV, TSX:FNV) for $15 million.

Amara Mining Plc (LSE:AMA, TSX:AMZ) may be getting help from Korean electronics giant Samsung (KRX:005930) to build a gold mine in Sierra Leone, Bloomberg reported. Amara is seeking to raise $151 million to develop the Baomahun mine, which would average 148,550 ounces a year for the first six years. According to a story that ran Wednesday, Bloomberg said the initial loan from Samsung would be paid back using gold delivered from the mine at a discount to the spot price.

Junior company news

A planned restart of Sutter Gold‘s (TSXV:SGM) Lincoln mine in California has been delayed. The mine had planned to ramp up in Q4 2013, but as Mineweb reported, “RMB Australia Holdings, which has funded development and construction costs at Lincoln, located near Sutter Creek, California, has requested cost reductions as a condition of further funding.” Sutter responded by saying that it has made changes to senior management and refined the development plan for the project. Sutter CEO Leanne Baker was replaced by Richard Winters, the president of RMB Resources, which owns a 48 percent stake in Sutter Gold through an affiliate. About a third of the current positions at the Lincoln mine were also eliminated.

TomaGold (TSXV:LOT) intersected 9.6 g/t gold over 2.25 meters, including 17 g/t Au over 1 m, at a vertical depth of 315 m, from its 2,000-meter drilling program on its Winchester property, located south-southwest of the Monster Lake property in Quebec, Canada.

Northern Vertex (TSXV:NEE) reported assays from its 15-hole, 2,527 meter  diamond drilling program on the Moss Mine project in Mohave County, Arizona. “The results substantiate the potential of the widespread stockwork mineralization to continue to the south beyond the current limit of the mineral resource estimate,” the company stated.

 

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

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