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Gold’s rally early in the week lost steam as the US dollar rose and oil fell.
The week started out with gold breaking through the $1,300-an-ounce mark, the first time in four weeks, boosted by heavy short covering and technical buying. Gold on Monday finished at $1,333 and was also helped by a lower US dollar and higher crude oil prices, which were near a 14-month high. Oil & Gas Journal reported that the West Texas Intermediate benchmark was trading near parity with North Sea Brent for the first time since 2010.
Monday’s gains, however, would not prove sustainable, even though Tuesday saw a modest increase in the gold spot price to $1,336. On Wednesday, the yellow metal took a major hit, erasing nearly all of the week’s previous gains, as the gold market turned bearish. Factors in the downturn, which stripped $30.60 off the spot gold price and $18.30 off gold futures, include sharply lower NYMEX crude oil futures and a rebound in the US dollar, caused primarily by a report of a jump in US home sales.
A rise in the European Union’s purchasing managers’ index, indicating that Europe’s debt-ridden countries may be lifting themselves out of recession, contributed to the gold sell-off.
By Thursday, however, the precious metal had recovered somewhat after tracking lower at the start of the session. Reuters reported that spot gold fell as low as $1,308.74, but fought back to $1,326.86 an ounce by 14:18 GMT before closing the day in New York up $6.80, at $1,329. Gold futures for August delivery last traded up $8.10, at $1,327.60 an ounce.
Gold market watchers are awaiting the results of next week’s Fed meeting, when US central bank Chairman Ben Bernanke is expected to make another announcement about the future of quantitative easing, the monetary stimulus program that has been bullish for gold and other precious metals.
“Gold is still searching for some decisive news either way from which it can take a trend,” Reuters quoted Mitsubishi analyst Jonathan Butler as saying. “In the absence of that, we are going to see some pretty choppy, volatile trading.”
Company news
Goldcorp (NYSE:GG,TSX:G), the world’s largest gold miner by market value, announced a second-quarter net loss of US$1.93 billion as it took a large writedown on its Peñasquito mine in Mexico. The loss equated to $2.38 per share for the quarter ended June 30 compared to a profit of 26 cents per share, or $268 million, in the year-ago quarter.
“Peñasquito continues to possess strong exploration upside, but due to lower metals prices, the current in situ market value of exploration potential has decreased significantly,” CEO Chuck Jeannes said in a statement.
The bad news had limited downside for Goldcorp’s stock, which slipped just 0.78 percent to close at $28.14 in New York and sank 1.33 percent lower in Toronto to end at $28.85. Goldcorp joins a growing list of gold miners booking writedowns on major projects. Nearly a month ago, Barrick Gold (NYSE:ABX,TSX:ABX) said it may have to write down up to $5.5 billion on its Pascua Lama project in South America, while Australian gold company Newcrest Mining (TSX:NM,ASX:NCM) announced up to AU$6 billion in writedowns on its mines.
Barrick said Tuesday it has agreed to sell its oil and gas subsidiary, Barrick Energy, for C$455 million. The sale involves three sets of assets, with Venturion Oil paying $59 million, Whitecap Resources $174 million and Canadian Natural Resources (NYSE:CNQ,TSX:CNQ) $173 million.
London-listed Randgold Resources (LSE:RRS) said it will pour the first gold from its Kibali mine in the Democratic Republic of the Congo in October of this year. Part of the project, a joint venture between Randgold, AngloGold Ashanti (NYSE:AU,ASX:AGG) and a Congolese company, entails the resettlement of over 15,000 people to a new village. The open-pit mine is scheduled to generate 30,000 ounces of gold in the next six months and 700,000 ounces a year in the next four years.
Junior company news
Rainy River Resources (TSX:RR) moved up 2.6 percent today after New Gold (TSX:NGD,NYSE:NGD) announced that it has acquired 86.2 percent of Rainy River’s outstanding shares in a deal first made public in May. New Gold also extended the offer to Rainy River shareholders until August 8. The takeover will add 4 million ounces to New Gold’s reserves through Rainy River’s project in Ontario. New Gold operates mines in British Columbia, California, Mexico and New South Wales.
Colossus Minerals (TSX:CSI) announced an equity financing worth $33 million. Net proceeds from the offering will be put towards its Serra Pelada gold-platinum group metals project in Brazil, including completion of the processing plant, a dewatering system and working capital.
Laurion Mineral Exploration (TSXV:LME), a tiny cap explorer working in Ontario, announced some impressive grab sample results on Tuesday. A grab sample collected from a quartz vein/alternation zone assayed 12,700 grams per tonne gold, while a second grab sample 5 meters away came in at 296 g/t. Grab samples, however, are not considered to represent a deposit’s average grades.
Securities Disclosure: I, Andrew Topf, own stock in Goldcorp.
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