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Gold has traded between $1,451 and $1,475 so far today…as of 7:40 am Pacific, bullion is up $12 an ounce at $1,470…Silver is 29 cents higher at $23.94…Copper is up a nickel to $3.12…Crude Oil is 77 cents higher at $91.80 while the U.S. Dollar Index has gained more than half a point to 82.18…

Gold showed strong support between $1,440 and $1,450 yesterday, recovering from intra-day losses of more than $30 an ounce to close above $1,450…SPDR Gold Trust, the world’s largest Gold-backed exchange-traded fund, said its holdings fell 0.31% to 1,075.23 tonnes yesterday, the lowest since September, 2009…reports are that physical market activity seems to have slowed after a recent surge in the purchase of Gold bars, coins and nuggets across Asia sent premiums for Gold bars to multi-year highs…the Chinese market opened up again overnight, after a three-day holiday in that country, but there was little evidence of Gold buying despite slightly lower prices today than at the end of last week…for now, Gold is range-bound between $1,440 and the Fibonacci $1,484 level – investors should be closely watching for a move above or below those support and resistance areas this month…the median of 38 estimates compiled by Bloomberg has Gold finishing the year at $1,550 an ounce, 7.5% less than at the end of last year and the biggest drop since 1997…diminishing trust in the metal’s ability to preserve value has spurred a majority of analysts to predict the first annual retreat since 2000…

Updated Gold Chart

As mentioned above, Gold faces stiff resistance at the Fib. 61.8% level ($1,484) which it must overcome in order to gather the bullish energy required to lift it into the next major resistance zone which is between $1,500 and $1,550…below is an updated 6-month daily chart from John…RSI(14) is currently flat at 43% while the 50-day moving average (SMA) has fallen to $1,542…

New Gold Inc. (NGD, TSX) Reports First Quarter Results

New Gold Inc. (NGD, TSX) continues to show why it’s one of the best-run producers in the market as the company is keeping costs under control while increasing production…NGD reported Q1 net earnings of 8 cents per share yesterday vs. 7 cents per share in the same period last year…revenue increased from $168.8 million to $202 million…Randall Oliphant, Executive Chairman, stated, “Consistent with our plans, the operations are expected to have progressively stronger quarters as we move through 2013″…New Gold also reported a 300% increase in measured and indicated Gold and Copper resources at New Afton and a 30% increase in inferred resources there…the company also stated it will be providing additional updates on the results of its 2013 regional exploration program on the multiple previously identified targets across its 1,000-square-kilometre Blackwater land package…the stock is down, however, in early trading today as the TSX Gold Index is lower despite the higher Gold price…

ECB Cuts Main Interest Rate

The European Central Bank cut its main interest rate to a new low today in an attempt to drag the euro zone out of the longest recession in its history…as was widely expected, the ECB’s governing council voted to cut the main refinancing rate by a quarter of a percentage point to 0.50%…the rate, which determines the cost of more than 850 billion euros in ECB loans outstanding, had stood at 0.75% for the last 10 months…since July, the ECB had concentrated more on “non-standard” measures of monetary policy to support the economy, most of all through the creation of its new program for buying government bonds, known as Outright Monetary Transactions (OMT) which has helped with borrowing costs for the governments of countries such as Spain and Italy…their borrowing costs are now close to 30-month lows, but this improvement has failed to feed through to the real economy…

Fed Signals It Could Ramp Up Bond Buying

As we speculated Monday, it’s very possible we could see the Fed intensify its current QE program before it begins to scale it back due to stubbornly high unemployment in the U.S. and weaker than expected inflation…in a new line added to its regular statement, the rate-setting FMOC said it could move the rate of asset purchases up as well as down depending on what happens to prices and jobs…the committee had previously hinted that it might reduce its monthly purchases…clearly, they are concerned about a slowdown in the economy and job growth while deflation is a bigger threat than inflation at the moment…

CDNX-U.S. Dollar Index Comparative Chart

Below is a 5-year weekly Venture chart that includes a comparison with the U.S. Dollar Index…the two have a high inverse relationship…the strengthening of the dollar in February, which we showed in a chart yesterday, was a bad sign for the Venture and indeed it broke important support that month below 1154 and tumbled an additional 200+ points into April…what this chart shows is that the dollar (despite today’s jump) is now in a bearish trend, while the CDNX relative to the dollar is gaining strength – a positive sign for the Venture…note the very strong down trendline resistance for the Venture – once it’s able to break above that down trendline, a major new bullish phase will be underway…of course timing of that is uncertain…

Today’s Markets

Japan’s Nikkei average fell 105 points overnight to close at 13694…trading resumed in China and the Shanghai Composite slipped 4 points to 2174…European shares are mixed following the ECB rate cut and a Mario Draghi news conference during which he stated the ECB was ready to act if needed but didn’t announce any further stimulus or asset purchases…the Dow is up 70 points through the first 70 minutes of trading while the TSX is down 1 point…the Venture is flat at 962…Colorado Resources (CXO, TSX-V) has held the support John showed yesterday and is currently up a dime at 79 cents…keep in mind that Colorado is also currently drilling the Eldorado Property, which it can earn a 75% interest in…that property is also adjacent to Victory Ventures‘ (VVN, TSX-V) Copau Property which will be drilled in the coming weeks…Victory’s market cap is just over $1 million which makes it a very tantalizing speculation given events in northern British Columbia…VVN is up a penny at 6.5 cents…

Individual Charts – Energold Drilling Corp. (EGD, TSX-V); Tinka Resources (TK, TSX-V); Amarc Resources (AHR, TSX-V)

Three quality situations that are worthy to follow closely are Energold Drilling (EGD, TSX-V), Tinka Resources (TK, TSX-V) and Amarc Resources (AHR, TSX-V)…each has positives, in terms of fundamentals, but Energold and Amarc have seen their share prices drop steadily since early 2012 while Tinka just recently slipped after hitting an all-time high in February…those prices could still drop a little more, of course, but these companies will certainly survive the current storm and flourish again later…as always, perform your own due diligence…

Energold Drilling (EGD, TSX-V)

Tinka Resources (TK, TSX-V)

Amarc Resources (AHR, TSX-V)

Note: John, Jon and Terry do not hold positions in EGD, TK or AHR.  Jon holds share positions in CXO and VVN.

“Gold Company Costs Could Hit $2,000 Within 10 Years”

Excellent article at www.mineweb.com this morning by Geoff Candy:

For the past five years or so, gold company costs have been rising at around 17% per year. And, while they have moderated somewhat of late and could go lower in the short term, the long term trend is definitely up.

This is according to Earth Resource Group, investment advisor, Georges Lequime, who told Mineweb’s Gold Weekly podcast that much of this increase has been driven by falling grades, with the average across the industry now below 1 gram per tonne.

Lequime explained that the fund has been tracking cost numbers since 2008, “We take the top 13 producers and we add in the project capital (because there’s always a fine line between sustaining capital and project capital because a number of these projects really are replacing current production) and we have the number at just over $1400 an ounce currently.”

But, he said, “We are starting to see from the big four, a slight increase in the grades. So there’s a certain degree of higher grading taking place by a couple of the larger companies which is giving some relief to that total cash cost number.”

He added that he has been told by the companies concerned that there has also been some easing on the labour cost inflation front, which has been running out of control over the past four or five years. And, there has also been a pull back recently in fuel prices and some companies delaying projects because of cost.

There is also, he says, “a connection between the gold price and the costs and its quite clear that as the gold price goes higher, there’s a reluctance from miners to leave ore underground that you can still make some money on on the margin, but obviously it’s much lower grade, you will go and take it through to the mill which is obviously going to push up your average costs, although you’re making some money on it. You’re just keeping a very thin margin.”

As a result of this and the other factors mentioned, he says, if current cost trends continue, the industry could well see $2,000/oz within 10 years.

The flip side of this, he says, is that the group is becoming increasingly bullish on the medium, to long term outlook for bullion prices.

Not only are projects being delayed, he says, but exploration spend has been cut 35% across the industry from this year to last, which makes the chances of finding big, new deposits even smaller.

This means, he says, “We’re probably going to get a fall in global production quicker than what we had anticipated, and that should put some pressure on the gold price.”

In terms of performance, however, he says, while gold companies have, in the main, disappointed investors, many are beginning to get the message, “they’re saying, we have to give something back to our shareholders otherwise we’re not going to be able to fund these new projects, we’re not going to be able to fund our exploration. I’m not hugely optimistic that we’re going to get a significant expansion in margins, but I don’t think we’re going to go through as poor a period as we have in the past 10 years,” he says.

Asked, what he is looking at in order to find value in the sector, Lequime said, management is more important than ever in the current market.

“One has to have a look at is who’s got the best ability to actually add value over the next two or three years, what does the exploration upside look like, who is going to control their costs the best and who’s actually going to deliver against the plan that they’ve promised.”

The companies that can do that, he says, are going to stand out from the crows and do well, “Unfortunately there are probably fewer of those companies around than I’ve seen in the last 20 years of looking at this market.”