The price of gold received a boost on Friday, when the key US nonfarm payrolls report showed that just 74,000 jobs were added to the US economy in December — considerably fewer than even the most pessimistic forecasts. Gold for immediate delivery ended the week up by 0.5%, at $1,248 per ounce.
Of course, the only practical way for most private investors to invest in gold is through exchange-traded funds. The largest gold ETF, the $32bn SPDR Gold Trust (NYSE: GLD.US), ended last week up 0.45% at $120.60, while London-listed Gold Bullion Securities (LSE: GBS) ended the week up 0.38% at $119.61. Over the last 12 months, shareholders of Gold Bullion Securities have seen the value of their holdings fall by 27.6%, while the value of SPDR Gold Trust shares has fallen by 25.5%.
However, last week’s rising gold price failed to help gold miners, which were hit by news that rating agency Moody’s is going to reduce the assumed gold price it uses when valuing miners’ reserves from $1,200 to $1,100 per ounce. This move may mean that some miners are forced to cut their reserves, some of which may be uneconomic to mine at $1,100 per ounce.
Amongst the worst hit UK miners was Russia-based Petropavlovsk (LSE: POG), whose share price fell by 13% to 67p last week, although it remains up by 12% on one month ago. Although the firm appears to have made good progress in cutting mining costs, Petropavlovsk’s plans to increase the grade of ore being mined could result in a cut to its reserves. Other large firms that were hit by investor fears of a reserve downgrade included Fresnillo, down 12.6% to 679p, and Polymetal International, down 8% to 530p.
Heading the other way, and providing proof that careful small-cap stock picking can deliver rewards against the market trend, was SolGold (LSE: SOLG), which climbed 18% to 9.8p last week. The firm, which is appraising the Alpala prospect within the Cascabel Project in Ecuador, hasn’t provided a market update since 16 December, but is expected to provide an update on its drill hole CSD-13-005 shortly. SolGold is also about to begin an Induced Polarisation survey of the Alpala magnetic complex, to help identify drilling targets for its next drill program, which is scheduled to begin in March.
