The horse is out of the barn, the damage has been done. Look at how the gold price has been dumped, from its lofty highs. But even as gold’s allure continues to weaken with risk-averse investors, there is someone who is making hay - gold miners.
These days, the same old story appears to be playing out for gold, with the dollar strengthening and gold prices weakening. There is clearly something going on here, something behind the scenes, which appears to be building up.
On Wednesday, gold fell from $1,102 to close at $1,088. Aiding the blues was the caution advisory by the US Federal Reserve that is close to beginning the process of normalizing monetary policy in the US.
All of it dampened gold`s allure as an inflation hedge. Sentiments were also nervous ahead of the FOMC rate decision, though the Federal Reserve is expected to leave the interest rate unchanged at a maximum rate of 0.25 per cent.
In terms of the broader economy’s trend, the FOMC noted that based on information received since the prior meeting in December, the economic environment in the US has continued to strengthen while problems in the labor market are subsiding.
Household spending is growing at a moderate rate but remains challenged by a weak labor market, modest income growth, lower housing wealth, and tight credit. As a result of this improvement, the FOMC confirmed its previously announced plan to withdraw many of its special liquidity facilities on February 1, 2010. That spooked the market.
Ben Bernanke is also expected to leave the wording of the FOMC Statement unchanged, with a renewed pledge to leave the rates low “for an extended period of time”. But remember, last month, it took the markets six hours to digest the statement before moving. It was too confusing and many could not digest it completely.
For the long term though, traders and fund managers were on the whole positive about gold this year, with prices seen averaging $1,150.50 an ounce in a Reuters poll of 60 analysts.
Gold prices also remained supported after Peter Munk, the chairman of the world`s largest gold miner Barrick Gold Corp (ABX.TO), said that while gold prices may be volatile, the rise was not yet over.
The holdings of the SPDR also remained unchanged at 1,111.92 tons as on January 27. One has to understand that the macroeconomic landscape also remains one that favors those asset classes that benefit from money printing and fiat currency debasement - namely gold price and gold mining stocks.
Investors can also breathe a sigh of relief that nothing that has occurred is dollar positive.
The economic reason for the dollar rally was the bullish Christmas “financial party prediction that is simply non-existent and therefore not sustainable. It is a business activity bottom bouncing experience that can easily have its bottom plug pulled now that everything has been sent into a state of flux”.
So says precious metals and commodities specialist Jim Sinclair, who advises: “Stay the gold course. Things are becoming more, not less of a mess, and it is not hard to see. Only gold can guarantee you against the madness of our financial leadership.”
As David Thurtell, an analyst at Citigroup said: “The dollar is stronger, and that is keeping precious under pressure. Also, a little bit of de-risking is there too.”
“The dollar strength has put some pressure on gold,” added Bernard Sin, head of currency and metals trading at bullion refiner MKS Finance SA in Geneva. But Bradley George and Daniel Sacks, co-portfolio managers of the Investec Global Gold Fund said that they believe that gold has finally broken clear of the $700 to $1,000 per ounce range that dominated the last two years.
“We are probably in the process of finding out where the new higher range will be established. We believe that the degree of investment demand is likely to force a peak that is nearer $1,300 per ounce over the next six months with $1,000 an ounce becoming the long-term floor.”
Show me the money
And investment demand there is. Despite choppy trade, many gold miners have received or are in the process of getting private funds for exploring the precious metal.
Like Viking Gold Exploration Inc which has completed the second tranche of its non-brokered private placement for gross proceeds of $700,000, bringing the total raised under the two tranches of the private placement to $870,000.
In the second tranche, the company sold 14,000,000 units at a price of $0.05 per unit, with each unit being comprised of one common share and one common share purchase warrant.
Or even Gold Canyon Resources Inc (TSX V: GCU) which closed its previously announced private placement of common share units for gross proceeds of $1,500,000.
Each unit is comprised of one common share in the capital of the company. Sprott Asset Management, of Toronto, Ontario, acted as agent on behalf of certain funds and managed accounts, and purchased 7,100,000 units of this private placement for gross proceeds of $1,491,000.
International Millennium Mining Corp (TSX V:IMI) has also closed the second and final tranche of its private placement.
Further to the company’s news release January 20, 2010, the closing is with respect to 2,416,667 non-flow-through units representing additional cash proceeds of $145,000. Total cash proceeds of the placement is $811,784.
Maya Gold & Silver Inc (TSX V:MYA) has also closed a first tranche of the non-brokered private placement previously announced on December 22, 2009.
The company has raised $1.62 million through the issuance of 4.06 million units at a price of $0.40 per unit. The company anticipates that the final closing of the $2 million private placement will take place in the coming days.
New Guinea Gold Corporation (TSX-V:NGG) also announced that the private placement announced on December 15, 2009, had been completed for gross proceeds totalling $1.6 million.
Gryphon Gold Corporation (TSX:GGN) said that it proposes to offer for sale on a private placement basis to accredited investors up to 11,000,000 units at a price of C$0.17 per unit. The terms of the private placement have not yet been accepted by the Toronto Stock Exchange.
Helio Resource Corp (TSX-V:HRC) has also entered into a binding agreement with respect to the previously announced private placement financing for gross proceeds of $6,210,000.
The financing is for 11,500,000 units, each unit is comprised of one common share and one half of one common share purchase warrant.
Covenant Resources Ltd (CVA-CNSX), has also negotiated a non-brokered private placement of a minimum of 5,000,000 units and a maximum of 8,000,000 units at a price of $0.05 per unit, for total gross proceeds of a minimum of $250,000 and a maximum of $400,000.
Cornerstone Capital Resources Inc (TSX V:CGP) and Intrepid Mines Ltd (TSX-IAU) have announced that Intrepid has completed a $500,000 private placement in Cornerstone shares.
Under the terms of the LOI, Intrepid has the ability to earn an initial 60 per cent interest in the Shyri property by making a cash payment of $250,000, a $500,000 private placement in Cornerstone shares and spending $6.0 million dollars over 5 years, with a firm commitment of $1.0 million in the first year.
And even as Platinex Inc (TSX V:PTX), announced a private placement of up to $2.0 million of gross proceeds, Boxxer Gold Corp (BXX) announced its intention to raise up to $1,000,000 by way of a non-brokered private placement.
In conclusion - If private equity investors and investment firms are interested in placing their money on these gold miners, can they all be barking up the wrong tree?
Agreed, some companies doing private placements are said to have have poor fundamentals (and that is why they are privately funded), but one can’t brandish everyone, the good and the bad, with the same brush.
Check out for bad apples.
What makes more sense is to have a sensible plan for investing. Check that your plan is sensible, and develop `what if’ conditions for sticking to the plan and knowing how and when to cut your losses and survive if you are wrong.
Cause you could be wrong, but then again, you could be dead right too! So, stick to the golden rule: Stay invested.