By Dave Brown — Exclusive to Gold Investing News
Gold prices have contracted over the past week under pressure from the drop in the euro, with European officials delaying a decision on the potential bailout package for Greece. With a level of lingering uncertainty, investors are reassessing their assumption that Greece will get the money, prompting speculative movements in gold, currency, and equity markets.
Spot market gold prices were down 1.9 percent over the last week, at $1,714.66 compared with $1,747.50 per troy ounce. The price has fallen in six out of the last seven trading sessions. Gold price remains up 10 percent on a year-to-date basis, but is not near last fall’s record $1,920.30, when pessimistic news from the Eurozone tended to provide a “risk on” trade benefit for gold prices.
This is of significance to gold investors, as a chaotic default in the country could intensify gold price volatility, supporting the price of gold with traders mitigating any currency exposure. Alternatively gold prices could fall further, as traders may look to a flight to quality and stability in dollar denominated assets.
Physical gold demand in India declines
Strong currency valuation for India has impacted the sale of gold bullion, as gold traders in the country have reduced consumption. This will be of interest to investors as India has traditionally been the world’s largest market for physical gold. Gold generally sees the highest sales volumes in India from October to December, particularly with the festival of Dhanteras in November; however, the Akshaya Tritiya festival in May has also demonstrated recent success.
Gold earnings season
John Ing, President and gold analyst at Maison Placements Canada, discussed his outlook for the majors in terms of the current reporting season, stating that “earnings should be good but not great. In the latest quarter the gold price was lower at $1,674 and as we saw in the third quarter, costs have been increasing.” Ing explained that “The creeping costs have probably pared about 5 percent in the latest quarter, according to our estimates. Basically, to mine an ounce of gold is just getting more and more expensive. Energy costs are undoubtedly a factor, but labor costs and of course there is increased taxation. Governments are trying to kill the golden goose, and they are imposing bigger taxes.”
The rising costs will have a larger impact on major producers, as the higher capital overhead and operating production pressures make it more difficult to manage costs and mitigate risks. Junior exploration companies will not be impacted as significantly, as they have not entered into the extraction or production phases, and will not be paying any royalty taxes.
Barrick Gold Corp. (TSX: ABX) reported earnings growth of 15 percent in the fourth quarter on higher gold prices and copper sales, but results missed analyst expectations as inflationary costs have impacted the company. Revenues increased to $3.79 billion from $3.01 billion for the previous quarter, while gold production totaled 1.81 million ounces with cash costs of $505 per troy ounce. The company failed to meet analysts’ predictions of $1.27 per share, posting results equal to $1.17 per share.
Goldcorp Inc. (TSX:G) reported strong fourth quarter revenues of $1.5 billion, with adjusted earnings equivalent to 66 cents per share, exceeding the 60 cents expected by analysts. Gold production was reported at 687,900 troy ounces at a total cash cost of $261 per ounce. The company maintained full year guidance with a 4 percent forecasted increase in gold production to 2.6 million ounces. Total cash costs are expected to be below $275 per troy ounce of gold on a by-product basis, and range from $550 to $600 per troy ounce on a co-product basis.
Kinross Gold Corp. (TSX:K) reported its biggest quarterly loss to date, equivalent to $2.78 billion, due to a writedown on its Tasiast mine in Mauritania. The company announced a 33 percent increase in its dividend, from 6 cents to 8 cents per share. Kinross estimates its production costs in the current year will be in the range of $670 to $715 per troy ounce, up from an estimated $600 per troy ounce during the previous reporting period.
Junior company news
Golden Touch Resources Corp. (TSXV:GOT) reported locating nine new outcrops of gold mineralization within its Rubik Gold Project area. The company considers the location of these anomalous outcrops positive as it believes they indicate further gold anomalous shears that will occur, particularly to the east of the area drilled at its Gjazuj Prospect.
Timberline Resources Corp. (TSXV:TBR) reported a consolidated quarterly net income of $0.45 million for the period ended December 31, 2011. The company’s exploration expenditures of $1.06 million during the quarter were related primarily to the exploration drill program recently completed at its South Eureka Property in Nevada. The exploration program is expected to increase the company’s present NI 43-101 resource estimate at Lookout Mountain.
Goldgroup (TSX:GGA) announced an NI 43-101 compliant 314 percent increase of its indicated resource at the company’s Caballo Blanco gold project in Veracruz, Mexico. The project’s indicated resource at the La Paila Zone grew from 139,00 to 575,000 ounces of gold at a grading of 0.62 g/t. The project’s inferred mineral resources amount to 419,00 ounces of gold at a grading of 0.54 g/t. Goldgroup is currently on target to commence production on the Caballo Blanco project by end of 2012. Goldgroup’s President and CEO, Keith Piggott, commented that “The updated resource estimate on the Caballo Blanco project is a significant milestone for the Company. Goldgroup has been able to grow substantially the resources in the La Paila Zone, which is expected to form the basis of our upcoming PEA in the first quarter of 2012.”
Helio (TSXV:HRC) reported an NI 43-101 compliant update to its mineral resources estimate at its SMP gold project in Tanzania. The estimate is a 104 percent increase of both measured and indicated resources to 1,020,000 ounces at 1.32 g/t gold with a 0.5 g/t cut off.
Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.
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