Gold futures wavered between gains and losses at the beginning of 2011, struggling to break their four day losing streak.
Opposing data is causing gold's price tug-o-war. Economic uncertainty in the EU and inflation in China and India are positive for gold prices. China's inflation surged to 5.1 percent in November. “Chinese and Indian investors will want to gain exposure to precious metals as an imperfect inflation hedge,” according to Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland. Dincer said by e-mail, “U.S. and European investors will want to gain exposure because of the unstable economic situation and high, unsustainable debt levels.” While inflation in the United States is theoretically positive for gold, strength in the US dollar is negative. As the world's largest economy improves, so does its dollar, and this in turn is negative for dollar-dominated commodities such as gold.
At the end of last year gold was in record territory at about $1425 per ounce, but since the start of 2011 it has taken on a bearish tone. The precious metal lost 4 percent last week, its worst performance in six months. Gold futures were up slightly in early morning trade, ahead of a bond sale in Portugal, Spain and Italy. The planned bond sales have revived concern that the EU debt crisis may linger; adding extra impetus was an increase in gold demand tied to Portugal encouragement to accept aid. Gold futures gained 30 percent last year as bailouts of Greece and Ireland sent the euro down 6.5 percent against the dollar.
A challenging week lies ahead for gold, UBS analyst Edel Tully said, tipping further dollar strength as bond auctions in Spain and Portugal test market appetite for debt. “The fiscally challenged state of European nations was largely a positive force for gold in 2010. However for gold to benefit from the growing possibility of a Portuguese bailout, its negative correlation to the dollar needs to dampen, she added.
Midway Gold Corp. (CVE:MDW) has executed a lease agreement for water rights needed to develop its Pan project in White Pine County, Nevada. The water lease provides for a 10-year primary term, extendable by 15 years, and annual payments at a rate of the water used. Midway estimates that at anticipated production levels the cost of water under the lease will be approximately US$1.00 per ounce of gold produced. Midway can also use water for exploration and other project related purposes prior to commencing production. We are excited to have negotiated a beneficial agreement for water rights to develop Pan, said Ken Brunk, President and COO of Midway. This lease provides us with the certainty needed in the engineering and design phase and reinforces our plan to construct Pan as a low cost gold producer in Nevada.
According to a Preliminary Economic Assessment, the Pan project will have a mine-life of 7.5 years based upon 327,000 ounces of gold produced for sale. Gold grade of 0.62 grams per tonne (gpt) and a recovery rate of 70 percent for North Pan mineralization and 75 percent for South Pan mineralization. The Net Present Value of Pan, at a 5 percent discount rate and a gold price of $1,200 per ounce, is $109 million with a pre-tax Internal Rate of Return of 41 percent. Measured and Indicated Mineral Resources are 38.8 million metric tonnes containing 682,000 ounces of gold with a grade of 0.55 gpt, at a 0.14 gpt gold cutoff grade. Recent drilling by Midway has also found higher gold grades and a possible new gold zone.
Kinross Gold Corp.'s (TSE:K; NYSE:KGC) output of the precious metal will rise about 15 percent this year from its Paracatu mine in Brazil, according to Jose Roberto Freire, president for the company's unit in the country. The mine in Brazil's Minas Gerais state will reach its “peak” annual production of 17 metric tonnes later this year, up from a current pace of 14.8 tonnes. Output will fluctuate between 15 tons and 16 tons a year until the end of the life of the mine, the O.Estado de S. Paulo newspaper said.
Multi-national investment company Afghan Krystal Natural Resources signed a deal on Monday with Afghanistan to develop the country's second gold mine. Afghan Krystal Natural Resources is backed by international investors from the United States, Britain, Turkey and Indonesia with JPMorgan Chase & Co. as the facilitator. Afghan will invest up to $50 million in Qara Zaghan mine in northern Baghlan province and plans to begin production by 2013, said the company's president and prominent Afghan entrepreneur, Sadat Mansoor Naderi. Neither the country, or the company has a resource estimate for the project at this time, however Afghanistan is counting on income from mineral deposits to wean it off its dependency on foreign aid.