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The re-election of Barack Obama to the Unites States presidency is proving bullish for gold as bullion investors bet on continued loose monetary policy and more troubles ahead as the United States approaches the “fiscal cliff.”
The precious metal traded in a loose range of $59 between Monday and Thursday, hitting a low of $1,672 an ounce on Monday in the run up to the election on Tuesday and a high of $1,731 an ounce following President Obama’s victory over Republican challenger Mitt Romney.
Gold had an awful start to the week, with bullion plunging to a nine-week low of $1,672.24 as traders decided to wait out the results of the election. By the end of Monday’s trading session, however, gold had recovered a few dollars, and on Tuesday the yellow metal rose above $1,690.
Wednesday was a different story, with investors waking up to the results of the election showing Obama back in the White House with a firm majority of 303 electoral votes to Romney’s 206. Pundits had earlier said the race was too close to call.
The news caused gold to bounce to a fresh two-week high of $1,729 an ounce, its strongest showing since October 23, on expectations of continued loose monetary policy.
Low interest rates and government spending, such as the latest round of quantitative easing announced in September, are considered bullish for gold and other precious metals, which act as an inflation hedge amid current depreciation.
But the bounce was short-lived, with gold quickly losing momentum as the US dollar gained. Spot gold was last quoted at $1,713.10, down 0.1 percent on the day. Gold futures were also down, with the December gold contract off 60 cents at $1,714.40.
With the outcome of the election now decided, attention has turned this week to how President-elect Obama will handle the fiscal crisis that continues to grip the United States. That is proving bullish for gold. Congress, which has the power of the purse in the US, is split between Republicans and Democrats, meaning there are likely to be messy negotiations to avert the “fiscal cliff” — the nearly $600 billion worth of tax increases and spending cuts that could push the economy back into recession when they take effect in January.
On Thursday, investors were once again lured into gold’s safe haven status over concerns about the fiscal cliff alongside renewed worries over Europe. The euro was driven to a two-month low against the US dollar amid bad news from euro-laggards Spain and Greece. Fresh austerity measures passed by Greek parliament led to more violent protests while in Spain, there is speculation that the country will not ask to be bailed out by its EU partners.
Spot gold was last quoted at $1,726.25, up $8.40, while the December gold contract was up $11.50 at $1,725 an ounce.
Company news
Rio Tinto’s (LSE:RIO) Oyu Tolgoi mine in Mongolia got a boost this week with the announcement that Rio has secured a power supply for the massive copper-gold project. The power will come from an unnamed Chinese company. ”This agreement means we are on track to bring the first phase of the world-class Oyu Tolgoi mine into production in the first half of 2013,” said Rio Tinto Copper chief executive Andrew Harding. The mine will also provide power to the Mongolian town of Khanbogd for the first time. Rio and its partners have sunk close to US$6 billion into Oyu Tolgoi, which is positioned to anchor a burgeoning Mongolian economy based on resource development.
Labor unrest continues to beset South Africa’s gold sector, although there was good news from the fourth-largest bullion producer, Gold Fields (NYSE:GFI). The Johannesburg company said 8,500 previously-dismissed workers at its KDC East operations were back on shift Tuesday. AngloGold Ashanti (NYSE:AU), another South African gold major, was forced to suspend operations at its Mponeng mine after a protest just two days after striking miners returned to work, Reuters said. AngloGold is said to be reviewing its operations in the country after weeks of strikes wiped out $400 million in output.
Meanwhile, employees at Village Main Reef’s Buffelsfontein gold mine went on a wildcat strike during the Monday night shift.
Canada-based gold companies Goldcorp (TSX:G,NYSE:GG) and Barrick Gold (TSX:ABX,NYSE:ABX), which occupy the world’s number one and two positions, dueled it out for market cap bragging rights this week. Goldcorp’s market capitalization at the close of Tuesday’s trading session was C$35.32 billion, edging out its rival, whose cap ended the day at C$35.30 billion. However, by the next day the positions were reversed with Barrick pulling out front at $36.18 billion, ahead of Goldcorp’s $36.08 billion. Numbers are sourced from Reuters.
Centamin (TSX:CEE,LSE:CEY), a gold producer centered in Egypt, jumped 23 percent — the most since going public in 2001 — after announcing it is confident that a dispute over its Sukari mine can be resolved. A contract allowing the company to extract gold was annulled in an Egyptian court last week, sending the shares plummeting 38 percent.
Centerra Gold (TSX:CG) lowered its 2012 gold production guidance due to problems at its Kumtor mine in Kyrgyzstan. The mill was also shut for seven weeks for scheduled and unscheduled maintenance. “In mid-September, mining at Kumtor reached the ore in the southwest section of the pit and the mill re-started as planned, but production since then has been less than we expected,” president and CEO Ian Atkinson stated.
People’s Daily Online reported that China’s largest gold producer, China Gold Group, is eyeing African Barrick Gold as a potential takeover target. London-listed African Barrick (LSE:ABG) operates in Tanzania with four producing mines. Other Chinese companies looking to buy overseas gold assets include Shandong Gold Group, Zijin Mining Group and Zhaojin Mining Industry.
Junior company news
Seabridge Gold (TSX:SEA,NYSE:SA) discovered a large and high-grade gold and copper zone at its KSM copper-gold project in British Columbia, Canada. The company said the discovery, named Deep Kerr, “has the best metal values found to date at KSM, its grades and widths are improving with depth, the down dip potential remains wide open and it is favorably located for cost-effective exploitation.”
Geologix Explorations (TSX:GIX,OTCQX:GIXEF) announced initial assay results from the ongoing reverse circulation drilling program at its Tepal gold-copper project in Michoacán, Mexico. ”After the first pass from our ongoing reverse circulation drilling program, we are encouraged with the drill results from Target Area #3, as there appears to be a mineralizing system worthy of follow up,” Dunham Craig, president and CEO of Geologix, said.
Seafield Resources (TSXV:SFF) announced that the infill drilling program on the Miraflores deposit in Colombia has returned moderate- to high-grade mineralization in significant intervals; further results from the completed 4,697-meter diamond-drill program on the Miraflores deposit in Colombia were also reported.
Securities Disclosure: I, Andrew Topf, own stock in Goldcorp.
