Gold Market Radar (January 21, 2013)
For the week, spot gold closed at $1,684.30, up 21.5 per ounce, or 1.29 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, lost 0.60 percent. The U.S. Trade-Weighted Dollar Index gained 0.60 percent for the week.
Strengths
- The Central Bank of Russia (CBR) bought 650,000 ounces of gold in December, its largest monthly purchase since September 2010. The CBR’s policy is generally to maintain a gold-to-FX reserve ratio of around 10 percent and as of year-end 2012, that ratio stood at 9.5 percent.
- Silver reached a one-month high as the U.S. Mint sold out of 2013 American Eagle silver coins. The silver coin sale will resume on or about the week of January 28 once inventory is replenished.
- A report by the Official Monetary and Financial Institution Forum (OMFIF) suggests that demand for gold will increase as central banks of emerging economies become increasingly interested in gold in the gradual transition out of a single global reserve currency system.
Weaknesses
- Two central security guards were killed at Tahoe Resources’ silver project in Guatemala when their patrol was ambushed by armed criminals. It is the third act of violence against projects or operations in Guatemala this month.
- Germany’s Bundesbank has announced a phased relocation of all its gold held in France and 300 tons of its gold held in the Unites States, to be moved to Frankfurt by 2020.
- Rio Tinto, the world’s second-largest mining company, will take about an additional $14 billion of write-downs for failed deals in aluminum and coal. Chief Executive Officer Tom Albanese, behind the deals, will be leaving the company after six years in charge.
Opportunities
- Peru approved Rio Alto Mining, the developer of the La Arena copper and gold mine in Peru, as an investment for domestic pension funds.
- Centerra reported 2012 gold production of 387,076 ounces while providing its production outlook for the current year. Ian Atkinson, President and CEO, stated that Centerra’s Kumtor mine had disappointing results, but he expects 2013 production to almost double between 605,000 and 660,000 ounces.
- According to Thomson Reuters GFMS, gold will likely climb toward $1,900 an ounce and average a record in the first half of this year as central bank stimulus boosts investment demand. Central banks added the most gold to their respective reserves in 48 years over the course of 2012, and will likely buy another 280 metric tons in the first half of 2013.
- Anglo American Platinum announced the closure of its Rustenburg mine, slashing expected annual platinum production by 400,000 ounces. Both the South African government and its labor unions are unhappy with the plan, but it is a positive for the price of platinum.
Threats
- Senator Tom Udall, D-NM, and others are seeking to overhaul the General Mining Law of 1872, originally signed into law by President Ulysses S. Grant to promote mining in the West. If successful, the U.S. government could gain hundreds of millions of dollars in the next decade by collecting royalties from gold, silver and other mines otherwise exempt under the 1872 mining law.
- One suggested proposal is to charge a 12.5 percent royalty fee, which would generate about 3 billion over 10 years, estimates Representative Edward Markey from Massachusetts.
- CanaccordGenuity cut its one-year peak gold forecast to $1,850 from $2,000, and silver to $35 from $40. They see potential for two-year peak gold at $2,000 and silver at $40.
