Gold has weakened moderately in the past two days, with the DOW and S&P recovering some of their earlier losses based on the market perception that the U.S. economy is in firm recovery mode.
Disappointing to the bears no doubt was the subdued retracement in gold prices and the relative strength of gold stocks which appear to want to go higher. The prospects for increased merger and acquisition activity increased earlier this week when Goldcorp made a $2.6 billion takeover offer for Canadian mid-tier gold producer, Osisko Mining, which has gold mining operations in northwestern Quebec.
That probably lent support to other potential takeover candidates given the fact most of them are trading at less than half what they did a few years ago.
Osisko describes the Goldcorp offer as “opportunistic” and it’s hard not to agree with them seeing it was just 15% above the company’s closing price the previous trading day. Osisko’s share price was up 20% to $6.23 on Tuesday and closed 2 cents higher today on expectations of a higher bid.
You have to wonder about the relentless negative sentiment concerning gold from major investment firms like Goldman Sachs whose assumptions on what will drive gold this coming year seem to defy common sense. With the gold price near the all in cost of production for the majority of the world’s gold miners, global output has been dropping while Asian demand has been almost insatiable.
An interesting observation made by one analyst today suggested that a strengthening of the Indian Rupee could well have a positive impact on the gold price this year. In an effort to defend the Rupee, the Indian government has imposed taxes on gold imports which have helped constrain gold demand in the country.
However, some of this drop in demand from traditional sources has been offset by travelers smuggling gold in from the Middle East and other regions. Bullion vaults are being constructed all over Asia and Chinese ETFs are expected to create new regional demand for gold, perhaps offsetting outflows from Western (mostly U.S.) ETFs.
An interesting piece by Bloomberg Industries’ Kenneth Hoffman (click here for video) caught my eye today which is certainly worth viewing. With the gold price very near the all-in cost of production for most miners – and global output declining – these facts alone could well provide an impetus for higher gold prices in 2014. While there is obviously risk remaining in the gold market, the worst of the historic downturn is probably over and a slow grind higher could be underway.