Gold Has Muted Reaction to Taper Plan

The argument that the US Federal Reserve’s decision to “taper” quantitative easing has become “baked into” the gold price appears to be holding up this week. 

Apart from the sharp drop that gold took on Monday (see below), the price traded in a relatively thin band all week, leading up to the Fed’s decision on Wednesday to continue scaling back quantitative easing, providing the job market continues to show improvement.

According to minutes from the Federal Open Market Committee, which meets regularly to discuss policy directions, the central bank is taking a cautious approach to tapering:

“Many members judged that the Committee should proceed cautiously in taking its first action to reduce the pace of asset purchases and should indicate that further reductions would be undertaken in measured steps,” the Fed minutes said.

The institution decided in December that it would scale back quantitative easing — a program through which the central bank buys U.S. Treasuries and mortgage-backed securities in order to keep interest rates low and stimulate the economy — from $85 billion to $75 billion a month starting in January.

The Fed also agreed to keep short-term interest rates near zero for an extended period of time, until the unemployment rate falls to around 6.5 percent or annual inflation exceeds 2.5 percent.

The Fed’s cautious approach to QE Wednesday, and it stance on interest rates, were well received by Wall Street, while precious metals did not move much one way or the other. CNNMoney reported that stocks soared to record highs on Wednesday. Gold did slip, but not by much. Spot gold lost $10.60 an ounce to $1,221.50 while February gold futures dropped $9.20 to $1,220. Silver declined 35 cents to $19.35 an ounce.

Gold made modest gains on Thursday due to short covering, with spot gold moving up $2.80 an ounce to $1,229.25, while gold futures for February delivery were up $2.30 to $1,227.80.

The relatively tranquil gold market over the past two days was dramatically different from events that occurred on Monday. Gold started the week at a three-week high of $1,245.40, but at mid-morning, suffered a big downward spike of $32.40 in under a minute. According to the CME Group, the dip, which briefly halted trading on the COMEX, was not the result of a “fat finger” (erroneous) trade. Rather, the market-moving event may have been the result of a large fund trader taking a futures long trade off the table, according to Kitco. Shortly thereafter, prices rebounded to $1,234.50 and finished the day at $1,238.30.

Gold market watchers are eagerly awaiting the results on Friday of the U.S. jobs report. Any move significantly below the expected 200,000 jobs created in December would be bullish for precious metals.

Gold is so far up $22.58, or 1.87 percent, in 2014, compared to a loss in 2013 of 28 percent.

Company news

South African gold producer Harmony Gold (NYSE:HMY) may have to fire 120 employees as it focuses on mining more profitable areas, according to Mining Review. The publication notes that Harmony is not only dealing with a lower gold price but declining production volumes, forcing the firm to cut its dividend and write down its 50 percent stake in the Hidden Valley mine, a joint venture with Newcrest Mining (ASX:NCM,TSX:NM) in Papua New Guinea.

Goldcorp (NYSE:GG,TSX:G), the second largest gold company by market value, is forecasting higher production in 2014. The Vancouver-based company announced this week that it predicts gold production this year to grow 13 to 18 percent, to between 3 million and 3.15 million ounces. Looking back on 2013, Goldcorp said it achieved record gold production of 767,000 ounces in the third quarter and annual production of 2.67 million ounces, an 11 percent increase over 2012.

Meanwhile Barrick (NYSE:ABX,TSX:ABX), which has trailed Goldcorp for several months due to its falling stock price, has regained its crown as the number one gold producer by market cap. Barrick’s climb started soon after it officially set a date for the departure of executive chairman Peter Munk. From a 52-week low of $13.43, Barrick has gained 10 percent from a month ago, and now sits at $17.74 a share.

Junior company news

Goldgroup Mining (TSX:CGA) announced Thursday that it has achieved first commercial production from its Cerro Prieto heap-leach mine in Mexico. The news caused stock in Goldgroup to leap 39.2 percent. The mine produced 285 ounces in December, while the Cerro Colorado mine, also located in the state of Sonora, continues to leach gold and is expected to well into 2014, the company stated.

Continental Gold (TSX:CNL) announced results from 11 diamond drill holes as part of last year’s exploration program at the Buritica project in Antioquia, Colombia. High-grade intercepts included 0.7 meters at 26.8 grams per tonne and 118 g/t silver, 2 meters at 11.7 grams per tonne gold and 14 g/t silver, and 0.57 meters at 3 g/t gold and 1,260 g/t silver. The results however failed to impress the market, with Continental’s stock dropping 10.4 percent Thursday.

Ontario-focused Tamaka Gold said today it has entered into a strategic relationship with Fladgate Exploration Consulting Corp to expand exploration on its Goldlund property. According to Tamaka, the first phase of a 9,000-meter drill program will expand known areas of mineralization, with assay results available late in the first quarter.

“We believe the Goldlund project, with its current resource, excellent exploration potential, and proximity to roads and power, combine to make it one of the most attractive Gold projects in Ontario,” Fladgate president and CEO Michael Thompson said in a statement.

According to a 2013 resource estimate, Goldlund holds 790,611 ounces with an average grade of 1.3 grams per tonne, with a higher-grade zone showing measured and indicated resources of 445,035 ounces at 2.10 g/t.

Klondex Mines (TSX:KDX) on Thursday said it closed its private placement worth $42.6 million, that it announced in December in connection with the acquisition of the Midas mine and mill in Nevada from a subsidiary of Newmont Mining. (NYSE:NEM). Net proceeds will be put towards the purchase price of the acquisition and to repay $7 million in outstanding notes.

Corvus Gold (TSX:KOR) continues to make progress at its North Bullfrog project in Nevada. On Thursday the company announced assay results from an initial three core holes along the northern extension of the Yellowjacket deposit, and two holes from the western extension of the Sierra Blanca deposit. Highlights at Yellowjacket included drill hole NB-13-368, which returned 33.3 metres at 4.14 g/t gold and is 140 metres along strike from the previously reported intersection.


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