Gold prices inched up on Monday in Tokyo, as the dollar weakened, prompting investors to buy back gold after it lost 2 per cent late last week, when optimism about the economy reduced bullion’s safe-haven appeal. Gold stocks have had their heads lopped off, many with 70 per cent and 80 per cent corrections. The bursting commodity bubble and the long run-up in stock prices has taken its toll.
Spot gold earlier fell to its lowest since May 28 of $951.50 per ounce. But it was up 0.4 per cent at $958.90 per ounce, compared with New York’s notional close of $955.30 on Friday. U.S. gold futures for August delivery trimmed earlier losses of about 0.7 per cent and were down 0.3 per cent at $960.10 an ounce, compared with $962.60 an ounce on the COMEX division of the New York Mercantile Exchange.
“Gold is becoming a bit top-heavy, as investors find fewer reasons to buy when stocks are rising and the dollar is rebounding,” said Tetsu Emori, a fund manager at Tokyo-based Astmax Co Ltd. “Funds including trend-following CTAs were buying gold as the market was rallying, and if the market becomes top-heavy, they will start to look for the moment to cut losses,” he said.
As gold approaches the key $1,000 level, bolstered by talk of systemic risk in the dollar, including worries about rising inflation due to huge U.S. government spending and a ballooning budget deficit, it is time to buy the metal. Gold often benefits as a hedge against falling value in dollar-denominated assets. The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust, said holdings totaled 1,132.15 tonnes as of June 5, down 0.35 tonnes from the previous business day.
Gold Miners
Gold miners might not be having it all rosy at the moment, but there are some good picks in the waiting. Barrick Gold (NYSE: ABX) saw an earnings falloff, but with the improved outlook for copper, there is talk that the gold majors such as Barrick and Newmont Mining (NYSE: NEM) may be going more deeply into base-metal mining to help their bottom lines and to fuel growth.
Newmont has had its earnings flattened and has had some losing quarters, so such things naturally induce talk of the possibility of changing business approaches. Then again, altering the approach or the mix may not be necessary, analysts fear, as Gold Fields, Inc. (NYSE: GFI), the South African producer, is doing well in the current environment - posting strong results for the March 2009 quarter.
Still, there are many factors going forward which look positive for the gold mining stocks and the metal stocks. For one thing, the bursting of the commodity bubble took all the bloat out of stock prices, earnings and expectations. Now the metals producers are back to dealing with the cost of extracting the metals from the earth, and wrestling with mundane things such as cost controls, safety and profitability.
A word of caution here - The stocks mentioned here have had large run-ups last year and most have had mild run-ups recently, so tread carefully. Keep in mind that their stock prices aren’t likely to blast into the stratosphere as readily this time around, but profitable mining should steadily come back into the picture for most of the gold mining stocks, making them decent long-term investments as well as potential hedges, a nice investment double play.
Meanwhile, Barrick Gold has said that it hopes to wring cost savings at its Pascua-Lama mine project in Latin America from falling steel prices and looser labor markets, Chief Executive Aaron Regent said despite that, the firm didn’t cut the project’s forecast $2.8 billion-$3 billion price tag.
Barrick gave the green light to the massive gold and silver project last month after Chile and Argentina settled a dispute over how to tax the project, which straddles the border between the two countries.
Speaking at an investment conference in New York mid last week, Regent said Barrick could realize benefits from the economic slowdown, which has brought down costs of materials. “I don’t want to leave the impression that (costs) might be $100 to $200 million less. My experience with projects is, if you get some gains over here, you’re probably going to give it up somewhere else,” he said.
Pascua-Lama holds an estimated 17.8 million ounces of gold and Barrick expects it to produce 750,000 to 800,000 ounces of gold and 35 million ounces of silver annually over its first five years.
Stock Picks
The stock of Ventana Gold Corp. (TSX:VEN) soared to an all-time high Friday in a second consecutive day of unusually heavy trading of its shares, following the release of promising drill results. The shares traded as high as $4.10 at the Toronto Stock Exchange Friday, before falling back. They were at $3.89, up 44 cents or nearly 13 per cent with 2.6 million shares traded.
The Vancouver-based company announced Thursday that it was doubling the number of drills working at the La Mascota mineralized zone on its La Bodega gold property in Colombia. It also released results from two holes drilled on the property.
One of the holes include a nine-metre interval graded at 13.04 grams per tonne and the other had an eight-metre interval graded at 17.54 g/t, although most other intervals had far less gold.
“Due to the success of the current drill program, the company plans to add another three drills to accelerate the exploration and infill drilling at La Mascota, bringing the number of rigs on site to six,” the company said.
Ventana’s stocks began trading November 7 at $1 and, after a week-long retreat to a low of four cents has been on an up-trend ever since. It’s previous all-time high was $3.60 on Thursday.
