Weekly Round-Up: Federal Reserve in the Spotlight

The Fed now aims to spur US economic growth by purchasing $40 billion of mortgage-backed securities a month from commercial banks. It will continue these purchases until the US labor market shows signs of improvement. Moreover, to encourage businesses and consumers to increase spending, the bank indicated that it will keep interest rates low for the longer term.

In its statement, the Fed said, “the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.”

Stock markets also moved higher on the news, with the Dow Jones Industrial Average surging 206.51 points on Thursday to close at 13,539.86.

The Fed’s move is also drawing a lot of attention because it comes in the runup to the November presidential election. The sputtering US economy is seen as a threat to President Obama’s re-election chances, and Republican candidate Mitt Romney, who favors replacing current Fed Chairman Ben Bernanke when his term is up in early 2014, has said he feels further quantitative easing won’t do much good.

In morning trade Friday, Brent crude is up 1.21 percent at $117.82 a barrel, while copper is up 3.4 percent at $3.84 a pound. Gold is up 0.15 percent at $1,774.70 an ounce.

Gold

Gold soared to a seven-month high on Thursday in the wake of the Fed’s announcement. The yellow metal closed at $1,770 an ounce for a gain of 4 percent in the past week.

Meanwhile, labor unrest in South Africa has spread to the country’s gold sector. On Sunday, 15,000 Gold Fields (NYSE:GFI) workers walked off the job, shutting down the company’s KDC West mine. The illegal strike is now costing Gold Fields 1,400 ounces of production a day.

The striking miners are affiliated with the National Union of Mineworkers. Their demands include the removal of the union’s leadership at the mine and a pay increase to 12,500 rand (US$1,560) a month. In a September 10 press release, Peter Turner, executive vice president and head of Gold Fields’ South African region, called for calm and said the company is talking to the strikers. “It is important that we restore normality in a peaceful manner and as soon as possible,” he said.

Helio Resource (TSXV:HRC) received a preliminary economic assessment for its SMP gold project in Tanzania. The report consists of both a base and an upside case (the latter requires confirmation that the surrounding rock can support a pit wall at a 55 degree angle). The base case envisions a mine producing a total of 510,000 ounces of gold over a nine-year mine life. Under the upside case, that jumps to 803,000 ounces over 10 years.

Oil and gas

The Fed’s move also spurred oil prices to four-month highs. However, inventories in the United States unexpectedly rose. The US government’s Energy Information Administration said on Wednesday that the country’s crude oil stockpiles increased by 2 million barrels, to 359.1 million barrels, in the week ending September 7.

Chesapeake Energy (NYSE:CHK,TSXV:CKG), the second-largest natural gas producer in the US, sold most of its assets in the Permian Basin of Texas and New Mexico to Royal Dutch Shell (NYSE:RDS.A,LSE:RDSA) and Chevron (NYSE:CVX) for $6.9 billion. In the second quarter of 2012, these properties produced about 21,000 barrels of natural gas liquids and 90 million cubic feet of gas per day.

The company has struggled due to low gas prices. As well, its CEO, Aubrey McClendon, has been accused of conflicts of interest surrounding personal loans that he took out. Chesapeake has also faced allegations of collusion with regard to property sales in Michigan in 2009 and 2010. The company will use the cash from the sales to fund its operations and pay down debt.

Copper

The red metal also reached new highs on the Fed’s announcement. COMEX copper rose to a level not seen in four months, and on the London Metal Exchange, copper rose to $8,200.50 after hours on Thursday — its highest level since May 8.

Nevada Copper (TSX:NCU) reported positive results from the latest drilling at its wholly-owned Pumpkin Hollow property in Nevada. Hole NC12-34 targeted the expansion of the main mineralized zone and intersected 690 feet grading 1.17 percent copper, 0.085 grams per tonne of gold and 3.6 grams per tonne of silver. The company says mineralization still remains open in several directions.

Nevada is now working on a feasibility study for Pumpkin Hollow, which contains a measured and indicated resource estimated at 6.8 billion pounds of copper, 1.6 million ounces of gold, 42 million ounces of silver and 129 million tonnes of iron. The company plans to release the study in October 2012.

VMS Ventures (TSXV:VMS) said work on its Reed copper project in Manitoba, Canada, is proceeding on time and on budget. The company owns 30 percent of Reed; Hudbay Minerals (TSX:HBM,NYSE:HBM) owns the rest.

The company expects to begin mining at the site in the fourth quarter of 2013, with production ramping up to its full capacity of about 1,300 tonnes per day by the first quarter of 2014.

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