By Kishori Krishnan Exclusive To Gold Investing News
Gold is soon set to become the next global asset bubble now that pivotal global economic events are finally converging to propel its ascent into record territory. The yellow metal is suddenly a happening choice.
There are several recent indicators - Yuokon Gold has acquired a majority stake in Bellhaven’s Gold project, Goldplat has taken over control of Kilimapesa Gold project and even a South African firm is eyeing mining investment.
Yukon Gold has agreed to purchase a 75 per cent stake in Bellhaven Copper and Gold’s Cerro Quema project in Panama for nearly $20 million. Under a memorandum of understanding signed between the companies, Yukon will take a 75 per cent interest in Minera, the Bellhaven subsidiary that operates the mine.
Yukon will purchase outstanding shares of Minera and shares from Minera’s treasury for $19.9 million.
Bellhaven has given Yukon a 60-day due diligence period on the Cerro Quema Project and Minera during which Yukon will pay Bellhaven non-refundable deposits totalling $400,000 which will form part of the purchase price if a definitive agreement is reached.
In the case of Goldplat, it has become the sole owner of the Kilimapesa Gold project in Kenya having completed its acquisition of the 50 per cent stake-owned by International Gold Exploration (IGE) for $2.7 million.
Goldplat has completed the buy-out through IGE’s subsidiary Gold Mineral Resources for the site located in south-western Kenya in the Migori Archaean Greenstone Belt.
Goldplat has already paid $1.2 million, with the remaining amount to be paid in six monthly instalments of $250,000 beginning when Kilimapesa Gold’s mining licence is authorised by the Kenyan authorities.
IGE currently has four licenses in Kenya and continues gold exploration activities in the country with the aim of developing a medium and large-scale gold resource in the short-term.
Chief executive Dan Simelane told the media the investment climate in the country had improved since the formation of the inclusive government in February this year.
He added that Zimbabwe’s minerals sector could attract investments of up to US$ 16 billion once a more conducive business environment was in place. That could help boost gross domestic product by US$ 3 billion per year.
ARM is SA’s second-biggest black-owned mining group. It is also earmarking US$ 250 million to develop the Konkola North copper project in Zambia.
Central African Gold has also announced that they would soon outline a financing plan for the company that will allow it to restart gold mining in Zimbabwe. The fund raising will be designed to settle a US$ 5 million debt as well as to resume operations.
Though there are several events that have had a bearish effect on the price of gold, there were some interesting geopolitical issues developing that are set to have a positive influence for the gold price - the news that Iran has been building a second uranium enrichment facility. Even though talks will continue in Geneva on Thursday this week regarding Iran, it is unlikely that the UN and the IMF will be able to do anything constructive to resolve this situation.
So, what should one do?
Don’t hold on to your horses, there is obviously a big picture taking place in metals. But you might well ask, while metal prices have soared, prices of the junior companies in the base metals sector have barely budged. The answer to that would be - it is only a matter of time until there is more action in that space.
This quiet period is the time to build positions.
Gold gained for the first time in four days in New York and London as the dollar erased earlier gains, increasing demand for the precious metal as an alternative investment.
The US Dollar Index, a six-currency gauge of the greenback’s strength, was little changed after earlier gaining as much as 0.6 per cent. Gold tends to gain when the dollar weakens.
“The key to gold is the dollar,” said Marty McNeill, a trader at R F Lafferty Inc in New York. “You may get a respite here but the dollar continues to weaken.”
Gold futures for December delivery added $4.30, or 0.4 per cent, to $995.90 an ounce on the New York Mercantile Exchange’s Comex division on Monday. The metal lost 1.9 per cent last week, its first drop in six weeks. Immediate-delivery bullion rose 0.4 per cent to $994.88 in London.
Today’s gain may also be a “technical move,” McNeill said. “Gold is trying to move higher after four days. Gold needs to battle back above $1,000 to get people back on board.”
Fear rules though
Fears of a protracted slump in the world economy, as well as the advent of runaway global money supply and inflationary forces, are the ‘hot button’ issues of the day. But another key portent of higher gold prices that is often overlooked is the dwindling of gold output, analysts state.
Most of the world’s major deposits are virtually mined-out and new world-class deposits are becoming harder to find and more expensive and politically problematic to bring on-stream. In fact, gold production has been decreasing at a rate about 4-5 per cent annually since 2001.
This stark reality is not lost on Evy Hambro, manager of the world’s largest commodities fund, the high-flying US$ 17 billion London-based Blackrock World Mining Fund. He says gold supply/demand fundamentals, alone, will help the yellow metal to find a new support level at the hallowed $1,000 an ounce mark.
“The producers don’t seem to be able to reverse the downward trend in production. Without a higher price, we’re going to see lower production. So we need to see that higher price ($1,000 an ounce) just to keep production stable,” he says.
Are you that bullish?