Gold Investors Weekly Review – February 7th

In his weekly market review, Frank Holmes of the nicely summarizes for gold investors this week’s strengths, weaknesses, opportunities and threats in the gold market. The price of the yellow metal went lower after two consecutive weeks of gains. Gold closed the week at $1,267.21, up $22.66 per ounce (1.82%). The NYSE Arca Gold Miners Index went 1.97% higher on the week. This was the gold investors review of past week.


Gold Market Strengths

On the back of last week’s three bought deals, the activity kept up this week as Luna Gold announced a C$20 million bought deal and Gold Standard Ventures announced a C$10 million marketed private placement. In addition, on the M&A front, Silver Standard Resources agreed to purchase the Marigold Mine from Barrick and Goldcorp for $275 million in cash.

Australia’s Perth Mint, which refines most of the bullion from the world’s second-largest producer, joined the U.S. in reporting that gold demand climbed in January. A Bloomberg story reports sales of coins and minted bars increased 10 percent to 64,818 ounces in January. Sales of gold coins by the U.S. Mint climbed 63 percent in January.

Gold Market Weaknesses

A Mineweb article suggests that gold ETFs appear to have fallen out of favor in India. The exchange traded funds had their first yearly decline in assets under management (AUM) since their introduction in 2007. In 2013, the local gold ETFs slid 26 percent, losing approximately $479 million in AUM.

New Gold released its full-year 2013 operating results together with its guidance for 2014. Gold production for 2014 disappointed investors’ expectations at 380 to 420,000 ounces, roughly flat relative to 2013. The analysts at Paradigm Capital were “baffled” as to why the company made no mention of significant reserve grade decreases in the New Afton mine, which represents more than half of the company’s valuation.

Gold Market Opportunities

Mexican pension funds have shown fresh interest in gold after certain investment regulations were lifted, says the World Gold Council. The Council has been in contact with fund managers representing nearly $160 billion in assets, who have demonstrated interest in gold investments now that Mexican legislation allows pension funds to invest in gold and commodities.

There have been commentaries circulating that suggest billions of dollars worth of private capital is currently waiting to be deployed in the mining sector. Yet, according to Mark Tyler, senior investment banker at Nedbank Capital, there is a “wall of funding” waiting. According to Tyler, there is evidence suggesting $8 billion of private capital, and a similar amount of money in public funds, are currently stuck as fund managers are engaging in more comprehensive due diligence processes. The main argument for the increase is the fact that good deposits have been ruined by poor management in the past, and it takes longer to perform due diligence on management.

Gold Market Threats

National Bank Financial is of the opinion that 2014 gold mining production guidance is likely “to carry a mixed negative bias as the move to ‘profitable ounces’ may not materialize as quickly as investors hope.” This next step of cost-cutting may fall short of expectations, both with respect to magnitude and timing, since the flexibility of mining operations is constrained, according to the bank’s analysts.

A new Environmental Protection Agency (EPA) report states that nearly 40 percent of total toxic chemical releases came from metals mining in 2012. According to the agency, the extraction and beneficiation of metals generates large amounts of waste, which are not especially amenable to reduction. Tim Crowley, President of the Nevada Mining Association, came out in defense of the sector stating that more than 99 percent of the state’s toxic releases are secured and monitored in engineering facilities and protected from exposure to the surrounding environment, a fact that was not found in the EPA report.

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