As year-end headlines screamed news of gold’s terrible 2013, which ended the year with a 28 percent loss — the worst performance in 32 years — and the first year since 2000 that gold prices didn’t increase, the precious metal was quietly staging a comeback.
Bloomberg reported that gold futures jumped the most in three weeks on Thursday, due to speculation that demand for gold bars and jewelry in Asia will increase. Gold for February delivery gained 2 percent, or $23.40, on the COMEX in New York to end the day at $1,225.70. Spot gold was also up, to $1,226 an ounce, a gain of $24.70 from Tuesday’s close.
Thursday’s performance for gold was a welcome reversal of fortune for the metal which on the last day of the year slid under the $1,200 psychologically important resistance level to $1,180/oz.
“We do see physical demand from Asia continuing to emerge, and India partly easing restriction will also increase demand,” Steve Scacalossi, a New York-based vice president at TD Securities Inc., said in a report quoted by Bloomberg. “The market is looking to buy dips now.”
The news outlet noted that the premium for immediate delivery of gold in China was $23 an ounce today, compared to an average $16.21 in December and $18.72 for all of 2013.
The demand for gold is also currently very strong in the Middle East and Turkey. Gold imports into Turkey increased 64 percent in December to 31.6 tons according to data from the Istanbul Gold Exchange. The country is also taking advantage of depressed silver prices, in December importing the most silver since 1999, 41.6 tons.
Gold sales from Australia’s Perth Mint, which refines most of the country’s bullion, surged 41 percent last year even as the gold price tumbled. According to the mint, sales of gold coins and bars climbed from 533,333 ounces in 2012 to 754,634 ozs in 2013, while silver coin sales increased by a third to about 8.6 million ounces.
In the United States, gold sales from the U.S. Mint were up 17 percent to 56,000 ounces in December from November, while 14 percent more American Eagle gold coins were sold last year.
Providing some context on this robust demand for physical gold, even as gold investment demand wanes, is Jim Rickards, senior managing director at Tangent Capital Partners, and the author of “Currency Wars”. Rickards told a Bloomberg TV program that refineries in Switzerland are working overtime to produce gold and some are even having difficulty sourcing it. “The physical demand is through the roof.”
Rickards said the gold that has been flowing out of so-called paper gold like GLD (NYSEARCA:GLD) the world’s largest gold exchange-traded fund, is going directly to China, where it will be stored in underground vaults in perpetuity.
“You have a paper short balanced on a very small amount of physical gold,” he told Money Moves.
Rickards went so far as to say the high demand for gold from China — which for six months in a row in 2013 imported over 100 tonnes of gold — is poised to set up “a huge technical rally for gold” and squeeze supply. “You’re going to want your gold and there’s not going to be any around.”
Buttressing that view, Jeff Clark, senior precious metals analyst at Casey Research, is also predicting a gold supply crunch in 2014 based upon four factors that could chip away at the amount of mined gold: lower production, delayed mine development, and cuts to exploration budgets; “high-grading” deposits; governments putting a stop to big mining projects; and the implosion in South Africa’s gold mining industry.
Gold investors are hoping that such supply considerations combined with continuing physical demand from Asian buyers will put a floor under the price and prevent further slippage in 2014.
Gold company news is thin this week due to the holidays, but there were some financing developments to report. Tembo Gold (TSXV:TEM) on Thursday announced it is proposing a non-brokered financing worth $1.28 million, with each unit selling for 10 cents. Net proceeds would be put towards exploring its properties in Tanzania, including the Tembo gold project adjacent to African Barrick’s (LSE:ABG) Bulyanhulu gold mine.
Colossus Minerals (TSX:CSI), the beleaguered gold junior trying to raise funds for its Serra Pelada gold project in Brazil, said today that it received a proposal from Sandstorm Gold (TSX:SSL) and a group holding convertible gold-linked notes, that would allow Colossus to continue business operations. The company warned however that shareholders “would experience massive dilution” to the point where they would hold about 1.7 percent of outstanding common shares. Colossus directors are considering the proposal.
Meanwhile Brazil Resources (TSXV:BRI) announced that it completed a previously announced $6.4 million private placement that will be used to advance its São Jorge and Cachoeira projects, while TomaGold (TSXV:LOT) closed a private placement worth $190,300. Last week Homestake Resource (TSXV:HSR) announced plans for a non-flow-through private placement worth $1.2 million, with proceeds going towards its Kinskuch project in Northwestern British Columbia. Homestake also closed a $50,000 private placement whose proceeds will go towards the same project.
Securities Disclosure: I, Andrew Topf, hold no investment interest in any of the companies mentioned.