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Gold prices have surged with the aid of inflationary risks on price of crude oil trading above $120 per barrel and the strengthening euro.
By Dave Brown — Exclusive to Gold Investing News
During the last week, gold prices have been climbing about 2.5 percent to the range of $1,775.70 per troy ounce on growing tension between the United States and Iran. Gold price appreciation revolves around the possibility of inflationary risks associated with crude oil trading above $120 per barrel.
Gold closed on Thursday at $1,786.30, up 0.85 percent on the COMEX.
Contributing further to the gold price appreciation has been the rise in the euro to a 10-week high against the dollar. This represents the largest volatility for the currency since last November. The current change is underpinned by improving German confidence, easing concern about the Eurozone’s financial future.
In February, the German business sentiment rose for a fourth consecutive month, beating expectations and raising initial hopes that Europe’s largest economy will avoid recession as it is showing signs of improvement.
A note of caution
For investors, gold represents a natural hedge for United States dollar exposure, so strength in the single European currency has historically offered support for gold prices. In its latest projections, the European Commission forecast an overall 0.3 percent contraction in the Eurozone economy, with Greece weakening 4.4 percent, the largest decline in the group.
Strategy advisor optimistic for gold price outlook
Don Coxe, long time strategy adviser for BMO Financial group, discussed his outlook on gold prices with the Business News Network. He looks at a crisis of liquidity and global accommodative monetary policies, stating “We have all three of the major central banks of the world in the position of creating liquidity. The fundamentals of gold are very simple, gold is the alternative to paper money in aggregate. If paper money in aggregate is going to keep growing at exponential rates, then lots of people, including central banks, are going to cushion against it by having more gold.”
Higher gold prices will represent increased revenues for the large producers; however, companies often use hedging techniques with futures or options contracts in order to lock in “price certainty” to control risk. As long as average gold prices increase over the long term, the producers will benefit, but short term changes in gold price are not immediately represented by share price movement. Short term changes in the gold price will be less important for junior gold exploration companies, since the underlying value of the resource is still further away from the market.
Company news
Yamana Gold (TSX:YRI,NYSE:AUY,LSE:YAU) announced an eight percent net profit increase on higher gold prices and a boost in concentrate sales volume. The company reported $184.2 million on an adjusted earnings basis, or 25 cents per share, compared with $171 million, or 23 cents per share for the same period of the previous year. The results failed to meet analysts’ expectations as they had been expecting earnings of 26 cents per share.
Newcrest Mining (ASX:NCM,OTC Pink:NCMGY), Australia’s largest gold miner, has received conditional approval to list on the TSX, subject to regulatory conditions. The company expects trading to commence by early March, after having filed an application for the Toronto listing last December. This is of importance to investors that would like to gain direct Canadian dollar exposure to Newcrest Mining’s global portfolio of gold and copper resources in Australia, Asia, Africa, and the Pacific Region.
Eldorado Gold Corporation (TSX:ELD) announced shareholder approval of its merger with European Gold Fields Limited. The company also received approval for a Preliminary Environmental Impact Assessment Study for its Northern Greece, Perama Hill gold deposit. The project is expected to be developed as an open pit mine, producing approximately 110,000 ounces annually at cash costs projected to be less than $300 per troy ounce, with presently defined proven and probable reserves of 975,000 ounces of gold.
Junior company news
Ansell Capital Corp. (TSXV:ACP) received the assay results from its 2011 soil geochemistry program at its DAL gold project. Positive results showed two multi-element anomalous trends at the property. Historical grab samples taken from outcrops on the property have yielded high grade gold and copper values.
Inca One Resource Corp. (TSXV:IO) partnered with Cooperative Agraria Santuario de la Frontera Ltd. to provide training in order to increase coffee production and positively impact the inhabitants of the area. The Sustainability Program for the company has been initiated as a permitting requirement in Peru to benefit the coffee farms surrounding its mineral resource project over the next three years.
Calico Resources Corp. (TSXV:CKB) has announced that its Notice of Intent (NOI) and Memorandum of Understanding (MoU) for its Grassy Mountain Project has been accepted by the Oregon Department of Geology and Mineral Industries. The NOI is submitted as a preliminary step in the “pre-application phase” to explain the company’s plans to construct an underground mine and surface mill complex to develop the Grassy Mountain gold resource.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.