Gold Market Radar (December 10, 2012)

Gold Market Radar (December 10, 2012)

For the week, spot gold closed at $1,704.05, down $10.75 per ounce, or 0.63 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, fell 3.50 percent. The U.S. Trade-Weighted Dollar Index gained 0.32 percent rise for the week.

Strengths

• Both CIBC World Markets and Paradigm Capital initiated coverage of Dundee Precious Metals with a Sector Outperformer/Buy rating with one-year price gain expectations of roughly 50 percent to 60 percent. The analyst indicated Dundee has several potential positive catalysts in 2013 which they believe will continue to build investor interest and confidence thus raising its appeal to a larger pool of investors. One of those catalysts materialized later in the week with Dundee announcing it had secured an agreement with Xiangguang Copper for the sale of up to 200,000 tons per annum of gold bearing pyrite concentrates produced at their Chelopech mine starting in 2014. Gold associated with pyrite minerals currently not captured in the processing circuit will be recovered and sold as a gold concentrate boosting the project’s overall gold recovery to approximately 90 percent.
• PMI Gold and Keegan Resources announced that they have entered into a definitive arrangement agreement to combine their respective businesses to create a leading West Africa gold development company. Keegan has enough cash on hand such that PMI Gold can likely complete the construction of their first mine. PMI Gold’s share price jumped 12 percent on the announcement.
• Central banks continue to be active buyers in the gold market. The Bank of Korea announced it increased gold reserves 20 percent last month to diversify investments, boosting holdings for the fourth time since June.

Weaknesses

• BNP Paribas SA lowered its 2013 gold price forecast to $1,865 an ounce from $1,900 an ounce. An analyst for the bank, Anne-Laure Tremblay, suggested prices will average $1,780 an ounce in 2014, for the first annual decline in 14 years.
• Gold imports by China from Hong Kong dropped 32 percent in October from a month earlier as slowing economic growth cut purchases. China stock market indexes are approaching their 2009 lows. In contrast, there have been reports of buying picking up in India.
• Congress and the White House remain deadlocked on the fiscal cliff for another week as it continues to threaten the economy and jobs.

Opportunities

• Randgold Resources held its investor day recently. The company’s production guidance was outlined showing growth going from currently 850,000 ounces to 1.3 million ounces in 2015 with projected free-cash flow of $700 million per annum at that time. At this rate, Randgold could build a new mine every year as well as pay out some $200 million to shareholders in dividends.
• Drill results from Pilot Gold’s early stage joint-venture project with a Turkish subsidiary of Teck Resources were published. Results from the latest eight holes at the TV Tower project include 193 grams gold per ton, 9.8 grams silver per ton and 0.46 percent copper over 12 meters in drill hole KCD-50. The interval, located at a vertical depth of 100 meters, also demonstrated visible gold in several veins. Pilot Gold’s chief geologist, Moira Smith, commented that the location of the intercept and the near perpendicular orientation of the gold-bearing veins relative to the hole orientation, suggest the interval may reflect true width of the zone.
• UBS AG said its expectation of additional quantitative easing next week by Federal Reserve is not priced in the gold market, and any aggressive move by the FED would prompt a sizeable response. Index rebalancing will also cause gold to be bought.

Threats

• On December 3 before market, Newmont Mining announced that President and COO Gary Goldberg will become President and CEO, and join Newmont Mining’s Board of Directors on March 1, 2013. This is the third major gold company with a CEO change, but this change appears to have been more orderly.
• Anita Soni from Credit Suisse First Boston expects no change to Newmont’s strategy. The company will still focus on reducing all-in cost and returning capital to shareholders. But with most budgeting programs reeling in capital spending, it could result in limited production growth for Newmont. Soni notes there is increased likelihood of negative news flow in early 2013 with the change in CEO.
• Goldman Sachs sees potential for higher gold prices in early 2013 but the gold cycle could be set to turn lower on the improving U.S. recovery.