Gold Market Radar (November 26, 2012)
For the week, spot gold closed at $1,752.40, up $38.65 per ounce, or 2.26 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, gained 5.30 percent. The U.S. Trade-Weighted Dollar Index slumped 1.32 percent for the week.
Strengths
- Gold and silver prices ended the week strong on renewed weakness in the U.S. dollar as holdings in gold-backed exchange-traded products rose to a record 2,605.3 metric tonnes. Data from the U.S. Mint also showed sales of 1 ounce Gold Eagles were at 67,000 ounces so far for November, exceeding October’s sales of 59,000 ounces.
- Agnico-Eagle released an update of its 2012 exploration program. According to Michael Jalonen of BofA Merrill Lynch this suggests that Agnico-Eagle should record a notable year-over-year increase in total gold resources at the end of 2012. This should lend support to Agnico’s shares.
- Brazil raised its gold reserves for a second month to the highest level in more than 11 years. Brazil’s gold holdings expanded 17.2 tonnes last month, followed by the purchase of 1.7 tonnes in September. This brings total Brazil gold reserves to 52.52 tonnes.
Weaknesses
- Analysts are of the opinion Osisko’s shares are likely to re-rate, but the re-rating is likely to take longer than previously expected. Osisko recently announced a friendly takeover of Queenston Mining, but the acquisition is dilutive to near-term earnings and cash flow.
- Continued instability in northeastern Congo may interrupt mine supplies, particularly in the case of Banro Corporation which has mines in the region. Media sources have indicated that the rebel group M23 has seized control of parts of the city of Goma.
- The South African mining industry is facing a radical downsizing of its mature operations, which will most probably result in a significant reduction in production, according to a report on Mineweb. AngloGold Ashanti, the country’s biggest producer, was first to announce a review of its asset base earlier this month. The company, in the future, would try to concentrate its efforts on higher margin, higher quality operations. Nick Holland, CEO of Gold Fields, has been vocal about the fact that recent labor unrests would result in sweeping structural changes across the industry.
Opportunities
- MAG Silver’s shares dropped 12 percent at the start of the week as a story reported local land owners decided to expel the Vancouver-based company from its Cinco de Mayo property and establish a 100-year mining moratorium. MAG is strongly of the view that the assembly meeting was called and conducted illegally as a result of the efforts of radical activists opposed to mining in the region. The share price did pick up by about 4 percent by the end of the week.
- Shares of IAMGOLD dropped more than 20 percent in the prior week after the company reported a third quarter earnings per share miss and reduced its 2013 gold production guidance. BMO research analysis suggests that market concerns appear overdone relative to the valuation adjustment and represents a potential buying opportunity given the recent price correction.
- Concerns over the loose monetary policy, further quantitative easing and a weak U.S. dollar should support the upward trade in gold and silver. Jim Rogers, billionaire and co-founder of the Soros’ Quantum Fund, says that he plans to sell federal debt and purchase more gold and silver. Rob McEwen, CEO of McEwen Mining and founder of Goldcorp, said he expects gold and silver prices to reach $2,000 and $50 per ounce in 2013, respectively. Longer term he sees $5,000 gold and $200 silver prices.
Threats
- Since QE3 was confirmed on September 13, the Fed’s balance sheet has expanded by about 2 percent, but is actually down compared to levels at the beginning of the year and generally flat for most of 2012. Gold prices have not taken off as some expected.
- India’s Reserve Bank has directed commercial banks not to give loans for the purchase of gold in any form, including primary gold, bullion and jewelry. India imported nearly 1,067 tonnes of gold worth nearly $60 billion this year. India is struggling to get its citizens to trust the value of the rupee versus gold.
- Paretosh Misra of Morgan Stanley reports that three key issues need to be addressed before investors recognize the value of Barrick Gold Corporation. There needs to be de-risking of major projects such as Pascua Lama, copper assets need to perform better and debt must be lowered. Barrick fired its CEO earlier in the year to show the market it was serious about change. However, some have argued shareholders would be better served by the retirement of Barrick’s Founder and Chairman of the Board, Peter Munk.
