GOLD PRICE NEWS - The gold price opened modestly lower and extended its decline Tuesday as funds flowed out of investments tied to the gold price. The spot gold price was down $20.41 to $1,190.93 per ounce, off by 1.7%, in afternoon trading. Since the end of June, the price of gold has fallen over $70 after hitting the all-time high of $1,265 last month. Despite its tumble in the last three sessions, the gold price is still 8.8% higher than its 2009 close.
There was no bounce in the gold price today, even on the back of comments from Noble Prize-winning economist Paul Krugman, who told Bloomberg TV that the U.S. should implement a kitchen sink strategy to combat the ongoing challenging economic environment. In the interview, Professor Krugman stated that ’We are looking at what could be a very long siege here…The most effective things you can do, in terms of actual bang for the buck, is actually having the federal government go out and hire people. We are deep in the hole here, and you need to be unconventional to get out of it.”
These suggestions are the latest in a never-ending series of Keynesian economic policies espoused by Krugman. What the professor fails to address, however, is where the money is going to come from. As David Rosenberg, chief economist at Gluskin Sheff recently wrote, “The U.S. is now 234 years old and yet over half the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.” This unprecedented level of monetary stimulus has already propelled the gold price to new all-time highs, but has done little to create a sustainable economic recovery. It is therefore quite unclear how Krugman’s suggestions are going to result in a different outcome moving forward.
Gold mining companies followed the gold price lower, leading to the PHLX Gold & Silver Index (XAU) to fall into negative territory for 2010. Despite the weakness in the XAU in recent months, it has managed to rise 24.8% over the past 52 weeks - although many small- and mid-cap gold companies have displayed significantly more leverage to the gold price. An example of one such company is Premier Gold Mines (PG.TSX), whose shares have gained 79% in the last year.
Earlier today, Premier Gold Mines reported drill results from its recently discovered PG70 Zone of the Rahill-Bonanza project of which Premier holds a 49% interest through a joint venture (JV) with an affiliate of Goldcorp (GG). Highlights of the tests included an intercept of 124.3 g/t gold (3.63 ounces/ton) across 1.5 meters (4.9 feet). The JV drill program is testing for extensions of the PG70 Zone up-dip from previous wide-spaced drill holes. Drill holes have now intersected mineralization in the PG70 Zone area over an area approximately 450 meters by 200 meters and the horizon remains open in all directions.
“Every drill-hole testing this new structural zone has returned significant gold mineralization that represents a very robust target for hosting high-grade gold, particularly where it intersects cross structures.” said Tim Twomey, Exploration Manager of Premier Gold. Premier is adding a second drill to the property targeting fault structures associated with the main gold zones at the adjoining Cochenour Mine complex.
