Gold price falls due to stronger dollar and rates speculation

Industry analysts predict further drops in the run-up to next month’s meeting of the Federal Reserve

Half of Gold Output May Not Be ‘Viable’ as Price Sags: Randgold



USD/t oz. 1,056.40 -13.30 -1.24% FEB 16 11:20:11
JPY/g 4,148.00

Gold prices fell yesterday in response to the dollar’s bounce after healthy US economic data raised expectations of an interest rate rise next month.

Prices hovered just above their lowest level in nearly six years, as spot gold fell 0.4 per cent to $1,070.46 an ounce, perilously close to the near-six-year low of $1,064.95 it hit last week.

The latest drop came after it was announced that manufacturing output rose well above economists’ expectations last month. A gauge of business investment plans in America also painted an optimistic picture.

“The orders number is surprisingly positive and that’s what’s weighing on the market,” Rob Haworth, the senior investment strategist for US Bank Wealth Management in Seattle, told Reuters.

Gold has been put under pressure by increasing speculation that the Federal Reserve will raise US rates next month for the first time in nearly a decade. Such a move would increase the cost of holding non-yielding bullion, having a knock-on effect on prices.

But Commerzbank analyst Daniel Briesemann said geo-political issues had played a part and predicted further falls for the precious metal. “The Turkey-Russia tension has only had a limited impact and now gold is back on its downward trend mainly due to the dollar and rate hike expectations,” he said.

“Uncertainty before the next Fed meeting will remain high and prices could head even lower in the next couple of weeks.”

Traders said dealings were relatively quiet ahead of America’s Thanksgiving holiday today.

Gold price resumes downward trend

23 November

With speculation mounting over a possible Federal Reserve interest rate rise over the next few weeks, the gold price has resumed its downward trend after a brief rally at the end of last week.

Having fallen as low as $1,062 an ounce during trading last Wednesday, gold rallied on Thursday and was at one point a few dollars above $1,080. But after a dip back to below this level on Friday, the precious metal dropped again to below $1,070 in Asia overnight, where it remains rooted this morning.

Gold has fallen for 13 consecutive trading days out of 16 in Asia, while for each of the last five weeks in both London and New York it has closed lower than it started. The precious metal’s short-lived recovery last week now appears to be little more than a relief rally in a bear market.

The latest fall follows comments on Saturday from San Francisco Federal Reserve chief John Williams, who the Wall Street Journal reckons is a good barometer of wider monetary policy opinion. Williams says that if nothing happens to derail current economic trends, “there’s a strong case to be made in December to raise rates”.

Rate rises hurt gold and other non-yielding commodities relative to income-generating assets. More importantly, Williams’s statement has boosted the dollar – against which gold is typically held as a hedge – to a seven-month high.

Where is the gold price likely to go from here? OCBC Bank analyst Barnabas Gan has told Reuters that the current price ­– in fact any price around $1,080 – indicates that investors are “sitting on the fence as they await the [Fed] meeting in December”. As a result, he believes the downward trend in the price of gold is likely to persist over the next couple of weeks.

Almost all traders appear to be united in their view that the gold price will fall further if the Fed does decide to raise rates in the forthcoming weeks. Even Jason Hamlin, a self-designated “gold stock bull” who reckons that gold is currently “oversold”, writes on Seeking Alpha, the financial website, that the recent price drop is a sign that the metal “will test $1,000 in the near future”.

Hamlin says that if support for gold holds up in the event that the Fed decides to keep rates as they are – or makes it clear that the rates rise is a “one and done” increase (i.e. a modest rise that will be the last for some time) – then it is not unthinkable that a rally could push gold towards a substantially higher price of $1,200 an ounce.

Rangold Update

The more we continue to produce unprofitable gold, the more pressure we put on the gold price,” said Randgold Resources Ltd. Chief Executive Officer Mark Bristow. “In the medium term, it’s a very bullish outlook for the gold industry. The question is, how long are we going to supply it with unprofitable gold?”

Gold fell to a five-year low on Friday as a rising dollar and speculation that U.S. policy makers will boost interest rates next month curbed the appeal of bullion as a store of value. While industrial metal producers have promised output cuts, “we don’t have that psyche in the gold industry, we just send it off our mine and somebody buys it,” Bristow said in an interview in Toronto.

Gold miners buffeted by the drop in prices are shortening the life of mines by focusing only on the best quality ore, a practice known as high grading, which will restrict future output and support higher prices, according to Bristow. He said in a presentation to bankers in Toronto that the industry life span is down to about five years because companies have been aggressively high grading at the expense of future production.

“The industry has moved away from looking at optimal life of mines because everyone is trying to demonstrate short-term delivery,” he said. “Where is all this value that people promised in the gold industry? It’s not there.”

Traditionally, the industry would address this through “survival consolidation and mergers,” Bristow said.

He said earlier this month that Randgold continues to look for projects to buy, but has been frustrated by companies excessively pricing assets.

London-listed Randgold’s 10-year annualized return of 19 percent is the best performance among major producers tracked by Bloomberg.

Gold futures for February delivery declined 1.2 percent to $1,056.60 at 10:12 a.m. on the Comex in New York. Earlier, the price fell to $1,051.60 an ounce, the lowest since February 2010.



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Hedge Funds Are Back to Bearish on Gold as Price Slump Deepens : Preparing For – $1000



  • Money managers hold first net-short position since August
  • Assets in global bullion ETPs drop to lowest since 2009

Prices are trapped in their worst rout since July as Federal Reserve officials talk up improvements for the U.S. economy and reinforce signs that they’re ready to raise borrowing costs for the first time since 2006. That prospect has sent investors fleeing. Assets in exchange-traded products backed by gold have fallen to the lowest since 2009. Money managers are holding a net-short position in the metal for first time since August as their long wagers shrunk to the smallest in seven years.

The bears are being rewarded after futures last week dropped to a five-year low. The outlook for increasing borrowing costs poses a few hurdles for gold. Because the metal doesn’t pay interest, it loses out to competing assets, such as bonds. At the same time, higher rates usually favor a stronger dollar and cut demand for alternatives, while a strengthening economy means investors are less interested in bullion as a haven. More than $6.5 billion was wiped from the value of gold ETPs since mid-October.

“Gold is dead in the water and is an asset class that should be avoided,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel, Nicolaus & Co., which oversees about $170 billion. “We continue to believe that dollar strength will be an anchor on metals, and in particular on gold.”

Fund Wagers

Futures have dropped 9.1 percent in 2015 to $1,076.30 an ounce on the Comex in New York. Prices fell for five straight weeks, the longest slide since July 24. The net-short position in gold futures and options was 8,989 contracts in the week ended Nov. 17, U.S. Commodity Futures Trading Commission data released three days later show. That compares with a net-bullish position of 21,530 contracts a week earlier. Investors trimmed their long holdings to 92,318, the smallest since December 2008.

Bullion, long considered a haven during times of geopolitical turmoil, failed to sustain brief gains last week following the Nov. 13 terrorist attacks in Paris that left 129 people dead and injured another 352. In addition to being ignored by investors, the metal is suffering from weak physical demand, particularly in India, which vies with China as the world’s top bullion buyer. Valcambi, one of Switzerland’s largest gold refiners, projects annual Indian imports of 850 metric tons. That’s down from the average 875 tons in the past five years.

“Investors have become somewhat inured with terrorism,” Jack Ablin, chief investment officer in Chicago for BMO Private Bank, which oversees $68 billion, said by telephone. “They just see it as an ongoing risk, but a single event is not enough to derail an economy or a market, so investors have chosen to ignore it.”

Gold is heading for a third straight annual loss amid speculation that the Fed will soon start tightening monetary policy.Minutes from the Fed’s October meeting released last week showed officials stressed that “it may well become appropriate” to raise the benchmark lending rate in December. Goldman Sachs Group Inc. analysts led by Jeffrey Currie said they expect bullion to extend losses over the next 12 months, according to a report on Nov. 18.

Paulson Stake

The slump hasn’t deterred billionaire hedge fund manager John Paulson. His firm, Paulson & Co., left its holding in the SPDR Gold Trust, the world’s biggest bullion ETP, unchanged in the third quarter, a government filing showed Nov. 16.

While traders are pricing in a more than two-thirds chance of a rate increase in December, the Fed minutes showed policy makers largely agree that the pace of increases will be gradual. The rate outlook may already be “absorbed by the market for now,” Karvy Commodities Broking said in a report Friday.

“The Fed has made it clear they are likely to hike in December — they’ve also telegraphed that they are going to move very slowly from thereafter, so there’s a little less enthusiasm for the dollar,” said Dan Heckman, national investment consultant in Kansas City, Missouri, at U.S. Bank Wealth Management, which oversees about $126 billion. Still, “we have a very low inflation and a very low-growth environment, and it’s hard to make a case for gold.”


Canadian Agnico -One Gold Miner Winner : Bloomberg

Agnico Eagle Mines Ltd. is emerging as the winner in the race to shield profit from slumping gold prices.

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Since gold began a more than 40 per cent plunge from a 2011 peak, the miner’s gross margins have narrowed by just 1.9 per cent thanks to expansions and a strengthening U.S. dollar. For every dollar of gold Agnico Eagle sold last quarter, 49 US cents was gross profit, little changed from four years ago when gold touched US$1,900. That’s the best performance among 15 major producers tracked by Bloomberg, whose margins compressed by an average 64 per cent.

“We’ve generated net free cash flow this year because of those margins, and it’s not at the expense of squeezing our key development projects or our exploration budgets,” Chief Executive Officer Sean Boyd said in an interview in Toronto. “And we still managed to reduce our net debt by almost US$200 million.”

It hasn’t always been that way. The Toronto-based company struggled to bring five mines on stream between 2008 and 2010, missing production and cost guidance. In 2011, it suspended mining at Goldex in Quebec because of flooding and rock instability.

But in 2012, the company turned a corner. Since then, operational and exploration success coupled with acquisitions have helped turn things around, according to Josh Wolfson, an analyst with Dundee Capital Markets, who has a buy recommendation on the stock and a share price target of $44. In 2014, it joined with Yamana Gold Inc. to buy Osisko Mining Corp., giving it the Canadian Malartic gold mine in Northern Quebec.

Production Surges

The stock has gained 21 per cent this year in Toronto, the most among members of the BI Global Senior Gold Valuation Peers Index, which is down 30 per cent. Partly as a result, it’s the most expensive member at 66 times estimated earnings. Agnico Eagle closed up 5.2 per cent to $35.10 on Wednesday for a market value of $7.6 billion (US$5.7 billion).
“This was not a pretty story a couple of years ago,” Wolfson said by telephone. “They’ve been not only coping with the current environment, they’ve also been improving the business.”

A surge in production has supported margins through the gold downturn. On October 28, the company raised its 2015 gold production guidance to 1.65 million ounces from 1.6 million.

Gold price sinks to fresh five-year low
Investors zero in on costs again as gold miners set to report Q3 results
For many miners, there’s no avoiding the gold ‘production cliff’ now
Currency Supports

It’s also benefited from currency weakness in all three countries in which it operates: Canada, Finland and Mexico. In the third quarter, the Canadian dollar, euro and Mexican peso were eight, four and 23 per cent lower, respectively, than the company’s 2015 assumptions, it said in its third-quarter earnings statement.

The combination of higher production and currency gains lowered third-quarter total cash costs per ounce on a by-product basis to US$536 from US$716 a year earlier. Reduced costs, combined with lower capital expenditure and general and administrative costs, knocked Agnico Eagle’s all-in-sustaining costs down to US$759 from US$1,059, the company said. Weaker currencies were responsible for US$39 an ounce of the latter reduction, the company said in an e-mail.

They’ve been not only coping with the current environment, they’ve also been improving the business
Agnico Eagle also managed to keep its investment grade rating, even through last year’s purchase of Osisko, and benefits from a high average reserve grade, Boyd said. The average reserve grade of its portfolio is 2.4 grams per tonne compared to an industry average of 1.2 grams. In 2014, the company ran a test on their reserve numbers assuming $1,000 gold and found they dropped only six percent, he said.

Portfolio Strength

Potential risks for the company are “quite negligible,” with the only real worry being some sort of black swan event at an existing mine, according to Michael Siperco, an analyst with Macquarie Capital Markets Canada Ltd. He cited the 2011 Goldex shutdown as an example, but added that Agnico Eagle’s portfolio is much stronger now.

“There isn’t one big development project that they’re trying to get done, there isn’t a massive need for new capital,” he said by telephone.

Of the 25 analysts covering the stock, 20 have the equivalent of a buy rating, three recommend holding and two say sell, according to data compiled by Bloomberg.

The company had total net debt of US$1.2 billion at the end of the third quarter, consisting of US$850 million of fixed rate debt and US$350 million drawn on its variable rate revolving line of credit.

Cost Cuts

Given low gold prices, the company’s debt is still a concern, although “they’re in a much better position then their peers,” Wolfson said.

CEO Boyd sees more room to cut costs while still boosting production. The company’s focus now is on containing debt and developing existing assets.

“Five years from now we could be producing 30 per cent more gold,” he said. “We have the projects. The question will be, in this environment, the pace at which we move towards that expanded output level.”

Bloomberg News

Americans: Pay Your Back Taxes—or lose your passport ? click on headline to read more at The Tax Haven Guru

Gold Gets Double Whammy on Weak Inflation, Rising Fed Rate Bets : Bloomberg

  • Gold

    USD/t oz. 1,069.70 -13.90 -1.28% DEC 15 13:42:31
  • U.S. inflation expectations match lowest in data to 1979
  • Fed may raise rates as soon as next month, futures show

Gold investors have more to worry about than the prospect of higher U.S. interest rates.

The metal, traditionally used as a hedge against rising consumer prices, is getting a one-two punch as weak inflation indicators compound the impact of speculation that the Federal Reserve will soon tighten monetary policy. Higher rates curb gold’s appeal because it doesn’t pay interest or give dividends, unlike competing assets.

Americans’ expectations for inflation over the next five-to-ten years matched the lowest in data going back to 1979, according to a University of Michigan report on Friday. While government figures on Tuesday showed prices excluding food and energy picked up in October, the central bank’s preferred gauge hasn’t met the Fed’s 2 percent goal since April 2012.

Demand withers for gold as a store of value

“There is no inflation, and that means gold will remain depressed, and I’m looking for lower gold going into next year,” Miguel Perez-Santalla, the sales and marketing manager at Heraeus Metals in New York, said in a telephone interview. “Nobody feels the need to have gold.”

Policy makers have said a December increase is possible as the labor market improves. Bets on a move in December accelerated this month after government data on Nov. 6 showed a drop in the unemployment rate and a jump in average hourly earnings.

A report from the Labor Department on Tuesday showed the cost of living excluding food and energy rose 0.2 percent for a second straight month in October, matching the median forecast in a Bloomberg survey of economists.

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Mining Shares Lead Stock Losses

  • Cartoon of the Day: Falling Stocks - falling bull cartoon 10.13.2014
  • Copper, zinc, coal all tumble on deepening China concern
  • Credit Suisse lowers target prices for diversified miners

Mining shares including Glencore Plc led a slump in European equities as metals prices tumbled on fears that an economic slowdown in China, the world’s biggest consumer of raw materials, is deepening.

Glencore fell as much as 10 percent to a record 107 pence in London trading. Anglo American Plc, Antofagasta Plc and ArcelorMittal dropped more than 6 percent, dragging the regional benchmark Stoxx Europe 600 Index lower. KAZ Minerals Plc plunged almost 18 percent, the most since January, to a record low.

“Until China demand and emerging-market currencies find a floor, it will remain challenging to put an absolute floor on commodity prices,” Credit Suisse Group AG analysts led by Liam Fitzpatrick wrote in a note Tuesday.

The bank cut its price estimates for large diversified miners including Glencore and BHP Billiton Ltd., which said on Tuesday it’s planning to sell hybrid securities to help refinance near-term liabilities. Stainless steel producer Outokumpu Oyj sank as much as 16 percent after saying third-quarter delivery volumes may be 10 percent lower than the previous quarter.

Growth Cut

The Asian Development Bank reduced its growth forecasts for China and said the country’s declining appetite for energy, metals and other raw materials would hurt commodity-focused export economies like Mongolia and Indonesia. China is set to grow at its slowest pace in a quarter century this year even after five central bank interest-rate cuts and fiscal stimulus.

Copper declined 2.5 percent to $5,139 a metric ton. Zinc sank as much as 1.8 percent to $1,628 a ton, the lowest in five years. European coal for 2016 dropped below $50 a ton for the first time.

Glencore, which sells all three commodities, was down 8.7 percent at 108.60 pence by 11:02 a.m. in London trading, after earlier touching the lowest since it began trading in May 2011.

“Glencore is a bet on copper, and weakness in metal prices is sending tremors through Glencore’s shareholders,” said Richard Knights, a mining analyst at Liberum Capital in London.

Gold Miners : Burkina Faso Update


IAMGOLD* (IMG : TSX : $2.25), Net Change: 0.10, % Change: 4.65%, Volume: 2,077,314

Endeavour Mining* (EDV : TSX : $0.62), Net Change: 0.01, % Change: 1.64%, Volume: 1,560,390

Franco-Nevada* (FNV : TSX : $57.45), Net Change: 0.94, % Change: 1.66%, Volume: 692,493

Sandstorm Gold* (SSL : TSX : $3.80), Net Change: 0.25, % Change: 7.04%, Volume: 142,864

True Gold Mining* (TGM : TSX-V : $0.16), Net Change: -0.02, % Change: -11.43%, Volume: 2,440,473

Roxgold* (ROG : TSX-V : $0.63), Net Change: -0.02, % Change: -3.08%, Volume: 273,497

Orezone Gold* (ORE : TSX : $0.26), Net Change: -0.01, % Change: -3.77%, Volume: 41,855


Media sources are reporting that a military junta has taken power in Burkina Faso following the arrest of interim President and Prime Minister. The transitional government has also been disbanded, only four weeks before elections (planned for October 11). The military guard that is leading the coup is the RSP (Régiment de sécurité présidentielle), loyal to the ousted leader Compaore who has fled to Ivory Coast almost a year ago.

Demands from the RSP have not yet been tabled. While there have been no reported impacts to mining operations, companies with exposure to Burkina Faso are likely to face headwinds in the near term. Among producing companies  IAMGOLD and Endeavour Mining have the largest exposure to Burkina Faso at 45% and 32% of NAV, respectively.

The Canaccord Genuity Metals & Mining Team notes that for IAMGOLD, approximately 45% of NAV and 43% of YTD gold production is sourced from Burkina Faso and is its lowest cost owner-operated asset. Endeavour Mining is less exposed at 32% of NAV; however, only 13% of 2015’s estimated gold production is sourced from the country. In the Team’s opinion, Hounde is already heavily discounted by the market and a positive construction decision is unlikely in the current market environment. The bigger impact would be Youga which is in production but only 1% of NAV.

Endeavour has a solid operating base in Mali, Ghana, and Ivory Coast, and we believe that the coup should have minimal impact to the company in the near term. Streaming companies Franco-Nevada and Sandstorm Gold both have streams on True Gold’s Karma project in Burkina Faso; however, company-wide exposure for the streamers remains small. For Franco-Nevada, Karma represents 1.7% of NAV.

In Sandstorm’s valuation, Karma represents approximately 6% of NAV; however, this would decline to 4% if you net out the money that still needs to be paid to True Gold. If anything, this perfectly showcases what royalty/streaming companies are all about – a defense against government coups and instability and the general risk. Development companies Roxgold and Orezone have 100% exposure and may see development delays depending on how the coup impacts logistics and workers in the country (via general strikes, for instance).

Gold miners on ‘knife edge’ : “Gold is on the ropes”

Gold miners on ‘knife edge’ as slump wipes out $19-billion

Gold’s slump to a five-year low this month is squeezing the world’s biggest producers of the precious metal, already struggling to rein in costs and pay down debt.

A rout in bullion has sapped investor confidence in gold miners, sending the benchmark 30-member Philadelphia Stock Exchange Gold and Silver Index of the largest producers to its lowest since 2001. A five-day losing streak through Monday wiped $19-billion off the index, which includes Barrick Gold Corp. and Newmont Mining Corp.

Reuters Jul. 22 2015, 6:27 AM EDT

 India goes cold on gold

The metal’s plunge is eroding profits at mines across the globe and stressing balance sheets in an industry where the biggest producers are weighed down by a record debt load of $31.5-billion. Gold futures in New York are heading for their longest losing streak since 1996 amid increasing speculation U.S. interest rates will climb this year, weakening the appeal of bullion.

“The whole industry is on a bit of a knife-edge,” said James Sutton, a portfolio manager at JPMorgan Chase & Co.’s $2-billion Natural Resources Fund who is underweight gold stocks. “They are making very, very small margins. Really everybody in the industry needs higher prices. You’re going to see some companies run into trouble.”

The industry, on average, needs about $1,200 an ounce to break even when all costs are considered, according to Sutton. Bullion for immediate delivery declined to $1,086.18 an ounce on Monday, the lowest since March 2010. It fell 0.9 per cent to $1,091.20 an ounce at 2:56 p.m. in London.

Wood Mackenzie Ltd. said Wednesday that about 10 per cent of gold miners would be loss-making with bullion at $1,100 an ounce.

Investors Souring

Investors have soured on gold miners as they battled to contain ballooning costs and the outlook for prices dimmed. Some producers have been obliged to enact bailout plans. Petropavlovsk Plc, a Russian miner once valued at more than $3-billion, was forced to tap shareholders for emergency funds earlier this year after its stock slid 99 per cent in five years.

“There’s a lot of pain to be taken in this sector,” Clive Burstow, who helps manage $44-billion at Baring Asset Management in London, said by phone. “Everyone has had to rationalize balance sheets, you’ve seen management turnover, you’ve seen dividends being either pared back or cut.”

Companies like Randgold Resources Ltd., a producer in West Africa, and Vancouver-based Goldcorp Inc. are best-positioned to weather the price slump, Burstow said.

Randgold, which built its business making its own discoveries in Mali, Senegal and Ivory Coast, has a war chest of at least $500-million to buy assets from distressed rivals.

“Another $50 off the gold price and this industry is toast,” Randgold Chief Executive Officer Mark Bristow said July 15, when bullion traded at about $1,150 an ounce.

1986 Low

The Philadelphia Stock Exchange Gold and Silver Index posted its biggest one-day fall in seven years on Monday, with Toronto-based Barrick declining to the lowest since 1986. The benchmark has tumbled 29 per cent in 2015, led by North American miners, with IAMGold Corp. down 51 per cent, Yamana Gold Inc. 48 per cent and Kinross Gold Corp. 41 per cent.

“This is a correction that has to take its course,” Markus Bachmann, CEO of resources-focused investor Craton Capital, said in a phone interview from Johannesburg. “Corrections do not stop halfway. Fundamentals do not matter. A lot of it is sentiment driven.”

Prices could fall below $1,000 an ounce for the first time since 2009, Jeffrey Currie, Goldman Sachs Group Inc.’s New York– based head of commodities research, told Bloomberg in an interview Tuesday.

“Gold is on the ropes,” Ross Norman, CEO of dealer Sharps Pixley, said in an interview with Bloomberg Television. “I suspect we’ll have another bear raid before long. I don’t think the bears have finished their game, they’ll keep punching it until it stops moving.

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