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Total gold demand decreased 7 percent in the second quarter, but the buying of bullion by central banks reached a record level. A lower dollar helped push gold up again this week as speculators continued to anticipate a fresh round of stimulus.
“[It] is clear that gold’s fundamental properties as a vehicle for capital preservation and a source of liquidity continue to endure. This is evident from the activity of central banks, the ultimate long-term investors, which continue to increase their gold holdings to diversify reserves and protect against reliance on one or more foreign currencies,” Marcus Grubb, managing director of investment at the World Gold Council, said in releasing the council’s Gold Demand Trends report.
Central banks, including those in Kazakhstan, the Philippines, Russia and Ukraine, increased their bullion holdings in the second quarter to 157.5 tonnes — more than double compared to the second quarter of 2011, when the central banking sector bought 66.2 tonnes, and representing 16 percent of total gold demand. It was also the highest level of buying since central banks became net buyers of gold in Q2 2009, according to the report.
While central bank buying is up, global gold demand dropped during the quarter, due mostly to softening investment and jewelry demand in the key gold markets of China and India. Gold demand was 990 tonnes in Q2 compared to 1,065.8 tonnes in the second quarter of 2011 — a 7 percent decline. Although, as the WGC points out, demand for gold was exceptional last year.
Second-quarter investment and jewelry demand in India slipped to 181.3 tonnes compared to 294.5 tonnes in the same period last year. In China, total gold demand was off 7 percent as Chinese investors refrained from buying bullion and jewelry in the face of gold price uncertainty.
In value terms, gold demand has remained stable year on year at US$51.2 billion compared to $51.6 billion in the same period last year. The average quarterly gold price was $1,609.49 per ounce, which is 7 percent higher than the average price in Q2 2011, states the report.
WGC’s Marcus Grubb said in a video clip that the council is bullish on gold considering the global economic uncertainty that continues to persist:
“We expect to see more policy easing in the Eurozone. There is the risk of an exit by Greece and bailouts for Spain and Italy before the end of the year. You’re likely to see possible quantitative easing in the United States because the US economy is not growing fast enough to reduce unemployment significantly, and also you’re likely to see more policy easing in China, as growth slows down, there is latitude for interest rate cuts in China. So we think that will all be positive for the gold price, towards the end of the year.”
Central banks aren’t the only investors turning to bullion in this period of economic turbulence. Mineweb reported that prominent investors George Soros and John Paulson increased their gold holdings this week, with Paulson upping his position in the SPDR Gold Trust by 26 percent in the second quarter and the Soros Fund doubling its holdings in SPDR Gold Trust — the world’s largest gold ETF. Vinik Asset Management and Eton Park Capital, however, sold their shareholdings during the quarter, reported Reuters.
Bullion trends up on lower US dollar
Looking at gold this week, bullion finished up slightly higher Thursday on a weakening US dollar and higher oil prices. Gold for December delivery traded up $12.30 an ounce at $1,618.90, while spot gold finished up $12.70 at $1,617.25. Drivers for the softened dollar were a weaker-than-expected Philadelphia Fed business survey and a housing starts report that showed weaker starts in July. The yellow metal also firmed on speculation that central banks are planning to engage in another round of monetary stimulus, which is considered bullish for gold.
“It’s all about easing, and people are especially waiting for the Fed since investors expects prices will rise” if the central bank announces more gold purchases, BB&T Wealth Management’s Walter “Bucky” Hellwig” told Bloomberg. “People are willing to hold on to gold to see what the Fed will say.”
Company news
Harmony Gold (NYSE:HMY) showed a precipitous decline in fourth-quarter earnings despite a 14 percent gain in production. The third-biggest gold producer in South Africa lost 20 cents per share in the three months to end of June, compared to a profit of $2.34 per share last quarter. Harmony said gold production rose to 320,351 ounces on higher tonnage and better ore grades, but operating costs were also up 5 percent, due mainly to an increase in electricity tariffs.
The world’s number one gold producer, Barrick Gold (TSX:ABX,NYSE:ABX), began pouring the first commercial gold from its Pueblo Viejo mine in the Dominican Republic. The mine, which is jointly owned by Barrick and Goldcorp (TSX:G,NYSE:GG), has 25.3 million onces of proven and probable gold reserves. Commercial production is estimated to begin in the fourth quarter of this year. In its first five years of production, Barrick’s share of the mine’s production is expected at 625,000 to 675,000 ounces at cash costs of $300 to $350/oz.
Barrick also said it is in talks to sell a majority stake in its Africa unit to China National Gold Group — the country’s largest gold company — as it tries to deal with falling profits and soaring costs.
Egypt-focused gold producer Centamin (TSX:CEE,LSE:CEY) reported record gold production this quarter from its Sukari gold mine. The mine cranked out 67,422 ounces and is forecast to meet its 250,000 oz per annum target as it contemplates an expansion in 2013. However, earnings came in lower than analysts’ expectations at 3.87 cents per share.
Argonaut Gold (TSX:AR) also had an excellent quarter with a record 24,123 ounces produced from its El Castillo and La Colorada mines in Mexico. Revenues were up by 74 percent to $37.5 million quarter to quarter, while earnings more than doubled to 11.3 million, up 117 percent.
Junior company news
Canada-based Waymar Resources (TSXV:WYM), exploring for gold in Colombia, reported some exceptional gold grades at its Anza project. “The high grade gold zone intersected in drill-hole MAP-38 returned our highest grades so far and confirms the continuity of the mineralization intersected in drill-hole MAP-21,” said Waymar CEO Pablo Marcet, commenting on the results of four drill holes. The news caused the company’s stock to rocket 51 percent Monday to 40 cents on high volume.
Barkerville Gold Mines (TSXV:BGM), which excited investors with the June release of a stunning resource estimate at its Cow Mountain property in British Columbia, saw its shares halted on Wednesday. The BC Securities Commission issued a cease trade order advising that the company must file a technical report acceptable to the BCSC and address “all technical disclosure concerns.” The BCSC took issue with Barkerville’s initial NI 43-101 report, which showed indicated resources of 10.6 million ounces, and ordered the company to file a supporting technical report within 45 days.
Nevada- and Guyana-focused Canamex Resources (TSXV:CSQ,OTCQX:CNMXF) discovered a new gold deposit at its Bruner gold project in Nevada. “We drilled holes B-1202 to B-1206 in the two weeks following completion of Discovery Drill Hole B-1201, prior to the Company receiving results from the first hole, to test a different target, yet we appear to have ‘kissed’ the edges of a large system and the significantly higher-grade discovery made in B-1201 with these subsequent five holes,” said CEO Greg Hahn.
Securities Disclosure: I, Andrew Topf, own stock in Goldcorp.