Brighter US Economic Picture Freights Gold

The sell off that occurred in gold last Friday due to a healthier-than-expected employment report continued this week with the result that bullion fell as low as $1,366.55 — its lowest since May 23 — on Tuesday before recovering to $1,387.25. Reuters reported that two factors weighing down gold this week were Standard & Poor’s lifting its sovereign credit rating for the US from negative to stable on Monday, and a lack of new economic stimulus from Japan. The latter, along with recent signals from the US Fed that monetary easing could be dialed back, is denting bullion’s appeal as a hedge against inflation.

“The market is coming around to the view that the Fed will taper quantitative easing,” Reuters quoted Credit Agricole analyst Robin Bhar, as saying. “The fact that the economy seems to be creating jobs, as we saw with the payrolls report [last] Friday, makes Fed tapering more likely than not.”

More positive economic news coming out of the US, including stronger retail sales, was a further drag on gold on Thursday. The precious metal was last quoted down $10.80 at $1,378, while COMEX gold futures for August slipped $15.20 to close at $1,376.80.

China launches gold ETPs

China has approved two exchange-traded products backed by gold, Bloomberg reported, even as holdings in gold ETFs dropped to a two-year low. The funds will be denominated in Chinese yuan and traded on the Shanghai Stock Exchange.

Company news

Kinross Gold (TSX:K,NYSE:KGC) said Tuesday that it will not proceed with its Fruta del Norte project in Ecuador, citing disagreements with the Ecuador government over the massive gold-silver project. The news caused Kinross shares to slide 6.3 percent Tuesday on the Toronto Stock Exchange. BN Americas quoted the VP of Kinross in Ecuador as saying that the decision to pull FDN was due to the 70-percent windfall tax on mining companies being debated this week in the country’s parliament.

Africa-focused Endeavour Mining (TSX:EDV) said Wednesday that its Agbaou gold mine in Côte d’Ivoire is 75 percent complete with about three-quarters of the US$160-million construction budget committed. Annual production at the mine is estimated at 450,000 ounces, adding to the 300,000 ounces Endeavour currently produces from mines in Mali, Ghana and Burkina Faso. 

US gold producer Newmont Mining (NYSE:NEM) said this week that it is eliminating a third of its Colorado workforce, citing “ongoing price volatility and steadily rising costs.” The workers will be let go in the next three months. Newmont employs about 40,000 people worldwide, including employees and contractors.

In other Newmont news, Reuters reported that Suriname’s National Assembly approved an agreement between the government, Newmont and Alcoa Worldwide Alumina to develop the Merian gold mine. The deal, which allows the government a 6-percent royalty payable in gold, comes a day after Iamgold (NYSE:IAG,TSX:IMG) was permitted by Suriname to expand its Rosebel gold mine, Reuters said.

McEwen Mining (NYSE:MUX,TSX:MUX), the company headed by Goldcorp (NYSE:GG,TSX:G) founder Rob McEwen, plunged over 7 percent on Tuesday after announcing it is scaling back production plans. MUX, with mines in Mexico and Argentina, said “our capital requirements have been significantly reduced to a point that our cash reserves and cash flow from operations could be sufficient to fund the majority of our revised production growth,” meaning production will be cut from 290,000 to 225,000 gold equivalent ounces by 2016. The decision also effectively means that McEwen is no longer planning to sell its Los Azules project in Argentina due to its lower capital requirements.

Junior company news

Pretium Resources (TSX:PVG,NYSE:PVG) jumped to $8.53 on Wednesday, a 7.5-percent lift from the previous day’s close, after the Vancouver-based company released a prefeasibility study on its Brucejack gold-silver project in Northern British Columbia. Based on a gold price of $1,350 per ounce, the project has a pre-tax net present value of US$2.7 billion, generating a 42.9-percent internal rate of return within a payback period of 2.1 years. The mine would run for 22 years and produce an average 425,700 ounces of gold per year for the first 10 years and 321,500 annually for the life of the mine.

Unigold (TSXV:UGD) reported that drilling at the Candelones Connector Zone identified continuous, near-surface gold mineralization at the Neita concession in the Dominican Republic. The current drilling at Candelone Main and Candelones Extension is scheduled to be completed by the end of June.

Colossus Minerals (TSX:CSI) announced the closing of the previously announced offering of $28.75 million with GMP Securities and Dundee Securities as co-lead underwriters on their own behalf and on behalf of a syndicate of underwriters. The proceeds will fund exploration expenditures on the Serra Pelada gold-PGM project in Brazil.

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

Related reading: 

Kinross Scraps Fruta del Norte as Ecuador Votes on Mining Reforms