Gold prices have deteriorated rapidly in recent days, to exacerbate a trend evident for more than a year. The news is not good for potential northern gold miners.
Gold hit its lowest in almost three years and was on course for a record quarterly loss after U.S. data reinforced expectations for an end to ultra-loose monetary policy. Worries about a liquidity crunch in China, the world’s second-largest gold consumer, drove down share prices despite attempts by the Chinese central bank to soothe markets. Physical gold demand could be hurt by a slowdown in Chinese growth. The gold sector was also down about four per cent as speculation over what the Fed will do in tapering its US$85 billion a month in bond purchases continued to pummel gold prices.
The TSX gold sector is by far the worst performer on the Toronto market, down 46 per cent so far this year. Share prices in gold miners were already feeling pressure as bottom lines were hit by rising costs. But gold prices have deteriorated steadily this year as the precious metal loses its appeal as a hedge against inflation and deteriorating currencies. Gold is traditionally an inflation hedge. So it’s gone up when people were worried about inflation and with commodity markets staying relatively low and not going anywhere, the inflation pressures are not there.
There are several gold miners with advanced projects in the north that may be affected by the drop in the gold price:
The falling gold price has crimped exploration and mine development work. The recent moves by Ben Bernanke to hint at an end to QE stimulus has spooked the market and driven investors away from gold. The impact on miners has been profound—capital is exceedingly hard to raise and mine development has slowed. High cash cost producers must be re-evaluating their operations. The outlook for gold has turned even more grim.