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Gold’s price decline has generally moving in the opposite direction of the dollar as the Eurozone continues to attract significant concern and interest in US government debt increases. Spot market gold prices traded today in the range of $1,578.10 per troy ounce for a decline of approximately one percent on the week.
Gold prices have weakened for four consecutive sessions through Wednesday, declining to the lowest trading levels since last July as worries about Europe‘s financial system inflated demand for dollar-denominated assets. Gold prices have been declining as the Eurozone continues to attract significant concern and interest in US government debt increases. Spot market gold prices were trading in the range of $1,578.10 per troy ounce for a decline of approximately one percent on the week.
Greece’s continued political troubles have caused some investors to speculate that the country could lose critical global financial support. Greece leaving the European currency union is a concern, as are the challenges other Eurozone members are having with austerity measures. This situation has further increased borrowing costs for Spain and Italy, and has underscored the potential for Greece to impact the banking systems of larger economies.
Gold was positively influenced by the release of the minutes from the Federal Reserve’s latest meeting, at which policymakers rekindled prospects for a fresh phase of monetary stimulus for the moderately-expanding US economy. Gold prices may gain momentum from this news as investors seek a store of wealth in the event that accommodative monetary policy weakens paper currencies.
On Thursday, poor economic results out of the US supported the case for further monetary easing. The Philadelphia Federal Reserve Bank reported that its broadest measure of manufacturing conditions dropped from a reading of 8.5 in April to -5.8 in May. Additionally, the Department of Labor delivered disappointing results, with jobless claims flat at 370,000.
Gold as a crisis hedge
The idea that gold will revert to “safe haven” trade, which has not been demonstrated recently, is held by Marcus Grubb, Investment Managing Director at the World Gold Council. He believes if Greece exits the Eurozone and devalues its currency, “gold’s qualities as a hedge against inflation risk, currency depreciation and market volatility” would emerge.
Sharing this view, Tom Essaye, President of Kinsale Trading, indicated that while gold has not recently behaved like a safe haven, it may ultimately strengthen from the European debt crisis. He commented that “if we continue to see a worsening of this Greek crisis you will see money start pushing into gold. Up to this point in the European crisis it has not acted as a safe haven. As we begin to hear things about runs on Greek banks, about Greece being expelled from the euro, I think some of that money looking for a safe haven that has gone almost exclusively into US treasuries and US dollars will begin to circle over into gold. I think that you are going to begin to see some money flow into gold as a crisis hedge, not just from the Middle East but also as this European crisis becomes a sovereign one once again.”
Company news
Gold Fields Ltd. (NYSE:GFI), a top gold producer, reported an earnings decline of 18 percent in its most recent quarterly filing. Gold production issues and reduced gold prices in the South African rand were major contributors to the decline.
Gold Fields’ production level fell six percent for the quarter compared with the previous quarter. The company indicated that operating costs increased over the quarter, “mainly due to overtime worked and major maintenance work over the Christmas period. In addition, more employees were employed, in line with the project build-up.” Earlier in the year the company reported an accident involving three miners; however, none of the miners involved were fatally injured. The price of gold in rand impacts Gold Fields as approximately 50 percent of its gold production comes from South Africa.
Gold Fields maintained its production target range of approximately 3.5 million troy ounces of gold for the current year.
Junior company news
Bravada Gold Corp. (TSXV:BVA) filed an updated technical report on SEDAR concerning an updated PEA at the company’s Wind Mountain property in Washoe County, Nevada.
Goldgroup Mining Inc. (TSX:GGA) filed its latest Cerro Colorado gold mine technical report on SEDAR.
Northern Vertex Mining Corp. (TSXV:NEE,OTCQX:NHVCF) reported the latest drill results from its Phase II drill program at the Moss gold-silver project.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.