After enjoying an ephemeral no-taper rally, gold started the last week on a low note on fresh jitters surrounding the prospect of a reduction in monetary stimulus. Lacking significant geopolitical and economic developments earlier in the week, the market continued to regurgitate the Fed’s decision to cling to its $85 billion a month bond-buying program.
While the week saw gold’s volatility, the metal eventually ended in positive territory after gaining on Friday on U.S. government shutdown fears.
The Week That Was
Gold closed lower last Monday on continued speculation that a stimulus cut could take place before this year. Following St. Louis Fed President James Bullard’s comment that a tapering could happen at the next Fed meet, market received more views from other Fed officials, although in a contrarian tone.
William Dudley, President of the New York Fed, said that the economy lacks enough momentum to substantiate a tapering. Atlanta Fed President Dennis Lockhart shared similar view stating that the American economy may have become less dynamic.
Gold prices extended their losses on Tuesday as the metal continued to be bogged down by fresh tapering fears. Nevertheless, prices got some support from uncertainties surrounding U.S. budget and debt ceiling, which helped the metal to recoup some of the losses for the day.
Snapping a three trading session losing streak, gold prices marched higher the next day as the U.S. dollar fell against a basket of other key currencies on threat that the fiscal gridlock in Washington may shutdown the government for the first time since 1996. Somewhat soft housing and durable goods order data also contributed to the greenback’s fall. Gold prices also got a boost from short covering.
Treasury Secretary Jack Lew warned that the U.S. will hit the debt ceiling by Oct 17 unless Congress passes a bill to extend the country’s $16.7 trillion borrowing limit. A failure to act by that deadline will see the Treasury run out of cash to pay bills, placing the nation at a risk of sovereign debt default. Shutdown and debt default woes burnished the safe-haven appeal of gold.
Bullion moved south on Thursday as traders considered a cascade of mixed economic reports. Data showed a fall in initial weekly jobless claims to near-six year low (at 305,000). Moreover, Commerce Department figures (third estimate) showed that the U.S. GDP rose at a 2.5% annual rate in the second quarter, in line with the second estimate released in August but lower than 2.6% predicted by economists. Data also showed that pending home sales clipped 1.6% last month, marking a fall for three straight months.
However, a 1.1% gain on Friday helped gold to wrap up the week in the green. Prices got a lift from possibility of a government shutdown coupled with a comment by the President of the Chicago Fed Charles Evans, who said that tapering may not take place until next year.
Gold prices (for December delivery) on the New York Mercantile Exchange’s Comex division crept up 0.5% for the last week to close at $1,339.20 per troy ounce last Friday. Silver, however, finished the week lower with a roughly 0.5% fall to $21.83 per ounce.
Both metals remain in the bear market with prices trending roughly 25% and 38% below their 52-week highs, respectively. Shares of most major mining stocks closed the week in red.
The AMEX Gold Bugs Index moved down 1.2% last week while the Philadelphia Gold and Silver Index and the NYSE Arca Gold Miners Index shed 2.1% and 2.2%, respectively. This compares to a roughly 1.1% loss for the S&P 500.
Stocks in the News
Among key developments last week, Barrick Gold
) CEO Jamie Sokalsky, at the Denver Gold Forum, hinted that the gold giant is planning to sell additional assets in Australia, in line with its objectives to trim costs and divest mines with shorter life. Moreover, the company is reportedly considering a joint venture with Newmont
) in Nevada to explore means to cut costs.
Moreover, Barrick got a respite after the Supreme Court of Chile issued a ruling which upheld the environmental approval for the key Pascua-Lama project in Chile. The ruling requires Barrick to complete the project’s water management system according to its environmental permit to the satisfaction of Chile's environmental regulator.
Newmont is reportedly seeking acquisitions to add low-cost gold or copper output. Its CEO Gary Goldberg, at the Denver Gold Forum, said that the company will look for mines having longer life and lower costs. Moreover, the company is reportedly laying off 56 employees in Nevada amid rising costs and pricing pressure.
South African miner AngloGold Ashanti
) said that its Kibali gold mine in the Democratic Republic of Congo has produced its first gold ahead of schedule and within budget. AngloGold and Randgold Resources
) hold a 45% stake each in the mine with state-owned Sokimo owning the balance. AngloGold also reported early gold production from Tropicana gold mine in Western Australia.
) showed its interest in securing a streaming contract from Glencore Xstrata Plc for future output of precious metals from the latter’s Las Bambas copper mine in Peru. The miner views the contract would add significant value to the sales process.
In another development, Goldcorp
) selected Veolia Water Solutions’ Actiflo technology to remove arsenic and other metals and curb the potential of mine flooding at its Eleonore gold deposit in the James Bay Region, Quebec. The deal allows Veolia to be is the sole-source supplier for the mine's water treatment system. The Eleonore project is expected to start production by late 2014 and is expected to make a significant contribution in 2015.
Gainers and Laggards
What Lies Ahead?
While ongoing tensions on Capitol Hill should support gold prices this week, the yellow metal will see a momentary lack of physical demand due to a week-long Chinese holiday. Gold bugs will also keep an eye on a spate of U.S. economic data coming up this week including Initial jobless claims, unemployment rate and non-farm payroll report, which may influence the Fed’s decision on tapering as markets look forward to the next policy meeting scheduled for later this month.
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