Last year gold was seen as a safe haven that could mitigate exposure to the European debt crisis, but it is now trading in line with more traditional drivers.
By Dave Brown — Exclusive to Gold Investing News
Gold prices have declined this week due toconcerns over the Eurozone debt crisis, including resistance from voters in France and opposition to austerity measures in Greece. While traders obtained exposure to gold as a safe haven to hedge solvency risks during the European debt crisis last year, gold is now trading in line with more traditional drivers.
Gold prices have fallen three percent this week as concerns over the Eurozone debt crisis pressured the euro and other risk assets. Falling through the last three days, spot market gold prices traded slightly up on Thursday to the range of $1,595.40 per troy ounce.
The rise in gold prices on Thursday followed a four-month low during Wednesday’s trading session, as the euro strengthened. The currency appreciation resulted from Spain’s plan to restructure domestic banking and the European Financial Stability Fund’s (EFSF) approval of an important emergency payment to Greece.
India currency playing a role
Suki Cooper, Vice President and precious metals analyst within Barclays Capital‘s Commodities Research team, discussed the role of physical gold demand, commenting, “gold struggled really because of the physical market. It has proved to be much more fragile this year than it had [been] last year. Last year we saw the two key buyers, India and China, continuously coming in to support the dips. This year activity has been a little bit lackluster, but we still think the macro backdrop is gold favourable.”
Although the weak rupee has played a critical role in constraining physical demand for gold, support may be stronger during the second half of the year. Seasonal traditions and latent demand could lead to appreciating gold prices following the federal government’s decision to eliminate an excise duty on jewelers that it imposed earlier this spring.
AngloGold Ashanti (NYSE:AU) announced strong first-quarter earnings due to higher gold prices, improved margins, and a $90 million net tax credit. The company reported that adjusted earnings, excluding one time items, climbed 46 percent to $1.11 per share from 76 cents in the prior three months.
Operational challenges caused the company to miss initial production guidance of 1.03 million ounces for the first quarter. Safety stoppages in South Africa caused a six percent decline in production. Although the company gets 40 percent of its global output from South Africa, Anglogold maintained its production target for the year of between 4.3 million and 4.4 million troy ounces of gold.
Osisko Mining (TSX:OSK) shut down the mill at its flagship Malartic mine after a fire broke out just before midnight on Wednesday. The fire was in the cyclone separator portion of the mill. The mine is located just west of Val d’Or in Quebec and produced 200,137 troy ounces of gold last year, with the company forecasting average output of 625,000 troy ounces during its first five full years of operation. In February, Osisko announced a production target range from 610,000 troy ounces to 670,000 troy ounces for this year. The company is due to report its first quarter earnings after markets close on Thursday.
Investors should note these operational and safety challenges from gold producers as they could affect market supply. Statistics South Africa reported that the country’s gold mining production remained weak, with volumes dropping 11.6 percent from the previous year ending in March. Supply constraints for physical gold may support future spot market price movement and lead to price appreciation for buyers of physical gold.
Junior company news
Lion One Metals Ltd. (TSXV:LIO) announced the latest exploration results from its Tuvatu gold project. The company announced that it has extended gold mineralization over one kilometer to the west of the project.
PJX Resources Inc. (TSXV:PJX) discovered four large geophysical anomalies that may represent porphyry style gold-copper deposits and/or possible Sullivan-type lead–zinc–silver deposits on its Eddy Property.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.