Precious Metals

Gold reached a six-month high, surpassing $1,700 an ounce, after the European Central Bank announced a long-awaited bond-purchase program.

Gold hit a six-month high on Thursday after the European Central Bank finally delivered on weeks of rumors that it would implement a bond-purchase program designed to claw Europe out of its sovereign debt crisis. 

Under the plan, the bank “agreed … to launch a new and potentially unlimited bond-buying program,” an action that will lower the borrowing costs of Eurozone countries, particularly Spain and Italy, whose bond yields have risen to unsustainable levels due to investors losing confidence in the state of their public finances, Reuters reported.

COMEX gold for December delivery was up $10.70 to finish the trading day at $1,704.40 an ounce. Spot gold was last quoted at $1,703, 10, lower than the session peak of $1,713 an ounce, its highest level since March. The mid-session drop came about as a result of stronger-than-expected economic data coming out of the United States on Thursday morning.

Gold traders are awaiting the August unemployment report, which is slated to come out on Friday. A weak report will send precious metals higher on speculation that the Federal Reserve will implement another quantitative easing program aimed at shoring up flagging economic growth in the United States. QE3, as the program has been dubbed, is considered bullish for precious metals, including gold, because inflationary pressure occurs when the Fed buys bonds in order to drive down interest rates. Gold is considered a hedge against inflation.

But while quantitative easing has largely been responsible for gold’s spectacular doubling in value since 2008, the European bond-buying program announced yesterday may not have the same bullish effect on gold, analysts predict. Reuters reported global asset management firm Natixis as saying the event implies neither an increase in the money supply nor in the central bank’s balance sheet:

“Although gold could benefit from a strengthening of the euro versus the dollar and a general appreciation of risky assets, it would be wrong to view Draghi’s plan as a form of QE, and as such it may not offer much of a boost to gold prices.”

India looking to hike import duty, Turkish gold imports fall

India, the world’s largest gold buyer behind China, is considering an increase in its gold import duty for the third time this year. Bloomberg reported that the duty is aimed at curbing gold purchases and reducing a record current-account deficit. The duty on gold bars and coins would rise to 7.5 percent from the 4 percent implemented in March. The duty hike is expected to further hurt demand for gold during India’s peak gold-buying festival season. Jewelry and investor demand has already been crimped by a decline in the rupee against the US dollar, which has boosted domestic gold prices to an all-time high, Bloomberg said.

In Turkey, bullion imports fell to 11.3 tonnes in August, over a third less than the 35 tonnes brought into the country in July, according to the Instanbul Gold Exchange. Last August 17.14 tonnes of gold were imported.

Gold One strike over, but not before five injured in shooting

A strike at Gold One International’s (ASX:GDO) Modder East mine in South Africa escalated this week into a situation where five people were shot and injured by police. According to local media, those shot were among about 60 former Gold One employees who were dismissed in June for participating in an illegal strike. Moneyweb describes what happened:

“At approximately 7:30am [on Monday], protesters prevented a minibus taxi from entering the mine and, after severely damaging the taxi, attempted to attack the occupants of the vehicle. Security personnel intervened and were forced to utilise rubber bullets to disperse the crowd.”

The three-day work stoppage by about 12,000 employees stemmed from an internal dispute within the National Union of Mineworkers (NUM), and was sparked by an edict prescribing a deduction in workers’ salaries. It ended Wednesday with the intervention of the NUM.

Company news

Agnico-Eagle Mines (TSX:AEM,NYSE:AEM) announced that it has approved construction of the La India mine in the Mexican state of Sonora. The property is about 70 kilometers from Agnico-Eagle’s Pinos Altos mine and was acquired in 2011 from Grayd Resources. The open-pit, heap leach operation is slated to begin in the second half of 2014, and would produce an average 90,000 ounces of gold per year.

Staying with Mexico, New York and Toronto-listed Paramount Gold and Silver (AMEX:PZG,TSX:PZG) released a new resource estimate showing a whopping 547 percent increase in indicated gold resources and 240 percent rise in indicated silver at its San Miguel project. The new estimate, the result of 139 new drill holes, reports a total of 1.53 million gold-equivalent (AuEq) ounces and 1.6 million AuEq ounces inferred. The company’s stock closed at $2.75 per share on Thursday, up from $2.53 at the open on Wednesday in New York.

Toronto-based AuRico Gold (TSX:AUQ,NYSE:AUQ) is revising its production forecast this year due to what it is describing as “unusually high turnover of skilled labor that significantly reduced underground ore development” at its Ocampo mine in Mexico. The number of gold ounces slated for production in 2012 is between 115,000 and 125,000, down from an earlier 155,000 to 170,000. Next year’s production guidance was also reduced by 44 percent. The bad news was tempered by AuRico’s announced start of commercial production at its Young-Davidson mine in Canada. The mine is slated to produce between 55,000 and 65,000 ounces this year, an 18 percent reduction from the previous target.

Base metals miner Inmet Mining (TSX:IMN) is making a C$112 million bid for Petaquilla Minerals (TSX:PTQ), which operates the Molejon gold mine in Panama, close to Inmet’s $6.2 billion Cobre Panama copper-gold project, which is currently under construction. The offer price of 48 cents in cash, or 0.109 Inmet share for each Petaquilla common share, represents a 37 percent premium to Petaquilla’s September 5 closing price. Inmet said it would continue to operate the Molejon mine, which is expected to yield 68,000 to 70,000 gold ounces this year. Petaquilla closed up 65 percent in Toronto on Thursday.

Junior company news

Canadian precious metals explorer Amerix (TSXV:APM) shot up 74 percent on Wednesday after reporting some impressive intercepts at its Limão gold property in Brazil. “Results from the Limão Pit target area have returned intersections of 53.85 grams gold per tonne over 14.38 metres in hole LDH-11, 6.95 grams gold per tonne over 5.74 metres in hole LDH-13 and 21.12 grams gold per tonne over 9.03 metres in hole LDH-14,” Amerix stated.

Calibre Mining (TSXV:CXB) said Thursday that its joint venture partner, Alder Resources, has discovered a bonanza-grade gold zone at its Rosita project in Nicaragua. Assay results from diamond drilling on the Rosita D concession revealed gold intercepts including 8 meters grading 29.54 grams per tonne over 240 meters. Alder can earn a 65 percent interest in the concession by spending C$4 million on exploring the property and by issuing 1 million of its shares to Calibre.


Securities Disclosure: I, Andrew Topf, do not own any equities mentioned in this article. 



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