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Gold gets a boost from the loonie

There hasn’t been a lot of good economic news for the Yukon lately, but 2016’s resurgent gold market — boosted further by the weaker Canadian dollar — is a bright spot for us.

There hasn’t been a lot of good economic news for the Yukon lately, but 2016’s resurgent gold market — boosted further by the weaker Canadian dollar — is a bright spot for us.

Newscasters usually report the price of gold in US dollars. They’ll tell you that gold has fallen sharply from its 2011 peak of over US$1,900 per ounce. A year ago, it was under US$1,200.

However, the Financial Times reports that gold and silver have been among the top performing commodities in 2016. As this column was written, the Yukon’s favourite metal was trading at US$1,340. Global market worries over Brexit, negative interest rates and general economic uncertainty have investors moving into gold.

The news for gold producers is even better in Canadian dollar terms. At gold’s peak in 2011, the loonie was around par with the greenback. While a strong loonie was good for your trips to Skagway, it didn’t do Yukon gold miners any favours. Gold trading at US$1,900 translated into a price of C$1,900 for Yukon miners.

Today, however, the loonie has fallen to 77 U.S. cents. That means that gold is now trading around C$1,730. While this is still down from the 2011 peak, it is quite high by historical standards. Fifteen years ago, prices were below a quarter of that level.

Retail investors have also been piling into gold. The Royal Mint in Britain reported that sales of gold coins and bars were up 50 per cent during the first week of August, in the aftermath of the Bank of England’s announcement that it was cutting interest rates further in response to post-Brexit economic conditions.

New internet start-ups such as Bitgold have made owning gold easier and cheaper than ever before. As part of a family experiment last year, I even started paying my son for his yard work in slivers of virtual gold. The 2.75 grams of gold he earned planting my new Haskap berry plants last summer went up from $130 when I paid him to $147 before he cashed out of the gold market in April.

Of course, gold might have gone down too. Then his Haskap planting would have turned into a more traditional cash-free character-building exercise.

For miners, there is also good news on the diesel front. Lower oil prices might be slamming Fort MacMurray and the Alberta economy, but they make filling up your D9 Cat a lot cheaper for Yukon miners.

Placer miners are famously cagy about their gold sales. But if you’ve run into any placer miners over the summer and thought they had an extra spring in their step, you were probably right.

Gold prices also explain some of the good-news announcements we’ve seen from prominent Yukon gold companies this year.

Kaminak, which owns the promising Coffee project upriver from Dawson City, drew the attention of Goldcorp, one of the world’s leading gold companies. Goldcorp closed its purchase of the company for approximately $520 million in July.

Victoria Gold, which owns the Eagle gold project near Mayo, raised $24 million from a private placement in May for development expenditures at Eagle, among other things. Earlier this month, they announced another investment deal, this time for $25 million. While Victoria has not yet raised the approximately $400 million their earlier announcements suggested were required for the project, recent news has caused their share price to go from a 52-week low of 12 cents to 68 cents earlier this week.

Last February, Victoria Gold also noted the benefits of the loonie on gold mining economics in a company press release: “Despite some softening of the gold price (since their Feasibility Study in 2012) the project economics are posted to meaningfully improve due to a significant devaluation of the Canadian dollar.”

Silver has also enjoyed a rebound in recent months. BMO’s commodity report says the metal averaged US$14.93 per ounce last August. This month, it is trading just under US $20 per ounce.

Alexco, which hopes to re-start its operations in the Keno Hill Silver District, points out to potential investors that it is “highly leveraged to a rising metals market.” Translated from corporatese, that means the company thinks it will benefit disproportionately if silver goes up further.

Even if it is not a return to the boom years of a decade ago, rising precious metal prices are solid good news for Yukon gold and silver mines as well as Yukon workers and companies that do business with the mines.

Unfortunately, the same global uncertainty that has been driving gold prices up means that we really have no idea how long this part of the commodity cycle will last.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He won last year’s Ma Murray award for best columnist.