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Gold was up for the seventh straight day Thursday, as the US Federal Reserve hinted strongly that quantitative easing is close on the horizon.
Minutes from Thursday’s meeting of the Federal Open Market Committee (FOMC) hinted at a third round of quantitative easing (known as QE3), which would have the US government buy bonds to lower interest rates, thereby stimulating economic growth.
“Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the minutes.
Precious metals were also boosted by news that Spain is talking to its Eurozone partners about conditions for international aid.
The December gold contract on COMEX rose almost immediately after the FOMC announcement, adding $15 to finish the trading day at $1,654.80 an ounce, its highest level since June. Spot gold closed at $1,670 per ounce, $16 higher than Wednesday’s session. The 3.5 percent gain this week is the largest since bullion surged 11 percent in January.
While some gold bulls are taking this week’s run as an indication that gold is about to break out of the tight trading range it has experienced over the last several weeks, analysts say the upward move could be limited. Reuters quoted Saxo Bank senior manager Ole Hansen saying:
“The market should be a bit cautious here and not run too far ahead of itself because we have seen economic data pick up and improve since that last meeting. We do need to see gold’s fundamentals supporting the move. There is no doubt we have been stuck in a range for so long, we needed to see some follow-through … I think gold has another $15 in it or so, we could see $1,680, but I think that would be it.”
Vietnamese panic-buy gold after tycoon arrested
The arrest of a banking tycoon this week was good for gold in Vietnam. Nguyen Duc Kien, who helped fund Asia Commercial Bank (ACB), was accused of running unlicensed businesses. His arrest Thursday led to a 9.2 percent slide in the Vietnamese stock market and a run on ACB by its depositors who rushed to withdraw cash. Many converted their dong notes to gold, leading to a 5 percent jump in the local gold price. Banks were also buying gold to repay depositors who were withdrawing the precious metal.
Over in Italy, in a telling sign of Europe’s economic malaise, some 28,000 gold outlets have sprung up, according to a politician lobbying the government to regulate the sector more strictly. Italians are selling jewelry to make ends meet and there have been reports of shootings in Rome involving owners of “cash for gold” stores.
Egypt opens doors to gold explorers
Treasure hunters in Egypt will not just be flocking to the pyramids. Media reports this week say that the Egyptian Mineral Resources Authority (EMRA) plans to issue an international tender in September in seven areas in Egypt’s eastern desert and Marsa Alam regions. The tenders will be open to Egyptian nationals and foreign investors provided that 50 percent of production goes to Egypt, along with a 5 percent royalty. Egypt-focused gold companies include Centamin (TSX:CEE,LSE:CEY), which operates the Sukari gold mine, and Toronto-listed explorer Alexander Nubia (TSXV:AAN).
Company news
Franco-Nevada (NYSE:FNV,TSX:FNV) and Inmet Mining (TSX:IMN) agreed this week to a precious metals stream valued at $1 billion from Inmet’s Cobre Panama project in Panama. Under terms of the deal announced Wednesday, Franco-Nevada will commit a billion dollars towards developing the copper-gold-silver–molybdenum mine currently under construction. The precious metals stream will be linked to copper production, with about 86 percent of the payable metals attributable to Inment’s 80 percent ownership, based on a 31-year mine plan.
Medusa Mining (ASX:MML,LSE:MML) is facing a three-month disruption at its Co-O gold mine in the Philippines after a fire caused by welding in the shaft. No injuries were reported, but the fire damaged about 120 meters of timbering, Medusa said in a statement. The dual-listed company said the mine will still be on track to meet production guidance of 100,000 to 120,000 ounces this year. The lost production will be made up through stockpiles and the use of a second ball mill. One silver lining from the incident will be a more efficient, higher-speed shaft resulting from re-timbering and re-engineering, said CEO Peter Hepburn-Brown.
Latin America-focused Hochschild Mining (LSE:HOC) said Wednesday it will meet its production targets this year despite a 43 percent fall in first-half profit. Hurt by lower gold and silver prices and higher operating costs, Lima-based Hochschild profited by $168 million in the first half compared to $297 million in the six months to June 30 of 2011. It said its annual production target of 20 million silver-equivalent ounces remains intact, as well as its 3 cents per share dividend.
Junior company news
Discovery of a new bonanza-grade structure at its Martiniere property in Quebec saw Balmoral Resources (TSXV:BAR) rocket 23 percent on Thursday. The company said the first of a series of holes returned 272.39 grams per tonne gold over 3.88 meters, and two half-meter intercepts of 1,530 g/t and 409 g/t. “With two more shallow gold discoveries, including the broad Bug Lake Zone and our highest grade intercepts to date, the scale and potential of the gold system at Martiniere continues to rapidly expand,” said Balmoral CEO Darin Wagner.
Atac Resources (TSXV:ATC), exploring for gold in the Canadian Yukon, hit record gold intercepts at its Rackla gold project. Atac said drill results from the Conrad zone unearthed 18.44 g/t over 42.93 meters on Hole OS-12-114, its best gold intersection to date. A hole from the Isis East Zone yielded an intercept of 6.28 g/t over 27.43 meters. “Drilling continues to expand and confirm continuity of gold mineralization in the high grade near-surface area of the Conrad Zone discovery,” said CEO Graham Downs.
Securities Disclosure: I, Andrew Topf, do not own any equities mentioned in this article.
