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Healthy US retail sales figures boosted the US dollar this week and dragged gold down.
The yellow metal lost $49 between Monday and Thursday, hitting a fresh four-week low on Thursday at $1,388 per ounce after slipping under the technical support level of $1,400 on Wednesday as sell stop orders were triggered.
Much of the headwind for gold right now is coming from the US dollar, which on Monday hit a four-week high against the Japanese yen on higher-than-expected retail sales. The greenback continued to strengthen throughout the week and on Wednesday the US dollar index reached a 9.5-month high.
Another factor at play this week was the price of oil, which fell below $95 a barrel on Tuesday after the International Energy Agency forecast higher oil production while cutting worldwide demand. Applying further pressure on precious metals, last Friday The Wall Street Journal reported US Federal Reserve officials discussing an exit for the Fed’s $85-billion-a-month bond-buying program, which is known as quantitative easing (QE). QE has been bullish for gold and silver since the stimulus program began in 2008.
These drivers, combined with disappointing wedding season demand for gold jewelry in number-one gold-consuming nation India, conspired to drag gold down to levels not seen since April 15, the day gold fell $200 an ounce for the largest one-day drop in 30 years.
While the US currency was down on Thursday due to a rise in jobless claims and a slowdown in inflation, that wasn’t enough to pull up gold. At the close of trading in New York, COMEX gold for June delivery was down $10 to $1,386.10, while spot gold finished down $5 at $1,388.
ETF exodus exceeds physical demand
In the weeks following gold’s crash, the price recovered around half of its losses due to intense physical buying of the metal — in the form of gold bars, coins and jewelry — but those demand sources have not been enough to compensate for the outflows of gold sold through ETFs. According to the World Gold Council’s Gold Demand Trends report, demand for gold jewelry, bars and coins was up a respective 12 and 10 percent in the first quarter, while central bank buying exceeded 100 tonnes for the seventh consecutive quarter; however, that wasn’t enough to match the 176.9 tonnes that flowed out of ETFs during Q1.
Meanwhile, India continues to import gold in high volumes despite taxes recently imposed by the government to address the country’s ballooning trade deficit. The Wall Street Journal reported that India’s trade deficit widened by more than 70 percent in April due to a 10-percent increase in bullion imports.
Company news
Freeport-McMoRan Copper & Gold (NYSE:FCX) suspended operations at its giant Grasberg copper-gold mine in Indonesia after a tunnel collapse on Tuesday trapped 39 workers, Reuters reported. The workers were attending an underground training class near the world’s second-largest copper mine, when a tunnel collapsed on them, according to Freeport. So far, five people have been reported dead; rescuers are still working to reach any workers still trapped underground.
As gold miners are struggling to rein in costs and are reassessing projects in light of a lower gold price, South African producer AngloGold Ashanti (NYSE:AU) reported a robust first quarter. The world’s third-largest gold producer said it recovered from a wave of illegal strikes last year that bit into production and reported a near six-fold jump in first-quarter earnings. Quarter to quarter, earnings rose from 5 cents a share in Q4 2012 to 29 cents in Q1 2013. Quarterly production increased to 899,000 ounces from 859,000 ounces.
Russia’s largest gold producer, Polyus Gold International (LSE:POLG), received a $1-billion “mystery investment” from an undisclosed source, RT.com reported. The 32 million roubles will be put towards the Natalka gold mine in Northeastern Russia, which according to the website, is the third-largest undeveloped gold deposit in the world.
Junior company news
Orefinders Resources (TSXV:ORX) announced additional high-grade gold results from six more drill holes at its Mirado gold project in Kirkland Lake, Ontario. Among the results, Hole MD13-19 intersected 32.5 g/t gold over 5.9 meters within an interval of 14.5 meters at an average cut grade of 8.1 g/t gold.
Harte Gold (TSX:HRT) announced assay results from its drill hole program in the bulk sample area of the Sugar Zone deposit, located in White River, Ontario. “The drill program was designed to increase the confidence and confirm grade in the bulk sample area,” the company stated.
Eagle Hill Exploration (TSXV:EAG) reported high-grade gold results from its winter drill program at its Windfall Lake gold deposit in Northwestern Quebec. Highlights include 288.5 g/t gold over 12.4 meters and 22.1 g/t gold over 5.5 meters, both located in the Main Zone.
Unigold (TSXV:UGD) announced that initial results from infill drilling at the Candelones Main Zone have intersected grades and widths consistent with the historical drill results. They confirm over 3 kilometers of strike length of mineralization at Candelones within the Neita concession in the Dominican Republic.
Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article.