Editorial: Gold a ray of hope in a weary market

The Vancouver Resource Investment Conference in mid-January is usually a great way to gauge the mood of the Canadian junior mining scene in the year ahead, and this year was no different.

The number of exhibitors and floor space had contracted noticeably, and there were plenty of anecdotal stories of layoffs and great management tension within the ranks of the juniors. Many feel that mining is in the fourth year of downturn, and people and companies are simply getting ground down and worn out from all the stress.

Exhibitors and attendees were still reeling from the sudden and deep decline of most metal and mineral prices in the past few months, and were mulling over the costs and benefits of the even more spectacular fall in oil prices and the Canadian dollar. Almost nobody mentioned the dreaded words “iron ore,” “thermal coal” or “met coal,” which all look to be lost causes for juniors for years ahead, as prices stay at rock-bottom.

But the Vancouver scene is, if anything, best defined by its perennial optimism even during the deepest downturns, and this year’s optimism centred on gold and silver’s sunny prospects.

Indeed, at press time gold prices have risen above US$1,300 per oz. for the first time in five months, and over the past 12 months, gold prices are up in all major currencies. In U.S. dollars — despite the greenback’s great strength in recent months — spot gold prices are up US$117 per oz. in the last 30 days and US$53 an oz. in the past year.

Silver is predictably tracking gold prices, and trades at a respectable US$18 per oz., up US$2.43, or 15.5%, just in the last 30 days, but still down US$1.76, or 9%, from a year ago. Most encouragingly, silver prices have bobbed up nicely above the US$17 per oz. mark that is widely seen as the level where half the world’s silver miners are making money and half are losing money.

There have been plenty of monetary and macro-economic developments for gold bugs and other aficionados to mull over in recent weeks.

Perhaps the most exciting development of late is that gold prices are up strongly in euro terms, breaking through key resistance levels to hit €1,126.59 an ounce, its highest level since May 2013, and up 15% since the start of the year.

Gold prices denominated in euros have been on the upswing since November, when European Central Bank president, Mario Draghi, first signalled that the bank might ramp up its quantitative easing strategy — a classic fiat-currency debasement that should benefit gold prices in the debased currency.

Equally as fascinating was the shock decision by the Swiss National Bank (SNB) to abandon its cap on the Swiss franc’s value against the euro on Jan. 15, which roiled currency markets around the world, as the euro dropped 30% against the franc, ending more than three years of calm in Swiss foreign-exchange markets.

The move was an about-face for the SNB, which — to help Swiss exports to the rest of Europe — had intervened in the markets since September 2011 to prevent the franc from climbing too high, buying billions of euros to stop it from dropping below 1.20 francs. This latest move is seen as an attempt to get out ahead of a coming major round of quantitative easing by the European Central Bank, expected to be announced before the end of January.

In the hours after the shock announcement by the SNB, the euro plunged as low as 0.85 franc, and the Swiss stock market dropped more than 10%, with the franc settling at the end of the day around 1.05 to the euro, and now trading around parity.

Gold investors were pleased to see that gold’s safe-haven role came through in a big way on this day of financial turmoil in the currency and equity markets. Right before the SNB announcement, gold traded at US$1,235 and silver was US$17. Now gold prices are 5% higher and silver prices are 6% higher.

It’s more than enough to put a smile on the most downtrodden of mining promoters in Vancouver and their weary staff and shareholders.