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Gold Review: Fed’s Firm Position On Taper Triggers Gold Sales, Centamin PLC Reports Production Up 34%

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Gold pulled back sharply from recent highs last week, after Janet Yellen, the new Chair of the US Federal Reserve, said that the Fed’s bond-buying stimulus option could end as soon as this year, and that interest rates might start to rise as little as six months later. Gold ended the week down by 3.5% at $1,334 per ounce, ending recent hopes that a new bull market for gold might be developing.

US government figures for the week to 18 March show that bullish sentiment amongst futures investors hit its highest level since November 2012, but last week’s decision by the Fed to continue tapering its stimulus operations and cut monthly bond purchases by $10bn to $55bn caused investors to scale back their holdings in gold stocks.

Selling pressure pushed down the share prices of gold funds such as the $35bn SPDR Gold Trust (NYSE: GLD.US) ETF, which ended last week down by 3.2% at $128.47. A London-listed alternative, Gold Bullion Securities (LSE: GBS), ended the week down 3.5% at $128.19. So far this year, shareholders of Gold Bullion Securities have seen the value of their holdings rise by 11.3%, while the value of SPDR Gold Trust shares has risen by 8.4%.

Meanwhile, gold analysts at both Goldman Sachs and Societe Generale reiterated their view that gold may yet fall below $1,000 per ounce this year.

Gold mining update

The majority of gold mining shares drifted lower last week, reflecting the fall in the price of gold. Firms including Randgold Resources, Petropavlovsk and African Barrick Gold all tracked the gold price lower.

However, shares in Centamin (LSE: CEY) rose by 3.3% in early trading this morning, following the publication of the firm’s results. The Egyptian gold miner reported a 36% increase in gold production in 2013 and earnings per share of $0.17, placing it on a P/E rating of just 5.5. In today’s announcement, Centamin’s chairman, Josef El-Raghy, promised that the company would “make clear its intentions with regard to a policy for returning capital to its shareholders” in 2014 and re-iterated his confidence that the legal challenge to the firm’s mining licence would be overturned. 

Centamin's share price is 387% higher than it was ten years ago, but early investors who cashed out when the stock hit an all-time high of 190p in 2010 would have enjoyed a massive 1,643% gain in just six years. The Motley Fool's "Millionaire Report" is a ten-step guide aimed at helping you identify stocks that can deliver portfolio-transforming gains such as this, without taking excessive risks.

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Roland does not own shares in any of the companies mentioned in this article.