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The gold market had some much-needed good news on Thursday, with the price rising $22 after Asian stock markets tanked.
Gold’s $22 run on Thursday was caused by a sharp decline in Asian stock markets, which was in turn precipitated by concerns that the US Federal Reserve could start scaling back its quantitative easing program, Associated Press (AP) reported. Asian investors ran to the relative safety of gold compared to equities, whose strength has been fueled by central bank stimulus programs that have kept interest rates low to support economic recovery. Another factor in the poor performance of Asian stock markets yesterday was perception that growth in Asia is faltering, said AP, with manufacturing levels in China slipping in May.
At the close of trading in New York, August gold futures were up $22.50, at $1,414.30 an ounce, while spot gold was last quoted up $21.30 at $1,414.50.
Shorters versus buyers, who will win?
Some gold market analysts have characterized the current trade in bullion as a push and pull between the “shorters,” traders of so-called paper gold, like ETFs and gold futures, who are betting on the price going down, and buyers of physical gold — bars, coins and jewelry — who have rushed to buy the metal at low prices since the crash in mid-April.
Mineweb reported on Tuesday that short sellers in the gold futures market extended their position for the sixth consecutive week to a record 14.6 million ounces. While that sounds like a bad thing for the gold price, UBS pointed out that it could actually mean that short positions should not increase aggressively and that a move to the upside could soon occur:
“The fact that gold shorts are sitting at all-time highs would make aggressive attempts to the downside relatively more difficult. At the same time, this means that an upside catalyst would likely obtain a more significant reaction as recent shorts get squeezed.”
On the demand side of the equation, precious metals analyst Julian Philipps noticed that “physical demand reached the point last week where it was overwhelming the New York markets slowly but surely,” while central banks continue to snap up gold at bargain rates. Bloomberg reported on Monday that Russia and Kazakhstan expanded their gold reserves for a seventh straight month in April. Russian holdings grew 3.4 percent this year, to 990 tons, while Kazakhstan boosted its reserves to 125.5 tons, an 8.9-percent increase.
Meanwhile Asian gold demand from April to June of this year is expected to reach an all-time quarterly high according to the World Gold Council, as consumers in China and India view the recent price collapse and ETF outflows as an exceptional buying opportunity.
Company news
Mining at the giant Grasberg copper-gold mine in Indonesia has resumed following a tunnel collapse that killed 28 workers two weeks ago. The mine is expected to reach full production of 140,000 metric tons (MT) per day in three to four days, PT Freeport Indonesia (NYSE:FCX) told reporters on Wednesday.
Barrick Gold (NYSE:ABX,TSX:ABX) has encountered more trouble at its Pacua Lama development project straddling the border of Chile and Argentina. Chile’s environmental regulator fined the company $16 million and ordered Barrick to take “urgent measures” to complete a water management system to prevent contamination around the mine site.
In South Africa, where strikes last year nearly crippled the gold and platinum mining sectors, more labor unrest could be coming after Sibanye Gold (NYSE:SBGL) said on Wednesday that it will shed 1,100 workers due to a fire in an ageing mine. Reuters reported the job cuts are likely to be permanent because of the age of the section burnt by the fire and the depth of the operations, which are more costly to mine compared to other shafts.
There was also bad news out of Kyrgyzstan, where Centerra Gold (TSX:CG) was forced to shut down its Kumtor gold mine due to the power supply being disrupted by protesters. Centerra has been locked in a dispute with the Kyrgyzstan government over taxes and alleged environmental damage.
Lower gold prices have thrown a spanner in the works for one gold project in the United States, while another in Australia is pressing ahead. Atna Resources (TSX:ATN) has “temporarily downsized” the ramp up of underground mining operations at its Pinson mine in Nevada “in consideration of the current gold market.” Atna said it is re-engineering to reduce costs at the mine, which was expected to produce 50,000 to 70,000 ounces this year. Atna’s stock plunged 43 percent on the news. Meanwhile, Australian Mining reported that the Tomingley mine in New South Wales being developed by Alkane Resources (ASX:ALK) is well underway. “Construction is ramping up with the project’s processing plant footings in place, and Alkane’s managing director Ian Chalmers reports infrastructure basics will be completed by November,” the publication states.
Junior company news
London-listed explorer Alecto Minerals (LSE:ALO) climbed 33.1 percent Wednesday on an announced joint venture and financing with Centamin (LSE:CEY,TSX:CEE), whose main asset is the Sukari gold mine in Egypt. Under the deal, Centamin will buy a quarter million British pounds worth of Alecto shares, with the two companies pursuing targets in Ethiopia, where Alecto holds two exploration licenses.
Seafield Resources (TSXV:SFF) discovered copper-gold porphyry mineralization at its Quinchía gold project in Colombia. According to Seafield, of the three drill holes reported, one intersected 384 meters at 1.01 grams per MT gold (0.9 g/t silver and 0.08 percent copper), while the other two holes “intercepted continuous gold, silver and copper mineralization and alteration from surface to the bottom of each hole, with both holes ending in mineralization.”
Pretium Resources (NYSE:PVG,TSX:PVG) gained nearly 8 percent on Wednesday on results of a bulk sample program that “intersected visible gold and confirms the projection of high-grade gold mineralized domains” at its Brucejack project in British Columbia. Highlights from the first underground drill hole were 21.57 grams per MT over 12 meters, including 388 g/t over half a meter and 8.38 g/t over 2 meters.
Pershing Gold (OTCQB:PGLC) identified a new gold zone and confirmed gold intercepts in two historic drill holes at its Relief Canyon mine in Nevada. The Colorado-based company, which recently sold its equity interest in Valor Gold (OTCQB:VGLD) for $1.5 million, said the discoveries are likely to expand the property’s resource.
Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article.
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