Gold sinks on US surprise

Resources Corner

The ever uncertain federal spending authority gridlock unfolding between President Obama and the Republicans in the US congress has seen gold prices rally over recent weeks as the lack of accord between the parties leads toward a partial government shutdown. Furthermore, debt ceiling negotiations have played their part in exerting great strain on the US economy, leading investors towards gold buying as a hedge against all the uncertainty in the world’s largest economy.
 
All was blown out of the water this week, as gold sank to a two month low, with investors selling on their surprise of a non-rally following the US partial government shutdown. The precious metal fell by 3.1 per cent on Tuesday night, while silver, crude, oil and copper also saw falls in sync with the opening of the US markets. Gold reached its lowest settlement since early August as US lawmakers failed to approve a short-term measure to fund the federal government before the deadline passed, effectively enacting a partial shutdown of US federal agencies. Despite the shutdown being hotly anticipated, panicky investors still moved to sell off commodities and direct investment towards cash, which is considered less risky.
 
UBS precious metals analyst Joni Teves recently said safe haven investing and a weakening US dollar played their part in boosting gold prices, as the global financial services firm lifted its one-month ­forecast from $US1250 to $US1450 and the three-month forecast from $US1350 to $US1375. Despite the improved forecasts, Ms Teves remained of the belief that erratic price action is par for the course, and the ongoing outlook remains very difficult to pinpoint given the degree to which sentiment has shifted this year. Her words have now proven prophetic, with the latest gold drop coming on the back of a rally and against most expectations.
 
Economic news
 
Australia’s export commodity prices fell in September to be 24 per cent below their July 2011 peak. The Reserve Bank of Australia's index of commodity prices fell by 0.5 per cent in the month, in foreign currency terms. The RBA said the largest contributor to the monthly fall was iron ore, but the prices of base metals also fell. These falls were largely offset by increased prices for coking coal and a number of rural commodities.
Over the year to September, commodity prices were down by 3.1 per cent in foreign currency terms.

Company headlines
 
Rio Tinto’s Limited (ASX:RIO)Oyu Tolgoi gold and copper mine may be closer to development after the Mongolian Government said some of its concerns about the project have been resolved. The government says a meeting will be convened next week to discuss the remaining issues. Rio Tinto, which is the project operator and major shareholder, held a meeting with the Mongolian government last week in London, during which they resolved 15 out of the 30 urgent issues that had led to the suspension of the $5.5 billion expansion project. The board agreed that all Oyu Tolgoi licenses owned by third parties should be transferred to Oyu Tolgoi to push the Mongolian government’s stake in the project to 34 per cent.
 
Woodside Petroleum Limited (ASX:WPL)is facing fresh uncertainty over its role in the multi-billion-dollar Leviathan gas project in Israel, following reports suggesting the project is exploring regional export pipeline options. Media reports say the project is considering sending gas to Greece and two Egyptian liquefied natural gas plants. Woodside had struck a $2.4 billion deal to take a 30 per cent stake in the gas field and operate an LNG export project that would see LNG frozen to a liquid and shipped abroad. However, Woodside's role has since been called into question as Leviathan partners have seen less need to pursue export options amid rising regional LNG demand that could be satisfied by pipelines rather than an export plant.
 
Boart Longyear Limited (ASX:BLY) has flagged continued weak earnings, with demand for its mining sector services dropping amid ongoing pricing pressure. The drilling contractor says it can rebuild operations without turning to shareholders for funds after completing a $300 million financing earlier this week that carries a 10 per cent interest rate. Boart Longyear has already downsized its workforce - 3000 jobs were cut last year, another 2000 in the first six months of this year.
 
Silver Lake Resources Limited (ASX:SLR) has achieved record quarterly gold sales from its operations in the Eastern Goldfields and Murchison districts of Western Australia. Managing Director Les Davis says Silver Lake’s wholly owned Mount Monger Operations sold 60,910 ounces in the September quarter. Mount Monger expects to produce between 120-130 thousand ounces of gold in the current financial year.
BHP Billiton Limited (ASX:BHP)says the environmental assessment of its multi-billion-dollar Scarborough joint venture is progressing well. Joint venture partner ExxonMobil initiated the federal environmental referral process five months ago, submitting plans to build a floating LNG processing plant 220km offshore with a production capacity of six to seven million tonnes a year.
 
Linc Energy Limited (ASX:LNC) will seek shareholder approval to delist from the Australian Securities Exchange and request to list immediately on the Singapore Exchange. Linc says the ASX has agreed to delist the company if shareholders approve and if the company provides terms of the ASX's decision to the market. The company says Singapore is a rapidly emerging oil and gas hub and listing there would help unlock the value of its oil, gas and coal assets.
 
The founder of Fortescue Metals Group Limited (ASX:FMG) Andrew Forrest has stepped down as Chairman of Poseidon Nickel Limited (ASX:POS). The departure comes ahead of an $8 million bridging loan repayment deadline the junior mining company must settle with the mining billionaire by October 1, 2013. Poseidon Nickel has told the market Mr Forrest has resigned due to his “overwhelming philanthropic duties”.
 
Shares in Mirabela Nickel Limited (ASX:MBNshed more than half their value after announcing one of its two customers plan to shut down its smelting facilities due to adverse nickel market conditions. The mining company was expecting the contract to run until the end of next year, but the sales deal will now end in November. Mirabela Nickel has also cast doubt over a recovery in nickel prices, and noted the possibility of continued weakness into 2014.