After retracing to a six-week low around the middle of last week, gold took wing as the Fed stunned the market by staying the course on easy monetary policy. The surprising move gave the yellow metal a fresh lease on life, allowing it end the week higher despite losing some ground on Friday. Silver prices moved in lockstep and closed the last week in the green.
The Week That Was
Prices for gold and other key metals found support on Monday on news that Summers has pulled out of the race to fill the Fed chair after Bernanke’s exit in Jan 2014. He was seen as more hawkish on monetary policy than other potential candidates including the current Fed Vice Chairman Janet Yellen. With Summers out of contention, market now views Yellen as favorite to succeed Bernanke.
Monday’s gain was, however, followed by sell-offs for two straight days as traders digested the Summers exit news and turned cautious ahead of the critical Federal Open Market Committee (FOMC) meet with speculations that the Fed will dial down its $85 billion a month bond buying program. Bullion, which hit a six-week low on Wednesday, was heavily shorted ahead of the Fed call.
Gold racked up its biggest daily gain since Mar 2009 on Thursday as the Fed surprised the market by staying put to its bond-buying strategy, sending the greenback to a seven-month low. While the market was looking for a $10 billion to $15 billion cut in stimulus, Fed stuck with its easy money policy awaiting more evidences of progress in the economy and improvement in the job market. The central bank hinted that it could begin tapering later this year should economic data confirm its basic outlook.
The Fed snipped its economic growth forecasts for this year and next and said that it will continue to hold interest rates near zero until the jobless rate falls to 6.5% or lower, provided inflation does not go above 2.5%. The unemployment rate was 7.3% last month with the economy adding 169,000 jobs.
However, gold prices gave up more than half of their gains on Friday as fresh selling pressure was ignited by a comment by Federal Reserve Bank of St. Louis President/CEO James Bullard, who told Bloomberg TV that the Fed could consider a small taper at its next meeting in October if it is backed with strong economic data. With war against Syria off the table now, all eyes will be on that meet scheduled for Oct 29-30.
Gold prices (for December delivery) on the New York Mercantile Exchange’s Comex division moved up roughly 1.8% for the last week to close at $1,332.50 per troy ounce last Friday, after gaining as much as 4.7% a day ago. Silver nudged up 1.2% to end the week at $21.93 per ounce. It was up 7.8% on Thursday, also marking the largest single session rise since 2009.
Both gold and silver remain in bear territory with prices trending roughly 26% and 38% below their 52-week highs, respectively. Shares of major mining stocks pulled back on Friday from the previous day’s no-taper rally.
The AMEX Gold Bugs Index inched up 0.5% last week while both the Philadelphia Gold and Silver Index and the NYSE Arca Gold Miners Index finished relatively flat. This compares to a roughly 1.3% gain for the S&P 500 which clocked a record high of 1,729.44 following the Fed announcement.
Stocks in the News
Among key developments last week, gold mining major Newmont (NEM) divulged its plans to divest its Midas operation in Nevada, which it acquired through its merger with Normandy in 2002, to private equity investment firm Waterton Global Resource Management, Inc. The move reflects the company’s strategy to focus more on its core businesses.
In another development, IAMGOLD (IAG) said that its joint venture with AngloGold Ashanti (AU) and the government of Mali will suspend mining excavation activities at the Yatela mine in Mali, effective Sep 30, 2013. The decision was triggered by rising costs and falling gold prices, which made it extremely difficult to extend the mine’s life. Moreover, the mine has been also viewed as no longer capable of making a positive contribution to any of its stakeholders. Both IAMGOLD and AngloGold Ashanti hold a 40% stake in the mine.
Goldcorp (GG) is buying three properties in central Mexico from exploration company Quaterra Resources (QMM) for $375,000 in cash. The companies completed a second amendment to the Investment Framework Agreement (IFA) originally inked in Feb 2010, under which, Quaterra is transferring ownership of the Sabino, Marijo and El Calvo properties in Mexico.
Agnico-Eagle (AEM) has restarted mining and processing at Goldex Mine in northwestern Quebec. Underground mining has started in two of the satellite zones (M and E) with first gold pour is expected in Oct 2013. Separately, the company noted that commissioning at the La India mine is underway with first production is targeted in first-quarter 2014. Agnico-Eagle’s shares shriveled after it announced the suspension of the Goldex mine in 2011 due to ground stability issues.
Gainers and Laggards
|
Stocks |
Past Week |
Trailing 6-Months |
|
ABX |
+5.02% |
-36.02% |
|
GG |
-2.16% |
-22.44% |
|
FCX |
+2.51% |
+3.53% |
|
NEM |
-0.46% |
-31.86% |
|
KGC |
+0.19% |
-37.04% |
|
AEM |
-0.41% |
-34.67% |
|
AU |
+3.26% |
-46.84% |
|
SLW |
+0.16% |
-22.62% |
What Lies Ahead?
While this week is somewhat humdrum on the event front, focus will be on the U.S. GDP report scheduled to come out tomorrow. Traders will also await fresh cues from Fed officials on the future of the stimulus program.
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