Employment figures published today by the US labor department had a predictably negative effect on gold, which plummeted about $33 as bullion traders exited the metal in the run-up to the US Federal Reserve’s policy meeting next week.
The highly anticipated meeting will signal to the markets whether the Fed is going to “taper” quantitative easing, meaning a pullback on the $85 billion the central bank has been spending monthly to purchase bonds, in order to keep interest rates low and the economy growing. Observers are expecting a taper in the neighborhood of $10 billion a month.
Thursday’s jobs data showed a decline of 31,000 jobless claims, to 292,000, which is the lowest level in 7 years. However the number may not be reliable, since two states did not report their claims and were not included in the report, according to Bloomberg. Still, the positive economic news was enough to punish precious metals, with spot gold diving $34.70 an ounce from the previous session, and gold futures shedding $33 to $1,330.80. Silver futures were also down nearly a dollar, to US$22.20 an ounce.
The bad news was just another setback in a generally tough week for the yellow metal, which fell $56, or 4 percent, between Monday and Thursday. The other significant factor weighing on gold was a diplomatic overture by Russia on Tuesday to cool the standoff between the United States and Syria, over alleged use of chemical weapons by the Syrian regime to kill civilians. Last week gold gained $18 when it appeared likely the US could strike Syria, but its safe-haven status has diminished with each news story indicating either indecision on the part of the US Congress, or diplomacy that could allow the US to swerve military action.
Gold could test $1,500 in 2014
Meanwhile one of the most highly respected gold research firms, Thomson Reuters GFMS, predicts higher gold prices next year. In a report released this week, GFMS argued that since unemployment in the US is still above 6.5 percent, it expects loose economic policy and low interest rates to extend through 2015. That, combined with similar loose-money policies from other central banks, continued demand for gold jewelry from China and India, and likely geopolitical tensions in the Middle East, should have gold testing $1,500 by the first quarter, says GFMS. In contrast, Goldman Sachs (NYSE:GS) said on Wednesday that a US taper of quantitative easing will extend gold’s losses into next year. “Gold prices will decline into 2014 on the back of an acceleration in U.S. activity and a less accommodative monetary- policy stance,” Bloomberg quoted the Goldman analysts as saying.
China still golden
China continues to purchase gold in high volumes and is on track to import 1,000 tonnes of the precious metal for the entire year, Mineweb reported. The country brought in 129 tonnes in July, compared to 113 tonnes in June and the 76 tonnes imported in July of last year, according to statistics from Hong Kong, where most gold destined for China moves through.
Gold imports from India, on the other hand, fell dramatically in August, due to efforts by the Indian government to restrict imports including a 10 percent duty on bullion. Gold imports in August crashed 95 percent to 2.5 tonnes in August compared to 47.5 tonnes in July, said Mineweb.
Gold sold through the Perth Mint, which refines most of Australia’s bullion, declined in August by 46 percent, to 30,430 ounces from the previous month’s 56,488 oz. According to the mint, fewer sales of gold coins — the lowest in 6 years — are due to a higher gold price in August compared to the previous three months.
South African miners back at work
Harmony Gold Mining (NYSE:HMY) reached a wage settlement on Sunday with striking mineworkers, bringing to an end a 5-day work stoppage in South Africa. Workers at other South African gold majors returned to work on Friday after accepting wage increases of between 7.5 and 8 percent. The wage settlements are expected to cost gold companies about 1.5 billion rand (US$150 million) over the next 12 months, reported MoneyNews.
The dreams of Belo Sun Mining (TSX:BSX) to develop a huge gold mine in Brazil could be dashed by the Brazilian government. According to Reuters, Brazilian prosecutors want to block the mine permit because the Canadian company has failed to study its impacts on local Indian communities. Brazilian officials have the ear of environmentalists who are concerned that the project, which would be Brazil’s largest gold mine, is close to another large megaproject, the Belo Monte hydroelectric dam.
Meanwhile another large gold mine, proposed for Romania, appears to be on the ropes, with that country’s prime minister suggesting its death nell. On Monday, following demonstrations by hundreds of Romanians against the Rosia Montana mine, Prime Minister Victor Ponta said:
“Basically, today we must rapidly begin the rejection proceedings in the senate, then in the lower house, and that’s it.” He added, “As long as it’s undoubtedly clear that there’s a majority who opposes it, it’s useless to continue and prolong it … political leaders have had their say on the issue.”
Last week Romania promised a referendum on the mine, being developed by Gabriel Resources (TSX:GBU).
Junior company news
Seabridge Gold (TSX:SEA), which is developing the huge KSM copper-gold project in British Columbia, on Tuesday announced the discovery of a “bornite-rich zone”. Bornite is a copper mineral typically found in large, high-grade copper deposits.
“The discovery of abundant bornite was near the top of this year’s exploration wish list because it typically brings higher grades of both copper and gold,” Seabridge chairman and CEO Rudi Fronk said in a statement. “We are now focused on expanding the bornite zone and finding where its expression is strongest.”
Klondex Mines (TSX:KDX) yielded 1,329 tonnes of mineralized material in July at an average grade of 32.7 g/t gold, at its Fire Creek project in Nevada. Underground development at the project over the last three months has yielded 3,249 tonnes of mineralized material averaging 75.4 g/t Au.
Roxgold (TSXV:ROG), which is exploring its Bagassi South target in Burkina Faso, said this week it has started a 1,600-meter diamond drilling program. Previous drilling intersected 41.7 grams per tonne gold over 4.4 meters and 24.95 g/t over 3.8 meters.
Securities Disclosure: I, Andrew Topf, hold no direct investment interest in any company mentioned in this article.