By Dave Brown – Exclusive to Gold Investing News
As political debate was waged this week over whether a second stimulus package is necessary, the economy’s fragility was accentuated by an increase in the unemployment rate to 6.1 per cent in August. The street consensus was at 5.8 per cent and figures indicate the labor market is deteriorating faster than US central bankers expected.
Treasury Secretary Henry Paulson announced plans on Friday to acquire Fannie Mae and Freddie Mac under government regulation via a conservatorship, endeavoring to terminate the absence of confidence in these companies which combined make up almost half the U.S. mortgage market. Under a conservatorship, the authorities would seek to preserve Fannie and Freddie assets, rather than dispose of them. The net result of news flow on Friday seemed to support gold prices, as the spot price for the precious metal closed at USD US$803.50 per troy ounce, which was a slight increase of 0.9 per cent over the previous trading session.
The Merrill Lynch European Metals and Mining team, issued a report on Thursday, acknowledging a potential for down side pressure on gold prices short term. The research, however, offered strong support for gold over the medium to long term. The analysis was primarily based on the weakness of the US economy and its exposure to a declining trade balance, with increased demand for gold created by existing credit stress and a depressed labour market situation, in addition to the strong fundamentals of physical demand.
City of gold
Arabian and Indian consumers have used short term volatility to acquire gold, as Arabian Business reported last week that sales in Abu Dhabi were up by 300 per cent in August. Some observers are forecasting that prices for the precious metal are set to rise by 25 per cent during Ramadan, particularly towards the end of the Holy Month. Earlier, in August, Dubai Multi Commodities Centre (DMCC) issued a press release that gold traded through Dubai ascended 48 per cent over the year to total US$13.1 bl in the first half of 2008. Ian MacDonald, Executive Director for Gold & Precious Metals, said, “Demand for gold has been resilient to global market conditions. Despite high volatility in prices, gold trade through Dubai continued to surge, reiterating the emirate’s prominence as a global centre for gold and precious metals.” Dubai has been asserted as the “City of Gold”, and even hosts an annual gold conference each year in the spring.
Indian religious festivals usually operate as a catalyst for increased gold prices during the fall months, as this has been the usual trading pattern, with a strong upturn after a low in the summer. Gold purchases as gifts for Christmas and New Year will generally follow.
Company news
Kinross Gold (TSX: K, NYSE:KGC), issued a press release on Thursday to announce the successful completion of the acquisition of Aurelian Resources (TSX: ARU). Kinross now owns approximately 74.8 per cent of Aurelian’s issued and outstanding common shares on a fully-diluted basis. Kinross President and Chief Executive Officer Tye Burt said, “We are pleased that Aurelian’s shareholders have accepted our offer. We welcome them as Kinross shareholders and as participants in our growth strategy, including our plans to advance development of the Fruta Del Norte deposit responsibly, in cooperation with the government and people of Ecuador.”
Kinross currently has infrastructure in the country from early-stage exploration activities and management indicated that they have conducted extensive due diligence on the property, and have been working with Aurelian at the mine site for some time.
The BMO Capital Markets Research and Mining team resumed coverage of Kinross Gold, issuing an “outperform” rating with a 12 month price objective of US$21.00 which represents a 45.5 per cent premium to current valuation levels. The bullish commentary was retained, given a favourable outlook for growth and the solid record of execution for the group.
In after hours trading on Friday, the share price of Kinross Gold climbed to US$14.43 for a net gain of 4.1 per cent over the previous day’s close. Headquartered in Toronto, the company has a market capitalization of US$8.7 bl and engages in mining and processing gold and silver ores with a principal focus on gold, as well as in the exploration for and the acquisition of gold bearing properties in North America, South America, the Russian Federation, and internationally.
