By Kishori Krishnan Exclusive To Gold Investing News
The figures speak for themselves. Gold is looking hesitant as it continues to correct its recent run to the upside.
Gold price suffered its worst day of 2010 as the price plunged $23.99 to $1,127.72 per ounce on January 12, on news of China’s central bank moving towards a tighter monetary policy.
Investors were warned, especially those tracking Goldinvestingnews, but some might have decided not to pay heed. In the bargain, they got their fingers burnt.
For all the Peter’s, the Paul’s and the Mark’s who were critical of this site ever getting it right, here is the proof of the pudding.
Gold mining stocks, as represented by the Market Vectors Gold Mining ETF (GDX), were the biggest losers on January 12, following the lower gold price. Shares of these two Canadian gold mining companies and large components of the GDX, were trounced.
IAMGOLD (IAG) declined by 3.9 per cent.
Yamana Gold (AUY) declined by 3.5 per cent.
Meanwhile, Canada’s S&P/TSX Global Gold Index fell 3.0 per cent to 344.68.
Selling has led to more selling in commodities and equities as investors and traders liquidated positions.
And that is just the start.
Though news from China - where the People’s Bank of China (PBOC) unexpectedly announced a plan to increase the proportion of deposits banks must hold in reserves for the first time since 2008 - was an early trigger, it sent riskier asset classes, such as stocks and commodities lower.
And if the trend continues toward a tighter monetary policy and higher interest rates across the globe, the risk of a deeper correction in the gold price and gold mining stocks is only set to grow.
You have been tipped off. Once again.
On Friday, gold was treading the calm waters at $1,131, down $12.18 and down 1.07 per cent. Not only did the dollar pressure the price of gold, gold mining stocks were unable to rally.
Barrick Gold (ABX), Goldcorp (GG), and Kinross Gold (KGC) were all lower. This trend of underperformance by the gold mining producers relative to the price of gold is worrying, and has been pointed out in depth by many gold analysts.
Another worrisome aspect is the fact that several gold mining companies, including AngloGold Ashanti (AU), Barrick Gold (ABX), and Northgate Minerals (NXG) have recently closed some or all of their gold price hedges.
Closing their hedge books means that miners will have bring out their self produced gold or ensure spot market purchases. All of this has helped boost gold demand in the past, but don’t expect this trend to continue.
The flurry of hedge book settlements has already whittled global gold hedge books to a multiyear low of 11.5 million ounces at the end of September 2009 from more than 100 million ounces in 2001.
What is also worrying is the amount of paper money floating around the world. The famed Jim Rogers, in an exclusive interview with Wall Street Cheat Sheet, spoke on the “huge suspicion about paper money around the world. This suspicion is gathering steam. Governments are printing huge amounts of money…Additionally, no new large gold mines have been opened in decades.”
“…All we’ve done is paper over the problem, so I expect we’ll have to deal with those issues in the future. Printing and spending money we don’t have simply prolongs the problems and makes them worse in the long run,” he adds.
So, get ready for the long haul.
More disturbing news has come in. The uneasiness in the gold market has ensured that once former allies have now turned adversaries.
The world’s largest gold mining company, Barrick Gold (ABX) has filed a suit against New Gold (NGD) in an Ontario, Canada court. A few years ago, Barrick Gold Corp and Canadian-based Goldcorp (GG), the world’s second largest gold producer, were close allies, working together to complete the most ambitious takeover in the history of the gold industry.
Now, look what has happened.
Barrick Gold’s lawsuit alleges that Goldcorp and Vancouver-based New Gold Inc entered into a scheme to thwart Barrick’s $465-million offer.
The saga started last October, when Barrick agreed to buy a 70 per cent stake in El Morro from Xstrata PLC. El Morro is a world-class copper-gold deposit that could support annual production of 302,000 ounces of gold and 203,000 tonnes of copper during its first five years of operation.
The suit, filed in the Ontario Superior Court of Justice, pits the world’s two biggest gold companies against each other and throws the ownership of El Morro into question.
It also brings to the fore a moot point - which gold miner has the long-term edge? For, isn’t that what this is all about?
More fights have erupted on the scene. As gold miners clash, shares of mining exploration companies take a dive.
Canplats Resources Corp (CPQ.V) fell 6.5 per cent on Friday after Minera Penmont backed out of a bidding war for the Canadian junior miner, clearing the way for Goldcorp’s (G.TO) C$280 million takeover bid to succeed.
International Royalty Corporation (NYSE-A:ROY, TSX: IRC) reiterated that its board of directors had unanimously recommended that IRC shareholders reject the unsolicited $639 million in cash offer from Franco-Nevada Corporation, and instead opt for the $749 million deal from Royal Gold Inc (TSX: RGL).
Royal is offering either $7.45 in cash or 0.1385 of a share for each common share of IRC. Shareholders will get to vote on the offers at a special meeting to be held on February 16. And in the meantime, the stock price gets into wild swings.
Among its royalties, IRC owns 2.7 per cent of the nickel production from Voisey’s Bay as well as royalties on the Chilean portion of the Pascua-Lama project and 1.5 per cent of Inmet Mining Corp’s (TSX:IMN) Las Cruces copper project in Spain.
Denver-based Royal Gold owns royalties on 118 properties on six continents.
Toronto-based Franco-Nevada is a resource royalty and investment company with a portfolio of precious and base metal royalties as well as oil and natural gas royalties.