The Gold Price Today Effect
Commodities / Gold & Silver 2009 Nov 13, 2009 - 04:51 AM GMTBy: Miles_Banner
Welcome to another week. Today I’ll take you through the news that’s motivating higher production levels amongst gold miners, and news that’s causing some to restrict production levels. We’ll see politics being influenced and why the UK investor should be worried…
Throughout the last few weeks we’re hearing more and more gold mining companies crank up production levels. They’re getting more gold to the market to capitalise on the high gold prices. Like a gymnast on steroids they’re working harder to bring mines into production.
This week as we sat down with a coffee and ran through the gold news we stumbled upon the unusual story that Scotland is hiding gold, and apparently not just a wee amount. Scotgold, the Australian-funded mining company, have found deposits of gold around Tyndrum, a small Scottish village. They’ve also announced they are going to ask for planning permission to start mining approximately 4.5 million tonnes of gold at their Canonish mine, again in Scotland. This mine was drilled twenty years ago and it’s never been commercially worked… until now.
And Scotgold isn’t the only one. The key is higher profit margins which makes some mines worth producing. RioZim , Zimbabwe’s largest listed resource corporation, is planning to increase gold production to 80kg from the current 60kg a month at its Renco mine. A week ago Gold Fields announced they aim to produce 1m ounces from South America by 2015. All across the board we’re seeing mining companies motivated by the current surge in gold prices… well not quite all, but we’ll come to that later.
It’s not just the miners
The gold price has shaped companies that rely on it and this doesn’t just include miners. This week Franco-Nevada, the mining royalty company said it experienced record gold royalty revenue for the third quarter. Orica Ltd., the world’s largest industrial explosives maker, said profit would climb for a ninth year on sustained demand from mining companies.
SMT Scharf AG technology and world market leader for rail-bound railway systems for the mining sector recorded revenue growth in China and South Africa in particular. In August 2009, the company received an order from China for five monorail hanging railway trains to be supplied on short notice. This order has a value of more than EUR 2 million. The added money injection by governments and the rising gold price has benefitted many companies directly and indirectly related to gold mining.
The Gold Fever grips politics
The strength of the gold price has led to political maneuvering. We see changes in government policies as a direct result of a high bullion value…
Last week Caledonia Mining’s Blanket gold mine, in Zimbabwe, was awarded the title of ‘exporter of the year’ in the mining category, for the Matabeleland region.
“This award re-confirms Blanket’s status as a significant participant in the Zimbabwean mining industry,” the company said.
Caledonia restarted the operations at Blanket in April, after being granted a gold dealers licence from the Ministry of Finance and a gold exporters license from the Reserve Bank of Zimbabwe, under the country’s new gold dealing and export policy.
Under the new policy, gold producers can market and sell their gold directly and are also allowed to keep the payment for their gold in foreign exchange.
Elsewhere on Wednesday Vietnam’s central bank announced they will allow imports of gold. Gold imports have been banned since May last year.
These changes indicate Governments willingness to utilise the high gold prices.
The Dollar and the pound – two spent swimmers.
But where the price of gold goes up it’s usually in the face of other currencies going down, as we mentioned in our dollar gold relationship article a few weeks back. And this week the UK government has been making its own announcements…
Whilst the price of gold was hitting new highs the dollar index hit a 15 month low on Wednesday, trading at 74.77. Misery was later compounded for British pound holders as Mervyn King, the Governor of the Bank of England, said on Wednesday that a weaker pound against the US dollar should support the U.K. for a recovery. It’s not clever to stand under a falling stone but what choice have we?
David Riley the head of sovereign ratings at Fitch Ratings, said that the UK’s sovereign credit rating is the most at risk, out of all the advanced economies, of losing its’ AAA status. Citing government debt and its need to add more stimulus as likely causes he continued "Our stable rating outlook reflected our expectation that the UK Government will articulate a stronger fiscal consolidation programme next year."
So in other words it’s time to cancel the next holiday.
Calls that the pound is going to get weaker are not new. Jim Rogers, amongst others, have mentioned this on a number of occasions. With a weaker pound the UK investor is more likely to seek value in bullion.
Appreciating the RAND
South African miners are the exception to the high gold price equals higher production levels rule. The RAND has dramatically appreciated over the last year…
The appreciating RAND has brought problems to companies based in South Aftrica. Despite the rise of the gold price South African miners are having their profit margins squeezed as the RAND appreciates. A higher RAND means higher wages, higher transport costs and higher fuel costs. These all have consequences…
Graham Briggs, the Chief Executive of Harmony Gold, the South African miner, announced…
"There will be closures, probably a couple of closures in the next six months or so."
When you factor in the South African state run utility company, Eskom’s, proposal to triple power tariffs, an appreciating currency doesn’t seem so enviable.
As the gold price continues to hit new highs watch out for all it’s related statistics on our website… and hold your breath till next week.
Regards,
Digger Gold Price Today
P.S Digger writes a weekly email analysing the gold price and the gold industry. Visit Digger at Gold Price Today (http://goldpricetoday.co.uk).
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