By Kishori Krishnan Exclusive To Gold Investing News
Bargain hunting drove gold futures into a rally on Thursday, helped by unusual events across the globe - Chinese comments about the metal and expectations that a low interest-rate environment will eventually lead to inflation.
August gold rose 5.10 to $939.50 an ounce on the Comex division of the New York Mercantile Exchange. September silver gained 9 cents to $14.032. Both metals posted an inside day on a chart, in which the highs and lows were contained within the prior day’s trading band.
Rob Kurzatkowski, futures analyst with optionsXpress maintains that gold could be getting some support from a dimmer view of economic conditions. This includes not only the World Bank’s downward forecast for global economic contraction this year, but other data such as a rise in U.S. initial jobless claims reported Thursday morning.
This is likely to benefit gold since it means a low interest-rate environment for a while, thus ultimately increasing the potential for inflation, Kurzatkowski said. Yet, he also said, rallies have been restrained since the Federal Reserve expects to see inflation subdued for some time.
As gold recovers, it is now running into resistance around the $944 level. Incidentally, this is the 38.2 per cent Fibonacci retracement, and is roughly where August gold stopped twice in the last week. Above this, $960 will be the next key chart area, traders said.
Junior gold re-rated
What is also helping the yellow metal is that junior gold firms are being re-rated, with the sector rebounding strongly towards its historic valuations. In stark contrast,Â the junior gold sector appeared to be dead as a dodo just seven months ago.
Analyst Michael Curran of RBC Capital Market, who tracks non-producing golds through a unique measure called “adjusted market capitalization per total resource ounce” notes that historically, the group average has been in the range of US$50 to US$75 an ounce, but when the market bottomed out last November, it had fallen to a measely US$12 an ounce.
Recent numbers though are more encouraging. In March, the average moved to US$23 an ounce and this has bumped up further to US$33 an ounce recently.
His picks: Great Basin Gold Ltd. (GBG: TSX), Anatolia Minerals Development Ltd.,Â (ANO:TSX) whose stock price was US$2.74 on June 25, and whose 52 week high was US$3.64. Then there is Detour Gold Corporation,Â (DGC: TSX) also among his picks, which had a 52 week high of US$25.40. The share price closed at US$11.33 on June 25, up 3.19 per cent.
Some more firms like Allied Nevada Gold Corp. (ANV:TSX)Â which has increased its gold and silver reserves this month from a lowly 244 per cent to 298 per cent respectively, and now projects full mine operation by mid-2009, the European Goldfields Ltd., (EGU:TSX) and Central Rand Gold Ltd. , which last traded at 26 on the London Exchange was down marginally by 1.89 per cent, also feature in the analyst Curran’s fabled list of stocks to own.
For some firms, there is news in the making.
Aurizon Mines found two new veins of gold on its existing properties. Both deposits are still open, implying that they will yield more positive results as further drilling defines them.
Rubicon Minerals recently announced “a new deep intercept of lower grade gold mineralization at a depth of 4,715 feet (1437 metres) below surface, some 1,050 feet (320 metres) deeper than the previous deepest intercept. The new intercept suggests high potential for additional gold mineralization to depth.”
Chesapeake Gold announced that its Metates project now has measured and indicated resources of 14.7 million ounces of gold, 396 million ounces of silver and 2.6 billion pounds of zinc www.zincinvestingnews.com.
Atna Resources announced that its Pinson joint venture with Barrick Gold “continues to host numerous high grade gold intercepts on a number of structures all located in a relatively small area. We feel that Pinson has a good potential for development due to its gold grade, location in the heart of the northern Nevada gold belt and close proximity to existing autoclave, roaster and mill complexes.”
It is not just juniors though that are raking in the moolah. The financial markets also appear to be showering the established miners with cash. In February, Newmont (NEM) raised $1.7 billion, while Yamana, Agnico-Eagle, and Kinross Gold have between them raised over $800 million. And last week Goldcorp offered to sell $750 million of convertible bonds, but ended up with $860 million because the offering was oversubscribed.
Junior to mid-tier
What is interesting to note is that lot of juniors are well on the way to becoming mid-tier seniors - or at least viable producers. Some might not make it that far, but with the majors as a group failing to replace the metal that they are taking out of the ground and capital suddenly plentiful, the conditions are ripe for a buy-out boom, in which the big guys start snapping up the best juniors. Once the party gets going, hot money will send the most likely prospects through the roof.
The point is: shouldn’t you be in by then, dear investor?