Gold Market Cheat Sheet (October 24, 2011)

Muammar Gaddafi's golden gun

Gold Market Cheat Sheet (October 24, 2011)

For the week, spot gold closed at $1,642.38, down $38.35 per ounce, or 2.28 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 6.88 percent lower. The U.S. Trade-Weighted Dollar Index slid 0.49 percent for the week.


  • The performance of the gold funds was in line with benchmarks and peers for the week, despite a jittery market. A handful of companies made positive gains. Among them is Detour Gold, up 4.4 percent, which is being driven by hedge funds going long Detour Gold and shorting Osisko Mining, down 9.4 percent. Rubicon Minerals was also up 4.0 percent on takeover speculation for the week.
  • Further to the original agreement of C$92 million as a cash-share takeover of Grayd Resources, the takeover offer was sweetened to C$183 million cash instead. Since the announcement of the takeover on September 19, Agnico-Eagle shares have plunged more than 30 percent; it can be understood why Grayd would ask for more cash than shares.
  • The European sovereign debt crisis is still dominating sentiment. Ultimately the money-printing solution should be positive for gold and the companies that control large resource bases of high grade reserves. The Russian Central Bank noted they will continue acquiring “huge volumes of gold.”.


  • Bullion continued the recent trend, and outperformed equities for the week by 2.28 percent. The ongoing trend of weakness in junior mining companies relative to the seniors continues. The Market Vectors Junior Gold Mine ETF finished down 7.67 percent for the week, while the Market Vectors Gold Miners ETF closed down 6.87 percent.
  • The plunge in Agnico-Eagle’s share price this week is reflective of how nervous investors are in the current economic environment. The write off of Goldex, Agnico-Eagle’s lowest grade operating mine, is a classic case of the street assigning too much value to low quality assets. The write down to the balance sheet is about $170 million but the market trimmed the valuation by $2.7 billion. Low grade assets have a much lower probability of delivering a dollar of profit to the bottom line.
  • Only two mining companies have yet to meet consensus and guidance on gold production on their earnings this quarter. With no exception to the trend, Newcrest Mining’s gold production for September fell 16 percent to 587,286 ounces, being heavily affected by heavy rain and maintenance shutdowns at its mine in Papua New Guinea. Political instability, royalty concerns, strikes and weather influences have all been affecting the industry as a whole for the third quarter.


  • The EU Summit meeting will take place this weekend. There are some expectations that a bank recapitalization could be worked out and this would take a lot of uncertainty out of the market. China, which Europe’s largest, trading partner, could see some benefits out of this. With Chinese consumers being the destination of about 60 percent of all commercial gold sold today, some stability would be a welcome relief.
  • India’s festival, Diwali, takes place next week. With the festival around the corner, a slight dip in gold prices has presented a great buying opportunity for the metal. Traders are speculating that gold jewelry buying and smaller denomination coins will surge during the Indian festival of lights, with sales already picking up significantly.


  • In response to weak mining sector growth and criticism over the industry’s contribution to economic growth, Tanzania is said to raise gold royalties by year end as the country continues restructuring the sector, the Minerals and Energy Minister William Ngeleja said on Wednesday. Despite Tanzania’s annual gold exports tripling to $1.5 billion in the past five years as the price of gold has risen, the government revenues have remained stagnant around $100 million a year.
  • With talk of higher taxes, it is no wonder that Tanzania’s mining sector growth slowed to 5.8 percent for the second quarter this year in contrast with the 20.5 percent growth of the second quarter last year. Down from 28.3 percent in the first quarter of 2010, the sector only expanded to an annual of 2.1 percent in the first quarter of this year. Ongoing uncertainty over government policies, a prolonged power crisis and limitations within infrastructure were all contributing factors to this decline.
  • Negotiations surrounding mining export and foreign investments bans for Eritrea were scheduled to begin Tuesday among UN Security Council members. The new draft resolutions, which stated in part that “all states shall prohibit investment by their nationals, persons subject to their jurisdictions and firms incorporated in their territory or subject to their jurisdiction in the extractive industries and mining sectors in Eritrea,” also calls on all states to prohibit the import of gold and other raw materials from the country, Reuters reported. Eritrea has been under considerable scrutiny from the international community for its reported affiliation with Somalia and funding armed terrorist groups, linked to al-Qaeda.
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