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Precious Metals Stock Roundup: Gold Yo-Yos on Syria, Fed Qualms

Zacks Equity Research

Gold was on a seesaw ride last week, pushed by a flurry of geopolitical and economic developments. Following a long Labor Day weekend, gold prices head higher on Tuesday as horns of war against Syria sounded louder.

However, this was followed by sell-offs for two straight days as the greenback gained on upbeat U.S. economic data coupled with simmering concerns surrounding the Syria issue and worries that Fed may dial down its stimulus program in the near future. While the yellow metal closed higher on Friday, it ended the week in negative territory.

The Week That Was

Gold prices firmed up on Tuesday on speculations that Congress may back President Obama’s call for a strike against Syria for its alleged use of chemical weapons against civilians.

However, snapping the gain, gold prices head south a day after as the dollar (which has an inverse correlation with gold) gained to hover near 6-week highs on healthy U.S. manufacturing and construction readings, suggesting that the economy is on the mend. Moreover, investors cast eyes on Syria and anxiously watched the developments surrounding the issue.

Adding to the concerns was the news that gold miners in South Africa may go on strike claiming a wage hike that may disrupt production. South African miners face tough labor and wage negotiations, and the labor relation environment remains volatile in the gold industry.   

The decline in gold prices continued on Thursday as the dollar gained against key currencies on better-than-expected jobless claims data released by the Labor Department. That triggered expectations that the Fed may soon wind down its $85 billion a month bond buying program. However, gold ended up higher on Friday on a disappointing job report which showed that the economy added 169,000 jobs in August, lower than 180,000 new jobs predicted by economists, on average.   

Gold prices (for December delivery) on the New York Mercantile Exchange’s Comex division closed at $1386.50 per troy ounce last Friday, a roughly 0.7% over the last week. Silver followed suit with similar daily price movements but gained 1.6% for the week to close at $23.84 per ounce.

Shares of most major miners including Barrick (ABX), Goldcorp (GG), Newmont (NEM), Agnico-Eagle (AEM) and Silver Wheaton (SLW) tracked the daily fluctuations of metals prices through the week and moved in lockstep. Both gold and silver remained in the bear market with prices trending roughly 23% and 32% below their 52-week highs, respectively.

The AMEX Gold Bugs Index (^HUI) ended flat for the week while the Philadelphia Gold and Silver Index (^XAU), which includes both gold and silver stocks, inched down 0.4%. This compares to a roughly 1.4% gain for the S&P 500 (^GSPC).

Gold touched a three-month high of $1,433.31 an ounce in the last week of August feeding on possibilities of an imminent U.S. military intervention in Syria. However, gold prices retraced on President Obama’s move to seek congressional approval for a planned military assault on Syria's Assad regime.

Gold’s fortunes are tethered to developments surrounding Syria and Fed tapering. The Senate Foreign Relations Committee has already backed the President’s plan with the full Senate is due to vote on the resolution. While the approval of the House of Representatives is also needed, any possible military action augurs well for the safe-haven demand of gold, which is generally sensitive to geopolitical events.

On the contrary, if Congress does not give a green light to such action, gold prices would be under pressure. British Parliament has already snubbed Obama’s call.

Stocks in the News

On the corporate news front, mining giant Freeport-McMoRan (FCX), which gained 3.2% for the week, reportedly lifted the force majeure that it declared in Jun 2013 on shipments from PT Freeport Indonesia’s Grasberg mine in Papua. The force majeure came after an accident due to the collapse of a tunnel at the mine that claimed 28 lives. Freeport temporarily suspended mining and processing activities at the Grasberg complex as a part of a rescue and recovery operation.

In another development, gold major Barrick landed a definitive pact with the government of the Dominican Republic on amendments to the Pueblo Viejo Special Lease Agreement. The amended contract is expected to go to Congress for approval shortly. If the proposed amendments are implemented, revenues to the government will from the Pueblo Viejo mine will increase through a number of proposed changes to the lease agreement.

Late last week, AngloGold Ashanti (AU) made a pay raise offer to striking unions with a view to reach a two-year wage settlement. The move will bring back the South African gold major’s Vaal River Operations (16% of 2012 production) on stream after its employees embarked on a brief strike from Sep 3. The stock was up roughly 5% last week.

Gainers and Laggards


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What Lies Ahead?

While there is nothing much on the event calendar, most mining companies are attending the Bank of America-Merrill Lynch 19th Annual Canada Mining Conference in Ontario on Sep 12. Gold bugs will also keep a close eye on Senate vote, which was originally scheduled on Sep 11 but has been delayed.  

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