Editorial: Gold hops back into the saddle

Gold prices are showing renewed vigour as March begins, with spot prices rising to four-month highs above US$1,340 per oz. at press time, building on the Valentine’s Day crossing of the US$1,300 threshold.

It’s hard to find many mainstream gold commentators calling for gold to really take off this year, but the feeling so far is that gold prices bottomed at the end of 2013 in the US$1,200 range, and are on the mend and within hailing distance of the US$1,400 spot prices enjoyed by the gold-mining industry as recently as August. (Doesn’t the US$1,600 per oz. gold price of just a year ago seem like a distant memory now?)

Gold is already up 12% this year, with U.S. economic growth sputtering along as consumer confidence declines and U.S. home prices recover at a slow rate.

In February alone, gold prices shot up for more than an 8% gain — the largest monthly gain in two years, and the first two consecutive months of advancement since August.

Gold is also getting a boost from the geopolitical crisis in the Ukraine, where President Viktor Yanukovych was ousted following deadly protests in the streets of Kiev. At the moment there is a power vacuum, and the country’s finance ministry said the economy needs US$35 billion in foreign aid over the next two years, with the first tranche needed before mid-March. All of a sudden it looks like the Ukraine could default on its sovereign debt payments, which could trigger further economic dislocations in Eastern Europe.

Another bullish indicator for gold is that all this is happening as the S&P 500 reaches all-time highs and the U.S. Federal Reserve, under the direction of its new chair Janet Yellen, proceeds with its “measured” tapering of the central bank’s bond-buying program, having reduced it by US$10 billion starting in January to a monthly US$65 billion.

Silver has been swept along by the same macroeconomic and political winds, with prices similarly touching four-month highs in the last week of February, in tandem with gold.

So thankfully it looks like we’re already putting some distance between us and gold’s annus horribilis in 2013, which saw gold prices plummet 28%, in gold’s worst performing year since 1981.

• Ontario’s Sudbury nickel camp has been awfully quiet the last few years compared to the wild days of the Vale and Xstrata takeovers of Inco and Falconbridge, and sky-high nickel prices.

And so it was extra special to celebrate Vale’s first new nickel mine in the Sudbury camp in 40 years, with the official opening on Feb. 21 of its Totten nickel–copper–precious metals mine in Worthington, 40 km west of Copper Cliff.

Taking in the festivities were Ontario Premier Kathleen Wynne, Minister of Northern Development & Mines Michael Gravelle, members of the Sagamok Anishnawbek First Nation and other community leaders.

Peter Poppinga, president and CEO of Vale Canada and Vale’s executive director of base metals and information technology, said in a release that “Vale is committed to its future in Canada and across base metals, and we are pleased to be able to celebrate this historic milestone for our company and the Greater Sudbury community.”

The state-of-the-art Totten mine took seven years and US$700 million to build, with 500 people employed at the site during peak construction and 200 people to be employed during commercial operation, which is set at a minimum 20 years. It was slated to open in 2011, but Vale slowed development in reaction to the global economic downturn and depressed nickel prices.

Development ore had been pulled from Totten over the past few years, but now the mine is slated to produce near its nominal production capacity of 2,200 tonnes per day, producing 8,200 tonnes nickel per year. The mine’s gold production is subject to the deal Vale struck with Silver Wheaton a year ago, whereby the streaming company will buy 70% of Vale’s gold production from certain Sudbury assets over 20 years.

Vale signed an impact-benefits agreement with the Sagamok Anishnawbek at Totten in 2012, and the First Nation’s Chief Paul Eshkakogan said his group “looks forward to continuing to participate in the Totten mine project, including through employment, mine-service delivery and environmental stewardship.”