Gold Prices React To Manufacturing In China And Europe

By Dave Brown — Exclusive to Gold Investing News

Gold Prices React to Manufacturing in China and Europe

Gold prices have contracted about 1.1 percent this week to the lowest price since January,  primarily due to reports of weaker manufacturing data from China and Germany. The HSBC Flash Purchasing Managers' Index indicated that China's manufacturing has contracted for the  fifth consecutive month. Spot market gold prices are trading in the range of $1,641.30 per troy ounce, having declined slightly during the week.

BMO Financial Group strategy adviser Don Coxe indicated that “we have entered the most favorable era for gold prices in our lifetime.” Coxe notes that the amount of money governments in the US, Europe, and Japan are printing has led to the highest ratio of gold production versus fiat currencies since paper money was invented. In the March issue of his Basic Points bulletin, he went on to say that it is only a matter of time before shares in “the great mining companies” start to outperform the price of their products, echoing his previous view that investors should buy the producers' stock instead of the metal.

Indian tax to affect gold jewelry market

India is expecting to reduce its budget deficit to 5.1 percent of gross domestic product, down from an estimated 5.9 percent for the current year, by relying heavily on increases in import tariffs and sales taxes on gold, cars, and other items. Jewelers held the first nationwide strike in seven years after the government raised taxes on gold imports and on non-branded jewelry last week. The import duty for refined gold is being doubled from 1.5 percent to 3 percent.

For investors, gold prices may be supported at these levels as demand in India is expected to increase due to pent-up jewelry demand on the subcontinent. It is relatively significant that India has traditionally been the largest gold-consuming nation in the world, last year importing a record 933 tonnes, as there is now stronger potential for China to eclipse India's position as the world's biggest gold market. Seasonal swings in gold prices may become more muted due to reduced demand even during Diwali, which customarily has created a strong volatility in gold price appreciation.

Company news

One of the world's largest producers, Gold Fields Ltd. (NYSE: GFI), exercised its 40 percent option in the gold- copper Far Southeast project in the Philippines. Gold Fields acquired the interest for a $110 million down payment to private holding company Liberty Express Assets. A second option to the project for a further 20 percent for Gold Fields could be acquired from Lepanto Consolidated Mining Co. (OTC Pink: LECBF).

Gold Fields' decision to exercise its 40 percent option in the Far Southeast project was the result of encouraging exploration results and the fact that Philippines authorities are expected grant the company permission to own a majority stake in the project in the second half of this year.

The Far Southeast project is viewed by the company as one of its “best greenfields growth opportunities” and “has ready access to established infrastructure, including roads, tailings facilities, power and water. The existing workforce on the doorstep of Far Southeast is part of a community established around mining over the past 70 years.” Gold Fields is aiming to produce some 60 percent of its gold from mines outside South Africa by 2015.

Junior company news

Of note for investors in junior gold mining and exploration-stage companies is a Pipeline Activity Index ( PAI) release from the Metals Economics Group which notes that the total number of initial gold resources announced this year matched the highest two-month total since early 2009. The current risk sentiment likely means the quality of initial estimates and subsequent updates will firmly establish which junior companies succeed in raising sufficient funds to continue project advancement.

Pan American Goldfields Ltd. (OTCQB: MXOM) announced mineral production and revenues from its Cieneguita project for the third quarter of last year. Third quarter production averaged 496 tonnes per day from the first 15 meters of the Cieneguita resource.

Paragon Minerals Corp. (TSXV: PGR) entered into a joint venture option agreement with Northern Skye Resources Inc. for Paragon's 100 percent owned JBP Linear Gold Project.

Avino Silver & Gold Mines Ltd. (TSXV: ASM,FWB:GV6) released results from an updated NI 43-101 compliant Technical Report on its tailings retreatment process option for the mine tailings in the Durango mining district of Mexico.