Gold Market Radar (November 21, 2011)
For the week, spot gold closed at $1,723.95, down $64.73 per ounce, or -3.62 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, fell 8.43 percent. The U.S. Trade-Weighted Dollar Index rose 1.44 percent for the week.
Strengths
- The World Gold Council’s Gold Demand Trends reported that investment demand for gold is still continuing to rise year-over-year, increasing 6 percent from the third quarter of 2010. Gold demand reached 1,053.9 tons for the third quarter of this year, valued at $57.7 billion, which is an all-time high in terms of value. Of particular note, demand soared in Europe, reaching a year-on-year increase of 135 percent, or 118.1 tons. Both statistics are very positive for the precious metal, after a sharp gold price correction in September spurred by investors profit-taking. Gold ETFs and similar products saw inflows up 58 percent, or up to 77.6 tons, in the third quarter of 2011 from previous year levels of 49.1 tons.
- Jaguar Mining closed up 44.71 percent Wednesday on news that the company received an unsolicited takeover offer. Reuters reported that China’s Shangdong Gold had made a cash offer to purchase the company for $785 million, or $9.30 per share. Chinese resource companies have been coming overseas for minerals to power China’s economy growth.
- Anglogold took a strategic 19.9 percent stake in London listed Mariana Resources through a private placement of approximately $8.5m at a 41 percent premium to the closing price yesterday. Mariana will commit to use 75 percent of this investment to develop its various epithermal gold-silver targets in the Deseado Massif of Southern Argentina.
- Lake Shore Gold was up 6.79 percent mid-week on news that the gold mine aims to double mining throughput at its Bell Creek mill in Ontario. Additionally, after an intense drilling campaign, the Thunder Creek project reported its first resource, attributing over a million ounces of gold. Lake Shore Gold reported 2.9 million indicated tons of 5.64 grams per ton and an additional 2.7 million inferred tons of 5.89 grams per ton at Thunder Creek. In addition, Lake Shore reported a maiden resource for the Fenn-Gib property of roughly 2 million ounces at just under 1 gram per ton.
Weaknesses
- John Paulson, a well-known gold bull and hedge fund manager, reported this week that he sold a third of his gold holdings in the third quarter. Paulson & Co. cut its holding in the SPDR Gold Trust to 20.3 million shares from 31.5 million at the end of second quarter, according to U.S. regulatory filings. He is, however, still the biggest holder of the gold trust.
- Avion Gold reported third quarter earnings that sparked more than a 12 percent fall on Tuesday. The Toronto-based miner with operations in West Africa reported earnings of $7.2 million, which is half from what the miner was last year, when it was $14.4 million. Production during the quarter was impacted by low equipment availability and costs rose due to hiring contract miners to substitute for fleet downtime.
- Fear regarding European debt expanded this week as other countries within the region, such as Belgium and the Netherlands have seen their financial credibility come into question.
Opportunities
- “Generation AU” is a term that’s recently been used to describe the popularity of the precious metal amongst youth. Mineweb highlighted that a new vein of investors in their 20s and 30s has attracted to gold’s spectacular, ten-year run along with the most recent global sovereign-debt crisis worries. Over the past two months, about half of the hundreds of new accounts at Gold Bullion International, a seller of physical gold in New York, has been from the “Generation AU.” Younger investors are “increasingly sophisticated” and do not want to repeat others’ mistakes.
- Despite higher gold prices, the precious metal demand has been soaring to new highs in India as wedding season gets underway. Gold jewelry sales are set to go up in India, entering into its strongest time of the year. Historically, Indian buyers have been a good indicator of the sustainability of gold prices as they tend curb their purchases if prices are unsustainable.
- Bloomberg highlighted that Morgan Stanley has gold as its top pick as European debt spurs demand. According to the firm, gold will lead a rally in commodities in 2012 as Europe’s sovereign-debt crisis continues to roil financial markets. Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., said that, ‘there’s a very strong chance that gold will re-challenge successfully the all-time high. Bullion may climb to a record $2,200 an ounce in the first half.”
Threats
- Resource nationalism is now viewed increasingly as a threat to the mining industry, with news more frequently pertaining to more and more violent opposition to major mining projects around the world. Even while in so-called “safe” environments, resource nationalism is seen as a potential cash cow for profligate governments. Resource nationalism is threatening mining infrastructure investment, and in some areas, seems to be turning dangerous in terms of “affirmative action” by locals and sometimes by governments themselves.
- Globally, there are many examples where government attitudes to foreign mining investment turn contentious and domestic disputes and violence result. Philippines, Colombia, and Peru have especially suffered with demonstrations and opposition.
- According to the 2012 budget delivered to parliament on Wednesday, Africa’s second-largest gold miner, Ghana, is proposing an increase to its corporate mining tax from 25 percent to 35 percent. This would bring Ghana’s corporate tax rates up to roughly the same level of many of its peers. The IMF has been aggressively urging Ghana to look into possibilities of increasing tax revenues from the mining sector which is one of the largest contributors to their GDP.
