Gold Clipped on Strong US Data, Profit-taking Over Syria

Gold was battered in the markets on Thursday, extending losses incurred a day earlier, on the release of positive economic data coming out of the United States. 

The precious metal has been buffeted in recent days as bullion traders try to gauge whether the United States will choose a military confrontation with Syria, following US intelligence reports indicating a chemical weapons attack that killed over 1,400 people was orchestrated by the Bashar-al-Assad regime. President Barack Obama is trying to build support among the US Congress to support a limited military response that does not involve boots on the ground.

Gold, considered one of the safest assets to hold in times of war, rose $18 on Tuesday, the first day of trading after the holiday Monday in Canada and the United States, after it appeared that Congress would support Obama’s call for military force against Syria. The next day, however, gold dropped $22.60, as an imminent attack seemed less likely. The extent of the dip, to gold’s lowest level in almost two weeks, perplexed some commentators, especially due to the strike in South Africa that began this week, which would threaten the supply of gold and suggest an uptick in prices.

Ross Norman, CEO of bullion dealer Sharps Pixley, told MarketWatch “The move lower is counterintuitive, what with growing concerns over a possible airstrike on Syria, coupled with South Africa’s gold miners going on strike. What is more, there is plenty of scope for these geopolitical tensions to escalate … and yet gold is off.” Norman noted that traders may have simply taken profits due to “a confirmation that [the possibility of an airstrike is now an inevitability].”

On Thursday, the gold price encountered its usual bug-bear, US economic data. The main culprit was the ISM non-manufacturing reading, which beat expectations by coming in at 58.6 versus 56.0 in July. A reading greater than 50 indicates expansion. The US economy added 176,000 jobs last month and factory orders were down by less than expected. All of these factors had the US dollar rising and gold falling, with December gold futures slipping $19.60 to $1,370.30 an ounce, and spot gold last quoted down $20.90 at $1,371.25.

“Stronger U.S. data is getting the market jittery again,” Tom Power, a senior commodity broker at R.J. O’Brien & Associates in Chicago, told Bloomberg. “The strength in the dollar is working against gold.”

Precious metals in general had a bad day in the markets on Thursday, with platinum and palladium posting their biggest declines in 10 weeks and silver ending the day 14 cents lower at $23.27. Analysts are saying that Russian objections to a strike on Syria are taking the shine off gold’s appeal as a safe haven.

Swift end to South African strikes unlikely

It is appearing less likely that widespread strikes among South African’s gold miners that started on Tuesday will end quickly. Mineweb reported Lesiba Seshoka, a spokesman for the National Union of Mineworkers, as saying that the job action affecting roughly 80,000 NUM members could last for more than a business quarter. “The way things appear at the moment, it looks as though this will be a very lengthy strike; it may last until Christmas,” he told the publication. It is estimated the strike is costing the country US$35 million a day in lost output. AFP reported on Wednesday that seven South African gold producers employing 107,000 workers have been affected by the strike. South Africa’s largest gold mines were, as of Thursday, operating normally, with no loss in production, according to Bloomberg. That could change, however, if and when the Association of Metalworkers and Construction Union joins its NUM brothers on the picket lines. In one encouraging development, Pan African Resources (LSE:PAF) and Village Main Reef (JSE:VIL) both announced wage settlements of around 8 percent, according to a press release issued by the Chamber of Mines.

Company news

AngloGold Ashanti (NYSE:AU) is on the hot seat after the company, Africa’s largest gold producer, admitted on Monday that it spilled toxic waste into a river. The spill affected one mile of a tributary of the Vaal River and is at least the second leak in the last five months, reported Bloomberg.

Embattled Gabriel Resources (TSX:GBU) saw its stock price crater to its lowest in four months Tuesday after hundreds of Romanians protested its Rosia Montana gold project. GBU fell 18 percent to $1.39 at the close in Toronto, after about 1,000 demonstrators took to the streets of Bucharest to oppose the mine and a proposal to use cyanide for extracting the metal. The country’s president announced that a referendum on the project may be held next year.

 Junior company news

Corvus Gold (TSX:KOR) reported assay results from two diamond drill holes and three reverse circulation holes at its North Bullfrog Project in Nevada. The results identified new high-grade gold vein systems and expand near-surface mineralization, increasing the project’s “starter pit” potential, according to the company. KOR was up 10.38 percent Thursday on the Toronto main board.

Orefinders Resources (TSXV:ORX) acquired the Mirado gold project in Ontario after having spent $2 million exploring the property. The option agreement with Jubilee Gold Exploration (TSXV:JUB) involves 12 patented claims, and is subject to a 3 percent net smelter royalty.

Samco Gold (TSXV:SGA) announced this week the results of a lag survey and further rock chip sampling at its Corina project in the Santa Cruz province of Argentina. Lag geochemistry tries to detect metal anomalies by separating heavy from lighter materials. Highlights included a cluster of gold samples assaying up to 10.2 grams per tonne and 170 grams per tonne of silver.

Securities Disclosure: I, Andrew Topf, hold no investment interest in any of the companies mentioned. 

Related reading:

Syria Keeps Gold Party Going, But Will it Last?