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A commitment from the Federal Reserve on Wednesday to keep its interest rates near zero and weak employment results have supported gold prices. Justin Reid, Managing Director and Head of Global Mining Sales at National Bank Financial discussed the function of gold as a liquidity hedge.
By Dave Brown — Exclusive to Gold Investing News
Gold prices have increased this week supported by weak employment data in the United States and by a commitment from the Federal Reserve on Wednesday to keep its interest rates near zero. Rising through the last three days, spot market gold prices were trading in the range of $1,659.20 per troy ounce. Over the course of the week this represents an increase of about 1.2 percent.
Data indicating actual initial unemployment benefits claims in the US were broadly unchanged over the previous week, while a longer-term metric climbed to its highest level since January. These news releases supported the gold price while undermining the value of the US dollar. Investors will note that gold prices often trade inversely to the dollar as weakness in US currency makes it relatively cheaper for non-US investors to obtain positions in gold.
A two-day policy meeting at the Federal Reserve also provided a level of confidence for gold investors after it repeated its commitment to leave interest rates unchanged over the next two years. A low interest rate environment is generally considered positive for gold prices as it enables the metal to compete more effectively for investment. Relatively low interest rates weaken the returns from other asset classes, including bonds and equities, which provide yields and dividends and diminish the premium that investors sacrifice by exposure to gold.
India physical gold demand
Relatively weak rupee valuations have reduced the demand for consumer buying as the rise in domestic price terms discouraged local consumers and jewelers from purchasing.
Central banks buying gold
Justin Reid, Managing Director and Head of Global Mining Sales at National Bank Financial discussed the function of gold as a liquidity hedge, commenting, “I look at it really as a liquidity hedge, if we look solely at central bank buying last month where 50 tonnes of gold was purchased across the board by all the central banks. If we look solely at Argentina, Mexico, and Russia buying 23 tonnes of gold, annualize that, it is the equivalent of one year’s global supply. They are doing that to hedge their US currency.”
Company news
Senior gold producer Goldcorp Inc.’s (TSX:G,NYSE:GG) flagship Red Lake mine in Ontario encountered challenges during the first quarter due to ground conditions and lower than anticipated grades in some areas. These issues forced a downward revision in full-year production guidance.
During the first three months of the year, a reduction of 17 percent in gold production was offset by higher gold prices, with adjusted earnings at approximately $404 million, a marginal increase on the figure of $392 million from the previous year.
Goldcorp had earlier offered production guidance at around 2.6 million ounces, with total cash costs ranging between $250 and $275 per troy ounce for this year on a by-product basis. It will be analyzing the potential implications of first quarter production impediments at Red Lake in an updated forecast.
Junior company news
Ashburton Ventures Inc. (TSXV:ABR) acquired an option to earn a 100 percent interest in ground in Ontario’s Priske township.
Midas Gold Corp. (TSX:MAX) gave a progress update for its metallurgical testing program at the Idaho-based Golden Meadows project.
NioGold Mining Corp. (TSXV:NOX) announced that it has received preliminary metallurgical testing results from its Marban Block property.
Premium Exploration Inc. (TSXV:PEM,OTCQX:PMMEF) reported the results of a completed structural study on the exploration drill holes in the Deadwood Zone and definition drill holes from the Friday Zone on the Idaho Gold Project.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.