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Gold approached $1,300 an ounce Thursday following remarks from US Fed Chair Ben Bernanke suggesting a continuation of the central bank’s stimulus program.
Gold has been buffeted recently by comments from the US Federal Reserve indicating that the central bank is likely to end its quantitative easing program by the end of this year or mid-2014 at the latest. The program, which injects $85 billion a month into the US economy through the purchase of US Treasuries and mortgage-backed securities, began in 2008 and has been largely credited for the bull run in gold over the past five years.
But in June the Fed through its policy arm, the Federal Open Market Committee, put a spanner into precious metals and North American stock markets by suggesting that it could soon “taper” the program due to an improving US economy. Up until last Friday gold has been dropping at an alarming rate, crashing through $1,200 and scraping a three-year low of $1,180 on June 28. A mini-rally at the beginning of the month pushed the price up by $40 but that quickly fizzled out and gold bumped along around $1,250 for the rest of last week.
On Monday however things took a turn for the better, with a few factors pushing gold back into the black. These included a lower US dollar (gold like most commodities is traded in greenbacks so that a lower dollar means commodities are cheaper for holders of non-US dollar currencies), traders keen to buy gold at bargain prices, and short covering. Heightened tensions in Egypt also pushed up demand for gold, which functions as a safe haven investment in times of crisis, along with a report out of China saying that inflation there is up this year. Spot gold moved up from $1,221 last Friday to $1,258 on Wednesday, a gain of $37.
That was just the beginning of gold’s run; the best was yet to come following comments by US Fed Chairman Ben Bernanke after markets closed on Wednesday. To the surprise of many, Bernanke appeared to reverse course on his earlier policy direction re QE, saying that the central bank won’t start to wind down the program until the economy is strong enough to handle its removal. He also urged investors not to confuse a pullback of QE with an end to record-low interest rates, and said in a Q&A session that “highly accommodative monetary policy for the foreseeable future is what’s needed.”
The reaction from markets was predictable, and for gold investors, a welcome relief. The spot price surged $18.20 to $1,281,50, while gold futures for August delivery increased $32.40 to $1,279.70. Silver prices also saw a lift, with September COMEX silver last trading up $0.80 to $19.96. The Dow (INDEXDJX:DJI) leapt 169 points, or 1.1%, to 15,460.92, surpassing a previous record high reached on May 28. The commodities-weighted S&P/TSX Composite Index (TSX:OSPTX) climbed 186 points to end the day at 12,493.26, a gain of 1.5 percent. All the major gold miners enjoyed nice gains in their stock prices. Newmont (NYSE:NEM) surged 5.6 percent, Barrick (NYSE:ABX) was up by 8.7 percent, and Goldcorp (NYSE:GG) rose 8.32 percent. Gold Fields (NYSE:GFI) rocketed 9.8 percent, AngloGold Ashanti (NYSE:AU) climbed 4.5 percent, and Kinross (NYSE:KGC) added 7.1 percent.
Company news
The Grasberg mine in Indonesia resumed shipments of copper this week, after a tunnel cave-in in May killed 28 workers and suspended production for nearly two months. As a result of the shutdown, Grasberg, the world’s largest gold mine and one of the biggest copper mines, is only expected to produce 80 percent of it gold, copper and silver targets, said a spokesman for the mine’s owner, FreeportMcMoran Copper and Gold (NYSE:FCX).
Shares in China’s largest gold miner, Zijin Mining Group, (HKEX:2899) dropped the most in three years after announcing its first-half profit may decline by as much as 55 percent, Bloomberg reported. The stock cratered 11.4 percent in Hong Kong earlier this week. The losses were blamed on lower gold and copper prices, rising costs of production and a drop in inventory value.
Junior company news
Corvus Gold (TSX:KOR) reported the first drill results from its Phase 1 drill program on the new Yellow Jacket gold-silver discovery at the North Bullfrog Project, Nevada. Hole NB-13-344 intersected vein gold averaging 10.7g/t gold and 10.4g/t silver over 8.3 meters, including 1.2 meters averaging 50 g/t gold and 36 g/t silver. Corvus also had results from two reverse circulation holes aiming to expand the North Sierra Blanca “Starter Pit” target.
Colombian Mines (TSXV:CMJ) intersected two zones of gold-silver-copper mineralization from the first drill hole at its El Dovio prospect in Colombia. The drills cut two intervals averaging 15.6 grams per tonne gold over 2.1 meters, and 13.77 g/t gold over 3 meters.
New Mexico-focused Santa Fe Gold (OTCMKTS:SFEG) provided an update on its Ortiz gold project, which has a JORC-compliant resource of 0.973 million ounces of gold in the measured and indicated category, and 40.6 million pounds of copper. President and CEO Pierce Carson said the company expects a preliminary economic assessment to be completed in August. He noted the environmental impacts of the project are expected to be minimal because the mine would not employ chemical leaching:
“These benign recovery methods will greatly reduce the environmental impact of the project, which we recognize as a sensitive issue to the local community,” Carson stated. “We also will be able to dramatically reduce water requirements by recycling water and using a dry stacking method of tailings storage.”
Securities Disclosure: I, Andrew Topf, own stock in Goldcorp.
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