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Friday, 31 October 2014

Gold decline continues

Precious metals decline

The US economy is threatening to reach escape velocity and gold markets aren't happy. The gold spot price is down once again by another 2.1 percent to US$1172/oz.

Live 24 hours gold chart [Kitco Inc.]

The silver price isn't any happier, tanking by nearly a further 2.4 percent to only US$15.94/oz.

Live 24 hours silver chart [ Kitco Inc. ]

Although there is a tendency to think of gold as important to investors but not so much to the country, a glance at the Reserve Bank of Australia's commodity index weights shows gold to be the fourth most important commodity to the Aussie economy with a weighting of 8.4 percent. 

Commodity index still declining

As such the collapse in the gold price from above $1900 is just another needle for the Reserve Bank which saw its index of commodity prices fall by another 2.4 percent in September, or 1.4 percent in Australian dollar terms.

Over the past year the index is down some 16 percent even in Australian dollar terms.

Graph: RBA Index of Commodity Prices

As for investors, the retreat in the gold price will obviously be of interest to investors in and net buyers of the physical commodity.

It's also a bearish signal for producers such as Newcrest Mining, with the share price back below $10 and now likely to be threatening to break lower again.


It's been a heck of a ride over the past decade for Newcrest with its share price collapsing from well above $40 in 2011 to a 12 month low of below $7.

The gold producer has an "all-in sustaining cost" of A$976 per ounce, implying that although group production volumes of gold and copper have remained high, results will be way down across the board on their 2011 levels on most of the key measures for such a gold producer.

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*for a producer such as Newcrest these would be:

-earnings before income and tax (EBIT)
-cash flows from operations
-free cash flows
-underlying profit (as distinct from statutory profit)