Gold cracks US$1,500, silver above US$45

Mid-April was one of those times when gold bugs ask themselves, “why is everyone else so slow to catch on?”

• On April 18, the influential Standard & Poor’s Ratings Services came in with a soft jab at the U.S. dollar by affirming its AAA/A-1+ sovereign credit rating on the U.S. and then landed a hard right hook on the greenback by stating that it had revised its outlook on the long-term rating of the U.S. sovereign to “negative” from “stable.”

On the plus side, S&P noted America’s “high-income, highly diversified and flexible” economy, and the “unique advantages stemming from the dollar’s preeminent place among world currencies.”

However, S&P underlined that, relative to its AAA peers, the U.S. has rising government indebtedness and very large budget deficits that have ballooned to more than 11% of gross domestic product in 2009, and that “the path to addressing these is not clear to us.”

It wrote that, if U.S. policymakers don’t reach a meaningful agreement on how to address these medium- and long-term budgetary challenges by 2013, this would “render the U.S. fiscal profile meaningfully weaker” than that of its peers.

Reading through S&P’s notes, it’s easy to criticize the ratings company for sitting on the fence politically and taking U.S. President Barack Obama at his word that his administration actually has a real plan to tackle the country’s debt problems.

While S&P’s analysis of the U.S. sovereign debt crisis seems rather mild compared to the fire-breathing rants of your average gold bug, the global currency, stock and bond markets all had strong reactions to S&P’s revised outlook. While U.S. markets tumbled for two days before staging a short-term recovery, the U.S. dollar was driven down sharply to 16-month lows, and looked terrible on its technicals.

On April 20, this translated into the spot price for gold trading for the first time ever above US$1,500 per oz., and spot silver flickering briefly above US$45 per oz., which is yet another 31-year high achieved this year. West Texas Intermediate crude oil also rose above US$110 per barrel, providing more evidence of inflationary pressures.

• With a bit of good timing, GFMS released its latest comprehensive annual study of the gold market, which showed that global gold mine production rose 99 tonnes (or 3.18 million oz.), or 3.8%, in 2010, the second year in a row of growth after years of declines and plateaus.

Gold mine production in 2010 was in fact an all-time record 2,689 tonnes (86.45 million oz.) gold, surpassing the previous record of 2,646 tonnes achieved in 2001.

Thanks to new and redeveloped mines, GFMS saw gold mine production grow in all regions, with significant gains in Australia, China, Argentina and the United States, though U.S.-denominated total cash costs soared by an average of 17%, or US$79 per oz.,  to US$557 per oz. last year, with GFMS’s proprietary “all-in costs” rising by 20% to an average of US$857 per oz.

• In some more feel-good news in gold, Osisko Mining celebrated its first gold pour at its large, wholly owned Canadian Malartic open-pit gold mine in Malartic, Que., only six years after drilling its first hole at the then-neglected property.

Since that time, Osisko has drilled 750,000 metres to delineate 10.7 million oz. of gold in reserves, comprising 343.7 million tonnes grading 0.97 gram gold per tonne, and built a $913-million mine that will annually produce 600,000 oz. gold at full steam over a minimum 12.2-year mine life. At a 55,000-tonne-per-day milling rate, operating costs are estimated at US$319 per oz., which would rank the mine in the lowest cost quartile among global gold producers.

Using its “Osisko model” of targeting large, low-grade, overlooked gold deposits in safe political jurisdictions, Osisko has been busy the last few years buying up and partnering with like-minded gold juniors in Eastern Canada. As such, Osisko now looks to be morphing into the next Agnico-Eagle Mines, having been protected from takeover attempts in the past few years by its continually high share price and relatively dedicated shareholder base.