Gold and commodity prices soared Friday as European leaders announced they're going to recapitalize the banks in the region, although specifics of the deal weren't revealed.
In response, gold futures for August delivery climbed $53.80 to settle at $1,604.20 an ounce on the Comex division of the New York Mercantile Exchange. Silver prices also soared, jumping $1.32 to settle at $27.61.
While it help prop up the markets in general, it also did with gold as well, as it basically supports the premise there will be much more stimulus going forward; presumably with a big dose coming sometime soon in the euro zone.
The announcement by the Federal Reserve that it would keep interest rates low through 2014 and continue on with its "Operation Twist," also teases and sends a signal to the markets that there will inevitably be more stimulus from that source as well.
With the EU, euro and euro zone fighting for its very survival, there isn't even a question as to whether or not there will be a stimulus, it's only a matter of when and how much.
For the United States, it's pretty much the same situation in the sense of slowing growth, and the Federal Reserve has stated it's ready to act in response to negative economic conditions, which are in fact already upon us, as growth rate estimates in the U.S. have been recently lowered.
The central bank cut its estimate for the 2012 gross domestic product growth to 1.9 to 2.4 percent, from 2.4 to 2.9 percent in April. Estimates for 2013 were lowered to 2.2 to 2.8 percent, compared to 2.7 to 3.1 percent in the prior projection.
All of this refers to speculation by the market that more quantitative easing is coming, and that will continue to provide support for gold, which already got a boost with the news out of the EU.
One major result from all of this will be for the euro to strengthen against the U.S. dollar, which will also provide impetus for the price of gold and other commodities to rise.
Pressure is mounting for stimulus action, and for better or worse it's going to come. The market is ready to reward gold and silver when that happens, as evidenced by the huge price increase on just a little good news from that point of few. What's going to happen when full-fledged stimulus is put into action again; especially when more than one part of the world does it? Friday's response by gold and silver prices give us a glimpse into what that will be.
Barrick Gold (NYSE: ABX) closed Friday at $37.57, rising $1.34, or 3.70 percent. Goldcorp (NYSE: GG) ended the session at $37.58, up $1.48, or 4.10 percent. Newmont Mining rose $1.39, to close at $48.51, gaining $2.95 percent. SPDR Gold Trust (NYSEARCA:GLD) ended the day at $155.19, up $4.14, or 2.74 percent.
iShares Silver Trust (NYSEARCA:SLV) soared $1.02, gaining 3.98 percent to close at $26.65. Silver Wheaton (NYSE: SLW) exploded $1.35, jumping $5.30 percent, to end the day at $26.84. Endeavour Silver (NYSE: EXK) closed the day at $8.12, up $0.33, or 4.24 percent.
Saturday, June 30, 2012
Gold and commodity prices soared Friday as European leaders announced they're going to recapitalize the banks in the region, although specifics of the deal weren't revealed.
Thursday, June 28, 2012
The gold mining industry is poised to go through some shock, as the little talked about rise in gold production costs is hitting the industry hard, and is only going to get worse going forward.
Taking a major hit from the fallout surrounding rising production costs was Barrick Gold (NYSE: ABX) CEO Aaron Regent, who was recently fired because of his inability to keep costs at a lower level.
While it wasn't explicitly cited as the reason, it definitely was implicitly suggested as the impetus behind the move.
That is supported by the production cost numbers, which have jumped by 22 percent over the last year, to $560 an ounce, soaring from the $460 an ounce it cost to produce an ounce of gold last year.
Even these figures are about 6 months behind the current cost levels, which are estimated to have soared to about $1,000 an ounce in production costs, and more for some gold mining companies.
According to AngloGold Ashanti (NYSE: AU) CEO Mark Cutifani, gold production as measured by total cost basis is "running at about $1,200. The industry average is probably around $1,250 an ounce."
Iamgold (NYSE: IAG) CEO Steve Letwin concurs with those numbers, saying, "It's going to be difficult for anybody to produce gold at less than $1,200 an ounce."
Not only are all the usual production costs rising in the industry, like labor, mine infrastructure, heavy equipment, utilities, fuel, permits and drilling, but the process of reaching quality gold deposits are rising as well, based upon the fact companies are having to dig deeper and deeper to reach them. Coupled together, these are the causes in increased gold production costs that aren't going to go away any time soon.
Add to that corrupt governments which can wait until all the money is spent and production begins before they suddenly change their tax structures to basically steal money from the miners, and you have another volatile situation added to the mix.
The reason I mention this is because the idea the gold miners have been lagging the rise in the price of gold has been used as a reason to invest in the miners because it is felt it is inevitable that the price of the gold mining stocks will follow the price of gold upwards.
But the real reason the gold miners haven't been doing well is the soaring production costs, which have disallowed what appeared to be a logical move up in share price of the companies.
Assuming you want are invested or want to invest in gold miners, the key number to look at on a quarterly basis are the production costs of the companies. That will be the key for profitability for them, even when gold starts to rise in price again.
Seeing that costs have climbed so high, so quickly, gold could reach about $2,000 an ounce and it would only bring the gold miners back to where they were in 2010 and 2011 as far as production costs versus the price of an ounce of gold.
If the price of gold remains level, or even drops in the short term, we'll see some gold miners begin to go bankrupt over the next few years, as they simply can't operate with a profit at these cost levels.
On June 30, 2008, Barrick Gold was trading at $45.09. As of this writing it's trading at $35.76. So unless you got in below $20 in October 2008, you would have made very little money, if any, over a four-year period. Most likely you would have lost money.
So are there any good gold mining investments? Those that will bring shareholder value will be those that are best able to manage production costs. That will be measured, for the most part, by those with the best mines, and least amount of production costs needed to extract the gold.
Some companies are positioned well in this area, so be sure to perform due diligence concerning the gold mining companies you're taking a look at.
Are there other ways to invest in a gold stock that could offer better returns? Sure. I would look at gold streaming companies such as Royal Gold (NASDAQ: RGLD), which is tied more into the price movements of gold, and incurs little risk on the production side. The risk for streamers lies in the production of a particular mine or mines, not the costs associated with it.
What about the eventual return to rising gold prices? That will happen, as central banks around the world won't allow the global ecomomy to go on as it is without putting up a fight by throwing more money at it.
There is also the surety of more bailouts in the euro zone, which will push up the price of gold. Add to that the announcement by Federal Reserve Chairman Ben Bernanke that interest rates will remain where they are until 2014, and there are all the elements in place for gold prices to rise.
The artificially bloated U.S. dollar will come crashing down again once stimulus measures are resumed, and then gold will continue its upward rise in price.
What the question is for all gold miners is if it will increase enough to significantly offset the rise in production costs.
Whatever the answer, those gold miners with those costs best under control will be the winners in the future, while those that aren't able to contain costs, will likely fall by the wayside by declaring bankruptcy.
At that time interesting things will happen, as significant gold reserves could be made available to the better run companies.
For now investors in gold miners need to be even more vigilant as usual, and be sure to know as accurately as they can, what the real production costs of the miners are, as that will determine profitability and whether or not they'll survive over the next several years.
Friday, June 22, 2012
Shares of Newmont Mining (NEM), Goldcorp (GG) and Eldorado Gold (EGO) were trading mixed today as the price of gold moved slightly positive and negative on the day, with fears continuing to affect the markets.
Many gold miners, including the above-mentioned three, started June off with a bang, as the gold miners started to catch up some with the price of gold, which they have been lagging for some time.
The miners took a hit the last couple of days on news there would be no quantitative easing in the near future, although so-called "Operation Twist" was extended.
So investors chose to place their money in U.S. dollars, as safety is the primary thing on their minds at this time, even though the U.S. dollar is a very flawed and weak currency itself.
Once the Federal Reserve announced little would be done to aid the economy, investors were forced to sell their gold to cover their losses.
The reason gold isn't plummeting in price is because the market still believes there will be another round of quantitative easing. It's only a matter of when, most believe, not if.
With the commitment by the Fed to wait until 2014 at minimum before boosting interest rates, any type of stimulus would send the price of gold, along with other commodities, soaring, as the dollar would drop in value and people would look for protection against inflation.
While it's highly probable the Fed could add stimulus to the economy, it has done virtually nothing in the recent past, and adding hundreds of billions to the national debt while doing nothing to help is something even Ben Bernanke appears slow to want to implement.
The other side of the argument is the extremely weak American economy, the sovereign debt crisis in Europe, the high unemployment in the U.S., and the ongoing weakness in the Chinese economy. All of that is what investors and economists look at when being almost certain more stimulus is in the near future.
Then you have to consider the presidential election in the U.S., as well as other national elections around the world to ascertain the liklihood of more quantitative easing.
In China its factory segment contracted for the eigth month in a row, as did the business sector in the euro zone for the fifth straight month, while the manufacturing sector in the United States dropped to its lowest level in almost a year.
Just as the price of gold has been flittering back and forth at a flat level, so has the share price of Newmont Mining (NEM), Goldcorp (GG) and Eldorado Gold (EGO), which were slightly down and up during the trading day.
Eldorado Gold was trading at $12.35, up $0.10, or 0.82 percent, as of 3:43 PM EDT. Goldcorp was at $37.04, down $0.13, or 0.35. Newmont was trading at $47.98, gaining $0.18, or 0.38 percent.
Saturday, June 16, 2012
With weak economic data coming in from China and the United States, and the ongoing sovereign debt crisis in Europe, it appears the probability of even more stimulus will be inevitable.
The presidential election in the United States, which is increasingly competitive, and could result in Obama getting routed as the economy continues to fall apart and he panders to his radical base.
It's highly improbable that more austerity will be put in place before elections, although some in the euro zone remain adamant about it, with the most important player - Germany - continuing to resist eurobonds without more controls in place.
Even then it's uncertain the euro zone will be allowed to go forward with the idea that all the countries can spend and go into debt with impunity, while the rest of the countries share their risk.
That won't work over time, but it could be attempted and put in place because of the politically religious commitment to the euro and the European Union, which both are in danger of collapsing.
Consequently, with expectations of more stimulus growing, currencies are coming under pressure again, with the U.S. among them, providing a positive environment for the rise in the price of gold and silver.
With the U.S. dollar losing appeal, gold is again rising in importance for the place to safely place capital. There really is no other alternative when the dollar falls out of favor, as most other currencies are in even worse shape.
Gold miners are also getting a closer look from investors, as they have been hit hard by the recent fall in price of gold.
A couple of companies receiving recent analyst attention are Randgold Resources Ltd. (NASDAQ: GOLD) and Yamana Gold (NYSE: AUY).
Randgold was upgraded by Goldman Sachs (NYSE: GS) from a "Sell" rating to a "Neutral" rating.
Yamana Gold was downgraded by Dundee from a "Buy" rating to a "Neutral" rating.
Sunday, June 10, 2012
The question about Spain's economic future has been answered in the short term, as finance ministers in the euro zone came to an agreement to lend the country up to $125 billion to shore up its weakened banks.
While it wasn't a total surprise Spain would get aid, the amount did raise some eyebrows, as it was a lot more than expected.
Even though there is up to $125 billion on the table, the exact amount to be lent is still being hashed out, and won't be decided for about a week.
This of course will be hailed as a great moment, but in fact it is a disaster, and will exasperate the financial health of the region over time.
Until there are significant austerity measures taken over time, there will be no solutions to Europe's economic woes, as Keynesianism has proven to be a failed economic theory and practice.
The amount announced to be on the table for Spain was for media consumption and dissemination, as it will help to calm extremely jittery markets, as fear of contagion was reaching a fever pitch, almost as bad as the very real contagion itself, that has only had the can kicked down the road once again, only delaying the inevitable day of reckoning.
The upcoming Greek elections on June 17 could rain a lot on the euro zone parade if the people of the country vote for the country to leave the zone.
Greece isn't too important, as its economy is rather small and insignificant in contrast to Spain's, but it could be the first domino to fall in what will eventually become a string of dominoes.
That's not really a bad thing, as Europe would be much stronger without the deadbeat nations attempting to extract more money from the productive European nations.
It'll be fun to see the pathetic dream of those wanting a one-world order blasted apart by the inevitable, upcoming events. Hang onto your seat, it's going to be a fascinating ride as it unfolds.
Tuesday, June 5, 2012
Even though financial writers have been pointing to weak gold consumption in India recently, the fact is, historically, it really hasn't played much part in the movement of the price of gold, other than the seasonal impact it annually makes on the price of the metal.
China, in my opinion, is a much different story, as the Chinese government encourages its people to buy physical gold, and the government itself has been buying it up at an ever-quickening pace.
A recent note from HSBC (NYSE: HBC) said the Chinese have boosted their gold coin acquisitions from 5 kg in March to 1,857 kg in April; a huge increase by any measure.
I don't think India is weighing on anyone's minds in reference to the price of gold, as everyone that understands what's going on is looking to which governments will implement another round of quantitative easing.
That, more than anything, will cause the price of gold to skyrocket.
Much of that is centered in the sovereign debt crisis in Europe, which continues to deteriorate, with no real answers to the problem but continuing to implement austerity measures until spending comes in line with reality.
Growing pressure on Germany's Chancellor Angela Merkel to basically underwrite the outrageous spending and out-of-control benefits thrown at many people in the European Union, via eurobonds, points to the euro zone no longer really being valid. It's a joke, and gold could benefit from that exponentially if stimulus again rears it's ugly head, which many in the region are proposing, moving away from the austerity demanded by Germany from other deadbeat countries.
Merckle says it's the lack of competitiveness in the region that is the problem, not throwing more money at criminally irresponsible governments who have made promises they in no way are able to keep.
That's why they want the eurobonds, as it would require the harder working and more productive nations to underwrite the socialist and fascist nations of Europe without those nations having to pay for their horrid decisions.
Merkel chastised the leaders in the region for using the billions in stimulus already spent on consumption, instead of dealing with the lack of competitiveness and implementing real reforms.
She said, “The freedom created by this situation wasn’t exploited to improve long-term competitiveness. Instead, the time was used to spend too much money in consumption and too little time in tackling reforms.”
With all of Europe embracing Keynesianism, even the UK and France are calling for more stimulus and the acceptance of eurobonds. It's an incredible time with the fallout sure to be extraordinary.
More stimulus would obviously be a continuation of the failed economic policies of the region, yet most nations continue to call for more. They better be careful, they may just get what they ask for.
Merkel's right. If there are no changes in attitude and practice, throwing more money at it won't do anything to change the economics, it'll only give a short-term boost which will then have to be paid for as the enormous debt of the nations continue to rise.
This is all about politics, and it'll be interesting to see how it plays out as more and more politicians come up for re-election in their respective countries.
For gold prices, it could, and probably will, shoot through the roof if more stimulus is not only put on the table, but implemented.
Friday, June 1, 2012
Kinross Gold has been getting crushed since early September of 2011, dropping over $10 a share since that time.
Some of that is from the plunge in gold prices, but more specific to the company is the negative response to the low-grade envelope surrounding the gold at its Tasiast mine.
Kinross took a writedown of $2.49 billion in its latest quarter, partially in reference to the mine, which has put a lot of downward pressure on the share price of the company. There were other reasons for the writedown, but that was a part of the equation.
What's interesting about this is the fact that the amount of gold reserves at the mine have been confirmed to be approximately 20 million ounces. That's far above the estimated 8 million ounces believed to be in the mine at the time Tastiast was acquired by Kinross.
It appears the challenges of accessing the major gold reserves is one that can be overcome, and once it is, it should put Kinross in an enviable position.
Other than time, the major challenge will be how the company can access the gold reserves and reasonable costs.
Once that's accomplished, the company is strongly positioned for some significant growth into the future.
It seems this problem should be able to be taken care of, and assuming gold will at minimum retain its price (it could even drop significantly lower), Kinross is positioned for some long-term growth, which should result in the share price rebounding over time.
There continue to be many questions concerning Europe and the strength of the euro against the U.S. dollar, but there is almost sure to be more quantitative easing, and when that happens, gold prices are sure to go up.
But even if price remain level or drop several hundred more dollars an ounce, the size of reserves held by Kinross bodes well for the company.