Gold Mar­ket Radar (Jan­u­ary 9, 2012)

For the week, spot gold closed at $1,617.95 up $54.25 per ounce, or 3.5 per­cent. Gold stocks, as mea­sured by the NYSE Arca Golds BUGS Index, gained 3.7 per­cent. The U.S. Trade-Weighted Dol­lar Index rose 1.4 per­cent for the week.

Strengths

• Junior tiered min­ing stocks out­paced the senior peers by almost a two-to-one mar­gin this week, demon­strat­ing excel­lent rel­a­tive strength in the first week of trad­ing. Much of this can be attrib­uted to the end of tax-loss sell­ing. Sea­son­ally, the Jan­u­ary Effect seems to be on a good start.
• Rio Alto came out with its much antic­i­pated updated resource state­ment for its La Arena project in Peru. Rio Alto added 434,000 ounces of gold in con­tained metal to oxide resources in some 25,000 meters of new drilling; bring­ing mea­sured and indi­cated resources at La Arena up 41 per­cent to 1.5 mil­lion ounces of gold at a grade of 0.46 grams per ton. The mar­ket reacted pos­i­tively to these results, up 14 per­cent for the week.
• The U.S. Depart­ment of Labor’s Mine Safety and Health Admin­is­tra­tion reported its sec­ond low­est num­ber of min­ing deaths in a cen­tury for the past year.

Weak­nesses

• India’s gold imports tum­bled to 35 tonnes in Decem­ber, from the 75 tonnes recorded a year ear­lier. The country’s imports for Novem­ber also fell 75 per­cent from the same period a year ago, with only 20 tonnes imported recorded. Higher prices, a week rupee, and increas­ing infla­tion for the coun­try are all dri­vers of the decrease in sales and imports.
• Rye Patch Gold slid 22 per­cent for the week largely on drilling results from its Gar­den Gate Pass Project that was a tech­ni­cal suc­cess in inter­sect­ing the right host rocks, which are on trend with Bar­rick Gold’s Red Hill/Goldrush dis­cov­ery announced ear­lier in the year, but these holes only car­ried anom­alous gold.
• Peru’s over­all gold pro­duc­tion slid 12.22 per­cent for the month of Novem­ber, and cumu­la­tively from Jan­u­ary to Novem­ber 2011, fell 1.17 per­cent. Sil­ver and cop­per pro­duc­tion also fell 6.45 per­cent and 1.72 per­cent cumu­la­tively from Jan­u­ary to Novem­ber 2011.

Oppor­tu­ni­ties

• Peru’s gov­ern­ment, which has been mak­ing a con­sid­er­able effort to curb anti-mining protests that are threat­en­ing the min­ing indus­try in the coun­try, said that com­pa­nies now must set up an envi­ron­men­tal con­ser­va­tion fund as part of future con­tracts. The fund will be used should any dam­age be done to nat­ural sur­round­ings in protest-related events. The Cab­i­net Chief, Oscar Valdes, said that they will also cre­ate an office in charge of set­tling social con­flicts related to min­ing and other indus­tries. After Peru’s new pres­i­dent ran for office on some­what of an anti-mining plat­form, he has to come to terms with the fact that min­ing is the county’s biggest source of rev­enue and wealth can­not be cre­ated with­out jobs.
• Accord­ing to Frost & Sul­li­van, the world’s second-largest gold jew­elry mar­ket, China, may boost gold con­sump­tion by 35 per­cent in 2012, on ris­ing income and con­tin­u­ing urban­iza­tion. Fac­tors such as demo­graph­ics and pro­lif­er­a­tion of wealth will be dri­ving the increased demand.
• Gold retail­ers in India have now taken a new incen­tivized approach to sell­ing gold, lur­ing in buy­ers with the promise of an iPad and allow­ing cit­i­zens to buy gold using their credit and debit cards. "Ear­lier we used to give 10 per­cent dis­count, or sil­ver idols or free pen­dants. We have now moved to smaller elec­tronic items to bring in more foot­falls,' said Saumesh Gargi, a gold retailer in Mumbai's teem­ing Zaveri Bazaar. An iPad was given to the high­est gold jew­elry trans­ac­tion through credit or debit every hour at a retail shop in Mum­bai dur­ing the fes­tive season.

Threats

• The Envi­ron­men­tal Pro­tec­tion Agency released its Toxic Release Inven­tory (TRI), report­ing the United States’ met­als min­ing as the largest con­trib­u­tor of toxic chem­i­cals released into the envi­ron­ment of 2010. Con­trary to this, the National Min­ing Asso­ci­a­tion main­tains that nearly 85 to 90 per­cent of the sub­stances reported by min­ing oper­a­tions for the TRI inven­tory occur nat­u­rally in the local rock and soil.
• Read­ers should be aware that it is only after the rock con­tain­ing these nat­u­rally occur­ring ele­ments is loaded into a truck and moved that the reclas­si­fi­ca­tion of the rock to toxic mate­r­ial is trig­gered. The lat­est TRI report showed that 3.93 bil­lion pounds of toxic chem­i­cals were released into the envi­ron­ment, a 16 per­cent increase from 2009. Iron­i­cally, if one con­sid­ered all the soil and sed­i­ment that is moved by rivers and streams each year for which the EPA reg­u­lates these water­ways, then the EPA itself would likely be the largest pol­luter of toxic mate­ri­als in the U.S.
• HSBC and Bar­clays cut their 2012 gold price fore­casts by more than $100 per ounce, but still uphold their bull­ish view on the pre­cious metal. The change in fore­casts came after gold posted a gain of 10 per­cent last year, and although it main­tained its 11th con­sec­u­tive year of gains, it was the small­est annual gain in three years. James Steel, HSBC’s chief com­mod­ity ana­lyst, cut his 2012 fore­cast to $1850 per ounce from $2025, attribut­ing the euro weak­ness, liq­ui­da­tion related to equity losses and a slump in phys­i­cal demand from emerg­ing mar­kets. Mr. Steel, how­ever, did keep his 2012 sil­ver fore­cast unchanged at $34 an ounce.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications. Read more from the author/contributor here.

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