Gold Market Radar (September 24, 2012)
For the week, spot gold closed at $1,773.10 up $2.70 per ounce, or 0.15 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 1.75 percent. The U.S. Trade-Weighted Dollar Index gained 0.61 percent for the week.
Strengths
- Gold prices remained firm, despite several bouts of inter-week profit taking that pushed gold lower at the market open. Sellers only found there were willing buyers to take the price higher upon their exit.
- Gold stocks also put in positive gains for the week with smaller miners and explorers outpacing their senior peers. Junior silver miners also outperformed their senior peers.
- Sales of the U.S. Mint’s American eagle gold coins climbed to 45,000 ounces according to their website. This exceeds the 39,000 ounces sold in August, so there is some pickup in momentum.
Weaknesses
- Platinum and palladium prices pulled back this week with the settlement of the Lonmin strike in South Africa.
- Lonmin agreed to as much as a 22 percent hike in wages, marking the single biggest wage spike by a mining company in South Africa.
- Credit default swaps for South African debt surged on the news. The platinum mines were making just enough money to cover maintenance at their operations with nothing left to invest in further mine development.
Opportunities
- Gold Standard Ventures reported another set of exceptional drill results at their Railroad Project’s Bullion Fault Zone. Results included 124 meters of 4.05 grams per tonne, including 16.5 meters of 15.1 grams per tonne. This step-out hole confirms the emergence of a growing high-grade core zone that is still open in all directions according to the company.
- Both Jim Rickards and John Mauldin were recently interviewed on Capital Account by Lauren Lyster. When talking about the U.S. debt problem, Jim Rickards outlined his view on what type of solution the Fed is crafting to solve this problem. He suggested a plan of targeting inflation at 5 percent for 14 years to cut the value of the dollar in half in real terms. China owns $3 trillion of our debt and this would effectively be a $1.5 trillion real wealth transfer from China to the United States. This is the easiest solution to our debt problem and is the most likely choice policy makers will take.
- Ray Dalio, who runs the world’s biggest hedge fund, told CNBC today that Warren Buffett is making a “big mistake” in not holding gold. He stressed that every investor should hold “some degree” of gold in their portfolio.
Threats
- Strikes at gold mining operations in South Africa are a concern. Gold Fields has already seen work stoppages at the KDC West operations. In response, the Chamber of Mines which negotiates on behalf of the gold miners is examining the option of bringing the upcoming wage talks forward to address the problem.
- According to analysts we spoke with this week, the fact that Gold Fields is already having problems is reflective of which company may have the least attractive labor relations going into the negotiations.
- As far as AngloGold’s and Harmony’s labor relations stand, Harmony has worked the hardest over the past four years with their employees to understand the economics of mining, and their workforce gets it.
