Weekly Round-Up: Gold Leads the Way

Resource prices moved sideways this week, but gold hit fresh highs on the possibility of further stimulus in China.

Commodities are ending the week mostly flat as the Greek government announced a new austerity plan that is seen as key to keeping the country in the Eurozone. Spain also passed spending cuts aimed at reining in its massive budget deficit.

Gold jumped 1.5 percent on Thursday, closing at $1,780.50 — a seven-month high — mainly due to reports that China may be considering further stimulus measures.

In the US, orders for durable goods — a key indicator of the manufacturing sector’s health — slumped 13.2 percent in August, marking their biggest decline since 2009. Durable goods are products that will last three years or more, such as automobiles. However, that was largely the result of a big drop in aircraft orders after 260 planes were ordered in July.

Separately, the US Commerce Department said the economy grew at a rate of 1.3 percent in the second quarter. That’s down from the 1.7 percent growth that economists were expecting.

In more positive news, core capital goods orders, which reflect business investment plans, rose 1.1 percent in August. As well, the country’s housing market continues to improve, with the S&P/Case Shiller Index rising 1.6 percent in July, its fourth consecutive month of gains.

Meanwhile, the European Commission’s latest economic sentiment survey, which reflects business confidence in the Eurozone, slipped to 85 points in September from 86.1 in August. Economists had expected the reading to remain flat.

The region’s economy also contracted 0.2 percent in the second quarter, and its output is expected to shrink in the current quarter. That would officially put the area in recession (which is technically defined as two consecutive quarters of contraction).

“The data also shows that while the ECB promise of bond buying and the German court ruling (endorsing the euro zone’s permanent bailout fund) did a lot to calm financial markets, there is still the big issue of non-existent growth,” said ING Bank economist Carsten Brzeski.

In morning trade Friday, Brent crude is down 0.47 percent at $112.84 a barrel, while copper is up 0.47 percent at $3.76 a pound. Gold is down 0.15 percent at $1,777.80 an ounce.

Gold

Canada-based McEwen Mining (TSX:MUX,NYSE:MUX) started production at its El Gallo mine in Mexico this week. The company expects the project’s first phase to produce 10,000 ounces of gold during the rest of 2012 and 30,000 in 2013. McEwen recently completed a feasibility study on the project’s second phase, which the company says will add 6,000 ounces of gold and 5.2 million ounces of silver to the mine’s output annually.

Eagle Hill Exploration (TSXV:EAG) released new assay results on its Windfall Lake gold deposit in Northwestern Quebec. Eagle Hill’s drilling program aims to expand on a July 2012 resource estimate that showed 538,000 ounces of indicated gold, along with an inferred 822,000 ounces.

The company reported positive results from three drill holes: hole EAG-12-418 returned 10.59 g/t gold over 24 meters; hole EAG-12-413 returned 3.1 g/t gold over 26.3 meters at a depth of only 50 meters; and hole EAG-12-414 returned 6.65 g/t gold over 3 meters.

Oil and gas

Earlier this week, Reuters reported that a consortium of Indian companies �— including state-owned Oil and Natural Gas (ONGC), Oil India and Indian Oil — submitted a $5 billion bid for properties in the Canadian oil sands owned by ConocoPhillips (NYSE:COP). On Thursday, ONGC chairman Sudhir Vasudeva denied the claim, but seemed to hint that an offer may still be coming. “I can categorically say that we have not made a bid yet for the $5 billion deal,” he said.

ConocoPhillips put the assets, which produce 12,000 barrels of oil a day, up for sale in January. Canada’s government is now deciding whether to approve state-owned Chinese oil producer CNOOC’s (NYSE:CEO,HKEX:0883) $15.1 billion takeover of domestic oil and gas producer Nexen (TSX:NXY,NYSE:NXY).

Elsewhere, Christophe de Margerie, CEO of France’s Total (NYSE:TOT), came out against drilling for oil in the Arctic this week, citing the risk of a spill in the area’s inhospitable climate. “Oil on Greenland would be a disaster,” he told the Financial Times. “A leak would do too much damage to the company.”

Total will, however, continue exploring for natural gas in the Russian Arctic, as it feels gas leaks are easier to manage than oil spills. The company currently has a range of interests in the region, including a 25 percent stake in the Shtokman field in the Barents Sea, which Russian producer Gazprom estimates could contain 3.8 trillion cubic meters of gas.

Copper

Lara Exploration (TSXV:LRA) has entered into an agreement with Chilean major Antofagasta (LSE:ANTO) to explore for copper and related metals in Brazil. Under the deal, Antofagasta will invest $1.2 million over a two-year period to fund the effort. The agreement can be renewed annually by mutual consent thereafter.

Antofagasta will get a 51 percent stake in any project that a technical committee, made up of representatives from both companies, labels a designated project. Antofagasta can then boost its stake to 70 percent by spending an additional $5 million on the project over four years, with a minimum of $500,000 in the first year.

When its interest in any project hits 70 percent, Antofagasta will pay Lara an additional $3 million, and the partners will continue to explore the project or develop it as a joint venture.

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.

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