Gold Slips Back After Fiscal Cliff Euphoria

Gold Slips Back After Fiscal Cliff EuphoriaGold rang in the New Year on a high note after lawmakers in the United States narrowly avoided toppling over the “fiscal cliff,” but on Thursday, the precious metal gave up some gains as focus turned to other pressing economic matters. 

Trade in bullion has been thin over the past few weeks due to the holiday season and because the fiscal cliff issue hanging over the heads of both politicians in the United States and global stock markets has made investors wary of wading into precious metals.

Gold was stuck in the low $1,660s, near four-month lows, up until December 28, but that abruptly changed on Tuesday following a US Congress vote on a Senate deal to avoid the fiscal cliff — $600 billion in tax cuts and spending increases that were set to kick in on January 1. Economists had warned that the measures would push the country into a recession.

Tuesday, gold for December delivery rocketed to $1,695/oz, its highest level since mid-December, before closing the day at $1,688.80. Some gold observers expected the yellow metal to gain in value with the uncertainty regarding US budget talks — and the inverse to happen if a resolution to the crisis was found — but in fact, the opposite occurred. Gold gained along with major lifts in world stock markets and oil, with Brent crude vaulting to a two-and-a-half-month high and the Dow gaining more than 300 points — its best-ever first day of annual trading.

By Thursday, however, the US dollar index had edged up and hit a three-week high overnight, sending the price of bullion lower. The slide continued after minutes from the Federal Open Market Committee (FOMC) revealed that the United States’ quantitative easing program (QE3), up to now open-ended, could end by the close of 2013.

On Thursday, gold for February delivery was down $11.20 an ounce, at $1,676.30, and spot gold dropped $8.90 to finish at $1,663.50. Gold bugs are eyeing what happens on Friday, when an important US employment report is due out.

Meanwhile, gold observers are measuring the metal’s performance in 2012 — its 12th consecutive year of price increases — and the result is a gain against every fiat currency. A report by Goldcore Bullion and Wealth Management, published by Business Insider, shows that “[g]old rose 7% in US dollars and was 4.9% higher in euro terms and 2.2% higher in sterling terms or to put it more correctly the major fiat currencies fell these amounts in 2012 against immutable gold.”

Deck the halls with bars of gold

King World News reported that bullion dealer Bill Haynes, president of CMI Gold & Silver, said the 2012 holiday season was one of the best for gold and silver buying. According to Haynes, his company did more business during the three weeks of Christmas holidays than during any single week in years, with one buyer purchasing $6.8 million in metals.

Sales of American Eagle silver coins were particularly robust. While American Eagle gold bullion coin sales dropped in 2012, from a million ounces to 753,000 ounces, December 2012 gold coin sales increased to 76,000 ounces from December 2011′s 65,500, Mineweb reported. Silver bullion coin sales were also down in 2012, but were up substantially last month, totalling 1.635 million ounces — the third highest in Silver Eagle’s history.

Meanwhile, in India, the world’s largest consumer of gold, the country’s central bank announced new regulations to moderate imports of the yellow metal. One way, according to a working group set up to study the issue, would be to design financial products that provide returns equivalent to gold. Too much imported gold has brought India $64 billion in fiscal deficit.

Gold mine supply to increase

Kitco News reported that gold-mine supply is set to increase in 2013, with a number of large-scale start ups likely, according to analysts. The precious metals news outlet quoted one analyst saying that gold-mine supply could increase 4.3 percent, from 80.5 million to 83.9 million ounces this year. New projects adding to supply include Rio Tinto’s (LSE:RIO,NYSE:RIO,ASX:RIO) Oyu Tologi’s copper-gold complex in Mongolia, Detour Gold’s (TSX:DGC) Detour Lake project in Ontario, Canada, and the Pueblo Viejo mine in the Dominican Republic — a joint venture between Barrick Gold (NYSE:ABX,TSX:ABX) and Goldcorp (TSX:G,NYSE:GG).

Colombia eyes “green gold”

Colombia — whose renaissance as a gold-mining nation has come at the expense of having a high number of illegal miners — this week showed progress by encouraging small-scale, “artisinal” miners to extract gold using techniques other than mercury, which is harmful to human health and the environment. The World reported that a movement called Oro Verde (Green Gold) is becoming popular in the Northern Colombian department of Choco. Miners who produce gold using natural methods, such as balsa tree leaves instead of chemicals, receive a 15-percent premium over the international price from from an organization called Fairtrade and Fairminded Gold.

Company news

Egyptian gold producer Centamin (TSX:CEE,LSE:CEY) had its gold exports suspended by the country’s customs authority Wednesday due to claims that the company has yet to receive approval from the petroleum ministry. It’s the second time in two months that Centamin has had its exports suspended. It was forced to halt production in October and December due to a dispute with the Egyptian government over diesel fuel supply and gold exports.

South African bullion producer Harmony Gold (NYSE:HMYsaid Wednesday that it will keep its Kusasalethu gold mine shut down while it reviews the operation. Kusasalethu stopped producing in December after violence at the mine erupted following the suspension of 578 workers, who were participating in an illegal strike. According to Harmony, the company has lost 25,000 ounces due to the stoppage, reported Fox Business News.

Perseus Mining (ASX:PRU) has revised down its quarterly gold production forecast for its Edikan gold mine in Ghana. The Perth-based company said production for the December 2012 quarter is now estimated at 49,000 ounces, compared to an earlier prediction of 58,500 oz. The shortfall is due to low crusher output, Perseus stated.

Junior company news

Rainbow Resources (TSXV:RBW,OTCQX:RIINF) announced that it intersected high-grade silver and gold mineralization near-surface at its Gold Viking property in British Columbia. “Drill hole GV-12-04 intersected 0.51 oz/ton Au and a preliminary silver value of 1.9 oz/ton over 6.2 feet between a depth of 15.4 and 21.6 feet. One sample in the interval returned an over-limit silver grade (>2.9 oz/ton),” Rainbow said in a press release Wednesday.

SLAM Exploration (TSXV:SXL,OTCBB:SLMF) reported drilling results for nine additional holes at its Menneval gold project in New Brunswick, Canada. The company uncovered bonanza-grade assays as it traced the vein system over a 700-meter strike length.

 

Securities Disclosure: I, Andrew Topf, hold an equity position in Goldcorp.

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