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Gold Lacks Luster on Post-FOMC Malaise

Gold Lacks Luster on Post-FOMC MalaisedGold bulls were disappointed this week by the apparent inability of the US Federal Reserve to move the gold price after the results of a Federal Open Market Committee (FOMC) meeting were announced on Wednesday. 

Market participants were anxiously waiting to see whether US Fed Chairman Ben Bernanke would announce potentially bullion-supportive stimulus measures that would likely make gold pop above the $1,710-an-ounce mark reached on Tuesday prior to the meeting.

Gold bulls had good reason for optimism; the bullion price has doubled since the US central bank started flooding the markets with cheap money in December 2008 in an effort to kickstart the flagging US economy; at that time, an ounce of gold cost a measly $837.50. Any hints of another stimulus round normally have gold traders reaching for their buy buttons.

On Wednesday, Bernanke set the table for a gold price surge by announcing that the Fed will up its monthly bond-buying program by $45 billion — that’s in addition to the $40 billion per month of mortgage-backed securities it started buying in September. Importantly, Bernanke also said the central bank will keep interest rates from rising as long as unemployment stays above 6.5 percent, meaning rates will likely stay low for another three years.

That should have pushed gold higher, but apart from a few small swings up and down during Bernanke’s comments, the yellow metal quickly settled back into the low $1,700.

On Thursday the slippage continued, accelerated by a fresh round of selling that began in Asia and continued to Europe and the US. Bullion was also hurt Thursday by a firmer US dollar and weaker crude oil prices. Spot gold was last quoted at $1,696.40 an ounce, while the February gold contract was also down, by $22, to settle at $1,695.90 according to numbers sourced by Kitco.

Market manipulation?

Gold market cynics may point to recent bearish calls by Goldman Sachs as evidence of market manipulation (the investment firm said gold prices will likely “turn” in 2013) to get investors to sell their gold holdings, thereby artificially bringing down the price. That cynicism was fed this week during an interview precious metals journalist Chris Powell gave to King World News.

In the interview, Powell says central banks are actively manipulating the gold market. He points to a report addressed to the International Monetary Fund indicating that central banks “panicked” when IMF staff proposed that central banks be required to distinguish their gold loans and gold swaps from gold reserves, on the grounds that doing so would entail disclosure of “highly market-sensitive” information.

“This is as authoritative (an admission) as we are likely ever going to get that central banks are actively involved, in secret, in the gold market,” Powell states.

Australian, South African gold production falls

Australia and South Africa, the world’s second and fifth-largest gold producers, both announced production declines. Statistics South Africa reported the country’s gold output dropped 45.7 percent in October after a wave of strikes crippled the country’s largest gold mines; total mineral production was down 7.7 percent compared to the same month in 2011.

In Australia, gold output slipped 7 percent in the third quarter due to technical problems at large mines according to a report released on Sunday. For example gold production at Australia’s largest mine, Super Pit, declined by 42,000 ounces or 1.3 tonnes due to lower ore grades and processing, Reuters reported.

Fiscal cliff spurs gold coin buying

All the negative talk of an impending “fiscal cliff” in the United States has one gold lining: sales of American Eagle gold coins more than tripled from 41,000 ounces in November 2011 to 131,000 ounces this past November. Gold is considered a safe haven investment in times of economic and political turmoil.

“The fiscal cliff is causing a huge stir in investment markets, and this is precisely why gold coin sales skyrocketed in November,” said Arthur McGuire, vice president of Gold Coin.

Company news

Egyptian gold producer Centamin (TSX:CEE,LSE:CEY) said it has suspended operations at its Sukari mine due to a shortfall of working capital and inadequate supply of diesel. The company is in a dispute with its fuel supplier, Egyptian General Petroleum Corp, which has stopped delivering fuel until a claim for US$65 million in fuel supplied between December 2009 and January 2012 has been settled. Centamin’s stock cratered 50 percent on the news.

Centerra Gold (TSX:CGannounced Thursday that it will acquire 30 percent of the Öksüt gold mine in Turkey, bringing its interest in the project to 100 percent. Toronto-based Centerra will pay Stratex International $20 million for the stake, along with a 1 percent net smelter royalty. Centerra and Stratex formed a joint venture in 2009 to explore the property.

Russian precious metals miner Polymetal (LSE:POLY) was also in an acquiring mood, paying $13.5 million for the Olcha gold and silver deposit to Ovoca Gold. The deposit contains about 653,000 ounces of gold contained in 9.2 million tonnes of mineralization.

Switzerland-based miner Xstrata (LSE:XTA) has delayed the massive Tampakan copper-gold mine in the Philippines by three years. Manila Times reported that the $5.9 billion project — the largest foreign direct investment in the Philippines — will not start production in 2016 as planned owing to delays in getting environmental clearance. The government of South Cotabato province, the site of the mine, imposed a ban on open-pit mining in 2010 which is hampering the project — spearheaded by Xstrata’s Philippines unit, Sagittarius Mines.

Junior company news

Barkerville Gold Mines (TSXV:BGM) announced that a shareholder, Rex Harbour, has filed a petition in BC Supreme Court against the company and its president, Frank Callaghan. Barkerville has been in the mining news frequently this year over an alleged massive gold discovery at its Cow Mountain deposit. However, those claims were called into question when the BC Securities Commission rejected the technical report the company filed and issued a stop trade order which is still in effect. The petition asks the court to authorize Harbour to call an annual general meeting and to appoint another shareholder to chair the meeting. In September Barkerville said it has been granted an extenstion to hold its AGM up until May 26, 2013.

Angkor Gold (TSXV:ANK) announced that six of eight holes drilled at the Phum Syarung prospect returned positive results. The company is aiming to define its exploration program at its top three prospects next season.

Altan Rio Minerals (TSXV:AMO) has acquired a 100 percent interest in the Khavchuu gold project in northern Mongolia.


Securities Disclosure: I, Andrew Topf, do not hold equity interests in any of the companies mentioned in this article.

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Gold Lacks Luster on Post-FOMC Malaise