Gold Price Unable to Mount Rally

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GOLD PRICE NEWS – Gold prices traded near unchanged early Monday morning as the price of gold changed hands at $1,577 per ounce.  Significant redemptions in gold exchange-traded funds over the past month have led to selling pressure on gold.  According to the research team at CIBC World Markets, there has been over 3 million ounces in outflows in 2013.  CIBC did note that last week’s CFTC Commitment of Traders report revealed an increase in the net long position in gold futures and options.

Scotia Mocatta’s Simon Weeks highlighted the fact that gold demand out of China has been remarkably steady.  Weeks noted that while ETF inventories have been under pressure, China’s appetite for gold is offsetting the ETF selling.

Gold mining stocks traded lower this morning with the Market Vectors Gold Miners ETF (GDX) moving lower by 1.2% to $36.70 per share.  Gold stocks have been under relentless selling pressure this year.  News of a fresh takeover bid in the sector failed to spark a rally.  Hecla Mining (HL) announced the company has entered into a definitive agreement to acquire all of the outstanding shares of Aurizon Mines (AZK) – proposing an offer of $4.75 cash or 0.9953 per HL share for each share of AZK.  The bid represents a 12% premium to Alamos Gold’s current bid.  The Board of Aurizon has approved Hecla’s offer and a shareholder vote is expected in May 2013.

JP Morgan’s John Bridges noted, “With this acquisition, Hecla would fully own the Casa Berardi gold mine in Canada’s Quebec. This operation will help Hecla diversify from its current two operation base, but it’s difficult to see where the synergies are coming from to justify the full 39% premium. The gold mine is expected to have 2013 gold production of 125 – 130koz and holds a gold reserve of about 1.46moz. Based on Casa Berardi reserves, the transaction implies a price of $545/oz. Aurizon’s development area includes the Heva & Hosco West Extension areas with in-pit mineral reserves of 1.66moz.”

TD Securities upgraded shares of New Gold (NGD) this morning, noting this is “an attractive entry point for a company with a strong track record, good free cash flow, low operating costs (due to copper by-product), and little in the way of near-term execution risk.”  From TD’s Gold and Precious Metals analyst, Steve Green: “We are upgrading New Gold to a BUY recommendation from Hold and maintaining our $13.00 target price.”

The Prospector’s and Developer’s Association Conference (PDAC) began yesterday, March 3, and is the world’s largest mining conference.  Last year over 30,000 attended the event.  With mining stocks out of favor this year’s event could draw substantially fewer investors.

This upcoming week has the potential to be a volatile one for gold prices as five major central banks convene monetary policy meetings this week.  Central bankers in Australia, Japan, China, England, and the European Union all will separately meet to discuss the outlook for economic growth and inflation in their respective nations.  Hawkish comments will likely push gold prices lower, while dovish commentary has the potential to push gold prices back up the psychologically-important $1,600 per ounce level.

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