Gold Market Radar (January 9, 2012)

Gold Market Radar (January 9, 2012)

For the week, spot gold closed at $1,617.95 up $54.25 per ounce, or 3.5 percent. Gold stocks, as measured by the NYSE Arca Golds BUGS Index, gained 3.7 percent. The U.S. Trade-Weighted Dollar Index rose 1.4 percent for the week.

Strengths

• Junior tiered mining stocks outpaced the senior peers by almost a two-to-one margin this week, demonstrating excellent relative strength in the first week of trading. Much of this can be attributed to the end of tax-loss selling. Seasonally, the January Effect seems to be on a good start.
• Rio Alto came out with its much anticipated updated resource statement for its La Arena project in Peru. Rio Alto added 434,000 ounces of gold in contained metal to oxide resources in some 25,000 meters of new drilling; bringing measured and indicated resources at La Arena up 41 percent to 1.5 million ounces of gold at a grade of 0.46 grams per ton. The market reacted positively to these results, up 14 percent for the week.
• The U.S. Department of Labor’s Mine Safety and Health Administration reported its second lowest number of mining deaths in a century for the past year.

Weaknesses

• India’s gold imports tumbled to 35 tonnes in December, from the 75 tonnes recorded a year earlier. The country’s imports for November also fell 75 percent from the same period a year ago, with only 20 tonnes imported recorded. Higher prices, a week rupee, and increasing inflation for the country are all drivers of the decrease in sales and imports.
• Rye Patch Gold slid 22 percent for the week largely on drilling results from its Garden Gate Pass Project that was a technical success in intersecting the right host rocks, which are on trend with Barrick Gold’s Red Hill/Goldrush discovery announced earlier in the year, but these holes only carried anomalous gold.
• Peru’s overall gold production slid 12.22 percent for the month of November, and cumulatively from January to November 2011, fell 1.17 percent. Silver and copper production also fell 6.45 percent and 1.72 percent cumulatively from January to November 2011.

Opportunities

• Peru’s government, which has been making a considerable effort to curb anti-mining protests that are threatening the mining industry in the country, said that companies now must set up an environmental conservation fund as part of future contracts. The fund will be used should any damage be done to natural surroundings in protest-related events. The Cabinet Chief, Oscar Valdes, said that they will also create an office in charge of settling social conflicts related to mining and other industries. After Peru’s new president ran for office on somewhat of an anti-mining platform, he has to come to terms with the fact that mining is the county’s biggest source of revenue and wealth cannot be created without jobs.
• According to Frost & Sullivan, the world’s second-largest gold jewelry market, China, may boost gold consumption by 35 percent in 2012, on rising income and continuing urbanization. Factors such as demographics and proliferation of wealth will be driving the increased demand.
• Gold retailers in India have now taken a new incentivized approach to selling gold, luring in buyers with the promise of an iPad and allowing citizens to buy gold using their credit and debit cards. "Earlier we used to give 10 percent discount, or silver idols or free pendants. We have now moved to smaller electronic items to bring in more footfalls,' said Saumesh Gargi, a gold retailer in Mumbai's teeming Zaveri Bazaar. An iPad was given to the highest gold jewelry transaction through credit or debit every hour at a retail shop in Mumbai during the festive season.

Threats

• The Environmental Protection Agency released its Toxic Release Inventory (TRI), reporting the United States’ metals mining as the largest contributor of toxic chemicals released into the environment of 2010. Contrary to this, the National Mining Association maintains that nearly 85 to 90 percent of the substances reported by mining operations for the TRI inventory occur naturally in the local rock and soil.
• Readers should be aware that it is only after the rock containing these naturally occurring elements is loaded into a truck and moved that the reclassification of the rock to toxic material is triggered. The latest TRI report showed that 3.93 billion pounds of toxic chemicals were released into the environment, a 16 percent increase from 2009. Ironically, if one considered all the soil and sediment that is moved by rivers and streams each year for which the EPA regulates these waterways, then the EPA itself would likely be the largest polluter of toxic materials in the U.S.
• HSBC and Barclays cut their 2012 gold price forecasts by more than $100 per ounce, but still uphold their bullish view on the precious metal. The change in forecasts came after gold posted a gain of 10 percent last year, and although it maintained its 11th consecutive year of gains, it was the smallest annual gain in three years. James Steel, HSBC’s chief commodity analyst, cut his 2012 forecast to $1850 per ounce from $2025, attributing the euro weakness, liquidation related to equity losses and a slump in physical demand from emerging markets. Mr. Steel, however, did keep his 2012 silver forecast unchanged at $34 an ounce.