Gold prices declined this week due partially to continued weak economic data suggesting that the European Union is on the verge of collective economic recession. Following the emergence of no major developments at Wednesday’s EU summit meeting, Germany is maintaining resistance to euro bond issuance as part of strengthening the Eurozone’s financial and debt problems. Gold prices have fallen about 1.2 percent during the week as concerns over the Eurozone debt crisis pressured the euro and other risk assets. Weak economic data also came out of China as banks indicated weakness in the credit market. Spot market gold prices are trading in the range of $1,561.80 per troy ounce.
Institutional and central bank support
Mike Harrowell, senior resources research analyst at BBY Ltd., indicated that gold prices could be supported by speculative money flows, including institutional and central bank purchases, commenting, “there has been some support in the ETF market for the gold price. We are continuing to see some evidence of central bank purchases and we are heading into the stronger buying season as we get into June, July, and August. In the scheme of things we are in a position where gold could potentially be supported, but it is all really at the stage about what the speculative flows of money do.”
Newmont Mining Corp. (TSX:NMC,NYSE:NEM) indicated that it will reduce its capital expense for a gold mine project in Peru by 66 percent until the end of next year because of governmental and environmental review delays.
The company had previously budgeted $1.5 billion, but is now expecting to spend $440 million on the Conga project. The company is expected to make a final decision in early June on whether to go ahead with the project, which has sparked protests over the issue of water supplies for local farmers and communities.
This news is of significance to investors as it could indicate overall confidence in the profitability of a top producer’s major project. If the project advances as the company originally intended, it could provide a boost to industry stakeholders; however, a message of operational risk and cost concerns may imply a discount for the underlying asset.
Newmont’s position also reflects a general industry trend that is recorded in the most recent Pipeline Activity Index (PAI) from Metals Economics Group. The data shows the PAI reached its highest level this year in March before declining again in April on lower financing and drilling. Drilling activity remains lower than last year’s highs as adverse markets continue to make financing very difficult for junior-level explorers. Many junior explorers are reporting sufficient cash on their balance sheets, but the group believes many will scale back their programs to conserve cash.
Junior company news
Edgewater Exploration Ltd. (TSXV:EDW,OTCQX:EDWZF) completed the earn-in option as set out in an option agreement with a subsidiary of Kinross Gold Corp. (TSX:K,NYSE:KGC) from May 2010. Edgewater now hold a 51 percent interest in the Enchi gold project.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.