Prices for gold hit five-year low; will it jeopardize mining operations?
Prices for the precious metal hit a five year low on Monday, dropping all the way to $1,080.00 an ounce -- its low...
Gold has definitely seen better days.
Prices for the precious metal hit a five year low on Monday, dropping all the way to $1,080.00 an ounce -- its lowest levels since February 2010 --- before coming back to trade above $1,100, according to the Wall Street Journal. Heavy selling in early Asian trading hours saw over a billion dollars’ worth of gold on the market in just a few minutes.
"It's shaping up to be a rough session for gold bugs," says Alex Eppstein at Schaeffer's Investment Research.
Gold’s decline can be attributed to various sources including the Federal Reserve hiking interest rates, which is expected to happen later this year, and China buying less gold.
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“Most important dynamics that have contributed to the drop in gold prices are a stronger U.S. dollar, improving investor sentiment in financial markets, and expectations that the U.S. Federal Reserve will start hiking interest rates this year,” said Georgette Boele, coordinator of foreign exchange and precious metals strategy at ABN Amro.
According to analysts, the continued strength of the U.S. dollar is also making gold less valuable.
"A combination of factors that include low inflation, modest wage growth, low interest rates and a strong dollar don't favor gold at this time," John Stoltzfus, chief investment strategist at Oppenheimer.
According to Stoltzfus, gold's recent underperformance has occurred both when optimism for growth was high and low.
"In 2013 the precious metal fell just over 28 percent as the S&P 500 advanced 29.6 percent as the U.S. economy entered the current economic expansion and the dollar moved higher," Stoltzfus noted in a research report. "In 2014 gold fell 1.72 percent on increased geopolitical risk and growth concerns as the S&P 500 advanced 11.4 percent. Year to date gold is off 4.3 percent while the S&P 500 is up 3.3 percent."
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Gold’s plummet to the bottom also hurt gold mining stocks. Stocks for Barrick Gold, the world’s largest gold producers, fell five percent to its lowest since 1990. London-based Lonmin PLC was down 5.7 percent, while Randgold Resources was 3.4 percent lower. Shares for JSX-listed AngloGold Ashanti Ltd were down seven percent.
Canadian miners were rocked as well as Yamana Gold saw a 2.7 percent drop in shares, while Toronto’s Kinross Gold was hit with a 5.7 percent fall. Eldorado Gold saw the biggest fall, dropping 8.8 percent.
“In our view, today’s price action doesn’t seem to be driven by fundamentals. The nature, size and timing of the heavy selling suggests a market participant was taking advantage of low liquidity or some sort of forced selling had taken place,” said Victor Thianpiriya, commodity strategist, in an ANZ report.
If prices for gold fall below $1,100 for an extended period of time, many analysts believe miners would have to consider cutting back on production or investment plans.
Newmont acquires Canada’s GT Gold in $325mn deal
Newmont, the world’s biggest gold miner, has acquired Canada’s GT Gold in a deal worth $325mn. The gold giant now controls the Tatogga gold-copper project in the Traditional Territory of the Tahltan Nation.
“With the acquisition of GT Gold and the Tatogga project in the highly sought-after Golden Triangle district of British Columbia, Canada, Newmont continues to strengthen our world-class portfolio,” commented Newmont President and CEO Tom Palmer.
“We look forward to continuing to build a respectful and meaningful relationship with the Tahltan Nation, including the community of Iskut. The relationships we have with Indigenous communities, First Nations and host communities are critical to the way we operate. We will partner with the Tahltan Nation at all levels, and with the Government of British Columbia to ensure a shared path forward as the Company understands and acknowledges that Tahltan consent is necessary for advancing the Tatogga project.”
Newmont’s acquisition includes the Tatogga project, comprised primarily of the Saddle North deposit, which has the potential to contribute future significant gold and copper annual production. There are also further exploration opportunities beyond the known deposits at Saddle North within the land package. The Tatogga project adds to Newmont’s existing interest in the prospective Golden Triangle through the company’s 50% ownership in the Galore Creek project.
Newmont is the world’s leading gold company and a producer of copper, silver, zinc and lead. A world-class portfolio of assets, prospects and talent is anchored in favourable mining jurisdictions in North America, South America, Australia and Africa. The American miner is celebrating its 100th anniversary this month.
With gold prices on the rise, the last six months has seen gold industry M&A activity accelerating. A recent Mckinsey report, advises that the industry need to be mindful of mistakes made during the previous gold price boom, when growth was chased unidirectionally by several companies.