Gold’s higher highs

Gold bugs enjoyed another delightful week, as spot gold prices scored three new all-time nominal highs in five days, and traded at a lofty US$1,295 per oz. at presstime in the face of a new round of declines in the U.S. dollar. Gold prices have advanced relentlessly by US$140 per oz. in recent weeks.

• The latest push in gold prices was driven by remarks from the U.S. Federal Reserve in a Sept. 21 statement, which showed that the Fed is still primarily concerned with deflation and avoiding a Japan-like “lost-decade” experience for the U.S. economy.

Specifically, the members of the Fed overwhelming believe U.S. inflation rates are too low at present (at around 1% versus a desired 2%, broadly speaking) and vowed to maintain the target range for the federal funds rate at 0-0.25%.

But what really got gold investors chuffed was the magic word “accommodation” in the sentence: “The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

In gold-bug talk, that translates to “standby to fire up more dollar printing presses and get ready to call in the third shift for tonight.” More prosaically, the Fed statement probably translates into more U.S. bond purchases if the U.S. economy continues to be so anemic.

The Fed adds that in the U.S., “the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit” and predicts that the “pace of economic recovery is likely to be modest in the near term.”

• The silver-gold relationship remains as tight as ever, with spot silver prices rising US$3 per oz. in recent weeks to just slightly above US$21.00. Silver’s flashy moves had a salutary effect on silver miners and explorers big and small, with significant share price gains across the board.

• The week saw a continuation of one overarching theme of the current commodities boom: Asian investment in North Americanbased mining companies.

After many long, difficult years of development effort, Vancouverbased Continental Minerals has found a buyer for the company and its technically robust Xietongmen copper-gold property in China’s Tibet territory.

The buyer is no big surprise: it’s minority shareholder and Chinese mining conglomerate Jinchuan Group, which is offering $2.60 in cash per share, valuing Continental at $431 million. While this is a mere 13% premium over the pre-bid share price, Continental’s share price rallied only to $2.58, indicating that market participants don’t anticipate any bid sweetening or the emergence of a rival bid.

It’s been hard the past few years for foreign companies to find non-Chinese buyers for their mineral assets in China, and Xietongmen’s location in the disputed territory of Tibet virtually guarantees the project would be targetted by pro-Tibet independence group if it was further developed by a Western company.

Another Vancouver junior, Augusta Resource, is bringing in a Korean consortium to help advance its Rosemont copper-moly project in Arizona.

The consortium, comprised of government-owned Korea Resources Corp. and LG International, will buy a 20% stake in Rosemont in return for funding US$176 million of the project’s expenses. The consortium is also locking in an offtake agreement at Rosemont for 30% of copper concentrate and 20% of copper cathode and molybdenum concentrates produced annually.

With Silver Wheaton already having committed US$230 million in funding, Augusta now has half the money it needs to build a mine at Rosemont.

• There was an intriguing development in India, with Rio Tinto’s head of exploration being quoted by Bloomberg as saying that Rio’s Bunder diamond project there is the world’s biggest diamond discovery in the past 10 years.

Located 500 km from Delhi in Madyha Pradesh, the project is only at the prefeasibility stage, but boasts an inferred resource of 37 million tonnes grading 0.7 carat per tonne for 27.4 million carats.

While there were some doubts immediately after the global recession hit in 2008, Rio Tinto looks to be as keen on diamonds as ever, having recently announced it would spend US$803 million to complete the underground expansion of its Argyle diamond mine in Australia.

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