Gold prices falling on a stronger dollar

In the Lead: “Some Miner and Not-So-Minor Issues”

From a contrarian angle at least, he might as well do so, because a quick glance at the sector’s “performance” is more than enough to commence shedding tears; gold producer stocks are coming in with their worst relative showing in more than three years. The GDX, for example, is down 9.3% this year through mid-April (vs. gold in the guise of the GLD up 5.6% in the same period). Here, in graphical (and graphic as well) form, is the ratio of the GDX (the miners) to GLD (the stuff they mine) for the aforementioned period:

GDX Chart

Chart courtesy

As someone wiser than yours truly said, “Something’s Gotta Give.” Whether that implies a $100-200 drop in bullion’s price tag or the GDX returning to some former semblance of normality (ratio-wise) is an open question, but one we may not have to wait too long to get an answer to.

On a related topic, the President of Peru, Mr. Ollanta Humala said on Friday that if Newmont Mining hopes to get going again with its $4.8 billion Minas Conga gold and copper mine project, it will need to show more in the way of plans to comply with objectives on the social, environmental, and labor fronts. Newmont was the subject of not-so-peaceful protests late in 2011 when locals in the Cajamarca region of Peru showed their displeasure with the firm’s plans to construct the most expensive mine ever in that country. Newmont now faces a new set of conditions (among them the creation of some 10,000 local jobs and expanded regional water reservoir capacities) before it can resume work on its suspended project. About $800 million have already been spent on the project up to this point. To be continued…

Well, with the stroke(s) of several members’ pens, the lending capacity of the IMF was virtually doubled this weekend in the wake of official commitments by various nations totaling more than $430 billion. The funds that were pledged by nations ranging from the Czech Republic to Singapore are intended to bolster the institution’s ability to address problems such as global financial instability and economic risks. However, the IMF’s largest shareholder, the USA, has opted to hold off on providing additional funding for the time being.

As for the swaggering BRICS we alluded to in Friday’s piece, it turns out that they flexed a lot less muscle at this meeting than we would have expected them to. Indian Finance Minister Pranab Mukherjee said that “it would be wrong to conclude that BRICS economies have set up conditions for their financial contributions to the IMF, but pointed out that a number of countries were yet to approve the quota reform being demanded by the grouping.” Pretty clear, right?

In any case, the IMF needs to be practicing the art of fundraising as it readies itself for the estimated $1 trillion it will require in coming years to fulfill its mandates. The verbiage of the announcement tried to make it clear that the additional funding has nothing to do with Europe or its current difficulties, and that the funds are being set aside for “all members of the IMF.” Whether or not the money ends up being used by someone other than an EU nation in trouble remains to be seen. There is however, no doubt that $430 billion bought a pretty substantial “firewall” for someone.

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