Volatile Gold Prices Follow Key Interest Rate DevelopmentsGold prices fell about 2 percent during the week, initially following an interest rate decision in China, and more recently due to a United States monetary policy signal. Gold prices edged higher in tandem with the euro and risk asset classes after China surprised markets with its first interest rate cut since the 2008 global financial crisis.

On Thursday gold prices declined sharply when Federal Reserve Chairman Ben Bernanke said the US central bank is closely monitoring “significant risks” to the US economy’s recovery; however, he did not offer clear signals that further monetary stimulus is imminent. Economists at prominent banks are now expecting the Federal Reserve to initiate new policy steps at its next meeting, which is scheduled for June 19 to 20. The European Central Bank is expected to signal an interest rate cut as soon as next month, but at this point is holding back from a policy move. Spot market gold prices are trading in the range of $1,591.70 per troy ounce.

A Minsky moment

Eric Sprott, CEO of Sprott Asset Management, indicated his thesis on fundamental problems with fiat currencies, commenting, “the history of fiat currencies is that they all fail. The governor of the Bank of Canada about four months ago admitted that we are entering a ‘Minsky moment.’ A Minsky moment is when you realize that you have issued so much debt that the productive engine cannot possibly pay it off.”

A Minsky moment often comes after a long period of prosperity and appreciating asset values has increased speculation and compounded leverage. During these market liquidity crises, gold and precious metals have historically been held as a method of storing value.

Company news

Barrick Gold (TSX:ABX,NYSE:ABX) replaced CEO Aaron Regent with Chief Financial Officer Jamie Sokalsky as a result of disappointing share price performance. John Thornton, Barrick’s director, has been appointed co-chairman of the board of directors and Sokalsky has replaced Regent on the board, effective immediately.

Regent’s legacy from his tenure at Barrick is likely to be framed by the decision to provide Barrick with an entry point into the highly prospective Zambian copper belt by acquiring Equinox Minerals, a large copper and gold producer.

Barrick’s share price has been range-bound during the last year, cresting at $55.36 per share last September and falling to $35.11 per share last month. Last year, the company produced approximately 7.7 million troy ounces of gold, generating net earnings of about $4.7 billion. Having generated significant free cash flow, the company announced a 33 percent increase in its dividend for shareholders earlier last month and a 25 percent increase in its dividend last October.

Kinross Gold (TSX:K,NYSE:KGC) reported that operations at its Tasiast open-pit mine in Mauritania have been suspended due to an illegal work stoppage by employees. Last year the Tasiast project produced about 200,000 troy ounces of gold, and its development is currently Kinross’ biggest priority.

The miner said management and employee representatives are engaged in discussions aimed at achieving a prompt settlement of issues raised by employees and a return to normal operations.

This latest development contributes to a list of challenges for the company, which is struggling with inflation, tax increases, and labor relations. Last month, Kinross reached a deal to sell its 50 percent interest in its Brazil-based Crixas mine to AngloGold Ashanti (NYSE:AU,ASX:AGG) for $220 million. In its most recent quarterly results the company reported a 58 percent decline in quarterly earnings to $105.7 million, the result of a 10 percent marginal increase in Ghana’s corporate income tax rate. Kinross owns mines and projects in Brazil, Chile, Ecuador, Ghana, Mauritania, Russia, Canada, and the US. The issues Kinross is facing highlight the challenges of its current operating environment and may reflect those that other gold producers and exploration companies are up against.

Junior company news

Castle Peak Mining (TSXV:CAP) commenced an initial follow-up drill program at the Akorade project in Ghana, Africa.

Lion One Metals (TSXV:LIO) announced that it has commenced drilling at its Tuvatu project. The company will drill a combination of infill and step-out holes for a total of 5,000 meters.

Northern Freegold Resources (TSXV:NFR,OTCQX:NFRGF) reported that the 2012 exploration program is now underway on its Freegold Mountain project, located in the Dawson Range of the Yukon.

 

Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.