Gold Market Radar (February 27, 2012)
For the week, spot gold closed at $1,772.45 up $49.07 per ounce, or 2.85 percent. Gold stocks, as measured by the NYSE Arca Golds Miners Index, rose 4.19 percent. The U.S. Trade-Weighted Dollar Index fell 1.20 percent for the week.
Strengths
- It was a strong week for precious metals with silver leading the way (up 6.39 percent) followed by platinum (up 3.65 percent) and gold pulling up the rear with a gain of 2.86 percent for the week. Supply challenges exacerbated by Impala Platinum’s labor strike have been the drivers for the platinum’s year-to-date performance, up almost 10 percent.
- Golden Predator’s stock jumped as much as 20 percent on Thursday on reports of long gold-mineralized intercepts from its Grew Creek project in the Yukon. The best intercept measured 68 meters at 5.96 grams-per-ton and 24.1 grams-per-ton silver, only 32 meters down.
- As shown in the table below, sales of American Silver Eagle coins have steadily increased, demonstrating strong investor appetite for investments in silver. The year 2012 is expected to be another record-setting year for Silver Eagle sales.
Weaknesses
- Rising production costs and sustaining capital expenditures are still a headwind to gold mining companies as they report their fourth-quarter financial results.
- Impala Platinum, which has two important platinum mines in Zimbabwe, received notice that the Zimbabwean Minister of Youth Development, Indigenization and Economic Empowerment Fund had rejected portions of Impala’s plan to meet government regulations on ownership transfers, and that unless an agreement was reached in 30 days, enforcement actions would be taken.
- Zimbabwe also hiked its pre-exploration fees for most minerals by as much as 8,000 percent in January, with registration charges for platinum and diamond claims going up to $2.5 million and $5 million, in a move the country says is meant to curb speculative holding of mine titles. In a response to this action, the country’s Chamber of Mines said early this week that the new mine license fees and resource rentals will significantly raise the cost of mining and threaten the sector’s viability, with as much as 60 percent of mining revenues going to the government. The Chamber told a parliamentary committee hearing that the new fees, coupled with royalty increases of 7.5 percent for gold and 10 percent for platinum announced in the 2012 budget, would seriously hurt miners who have yet to fully recover from a decade-long economic crisis.
Opportunities
- In an article on Mineweb, four key elements were highlighted that suggest gold may be due for a break-out from its current trading range and that new all-time highs for gold may only be days away. The four key elements identified were that more global quantitative easing (monetary stimulus) is on its way, investment demand for gold is increasing from central banks and the public, the perception of gold as a mainstream investment has changed, and interest rates remain low globally on bank CDs, both corporate and government. All of these conditions bode well for gold’s potential to head for new highs before this summer.
- The South African Finance Minister, Pravin Gordham, announced South Africa’s 2012 Budget in which he will be establishing a venture capital incentive for junior mining companies to strengthen growth in the country’s mining sector. The fund would make Rand 24.6 million a year available to emerging and developing mining companies through the International Finance Corporation in an effort to promote small businesses in mining.
- Last year we saw India’s silver demand surge to 4,800 tons, despite higher prices. This year, The Bombay Bullion Association has predicted that India will import 5,000 tons, coupled with prices exceeding $60 an ounce. Jitendra Jain of the Association said, "India is one of the largest users of silver and is ranked third in the world after USA and Japan. With average silver imports per annum of around 3,100 tonnes, the country's imports jumped to 4,800 tonnes in 2011. The previous year, India imported just 2,800 tonnes.”
Threats
- A strike now going on a month at Impala Platinum’s Rustenberg platinum operations in South Africa has resulted in the loss of two lives, numerous injuries, reports of intimidation and damage to property.
- In response to allegations that the South Africa’s Association of Mineworkers and Construction Union has been behind the violence, the union has dismissed all claims but admitted to an intensive recruitment drive across the country. It has been speculated that Implat’s strike has cost production 80,000 ounces to date.
- Challenging economic conditions described in a report on India’s economy presented to a government panel this week could be so challenging that gold imports could fall 35 percent for 2012-2013. The report highlighted that easing inflation and a revival in stock markets could dent the precious metal’s imports, pushing down shipments as much as 35 percent.
