Has gold officially lost its luster? The precious metal, which has gotten battered in the markets and is down nearly 29% in the trailing twelve months, hit a three-year low Thursday afternoon while shares of its producers — gold miners like Barrick Gold, AngloGold Ashanti and Newmont Mining Corporation — continued their market descents.
The price of gold futures trading on the Comex division of the New York Mercantile Exchange, which began tumbling as news of a modest Fed taper sent stocks soaring, fell below $1200 an ounce Thursday afternoon, eventually settling at $1,193.60 an ounce. This marks the lowest closing price for gold futures since August 2010. In the course of the trading day Thursday the price of gold fell as low as $1,190 an ounce, its lowest intraday price since June.
Gold miners have also gotten hammered since Bernanke announced the Fed would taper its monthly bond-buying program to $75 billion per month, down from $85 billion per month. The news was welcome for the stock market, because the modest decrease in bond buying likely means a continuation of easy money policies in 2014. This is good for stocks, but bad for gold, which is seen as a safe haven when the markets are volatile. And for shares of gold miners, which trades alongside gold, the news is just as bad.
Miner Barrick Gold closed at $16.58 per share Thursday afternoon, a 1.95% loss for the day. Year-to-date, it has taken a 52.4% beating. Newmont Mining Corporation closed 1.64% lower as its year-to-date loss ticked to 50.7%. And South African competitor AngloGold Ashanti took a 2.66% hit Thursday; year-to-date it has taken a whopping 62.8% dive. SPDR Gold Shares, the gold-backed ETF, saw a 2.4% decline; its 27% year-to-date loss is closer to that of the commodity than shares of gold mining companies.
IAMGOLD, which earlier in December announced that the price of gold was too low to maintain a dividend, was down 2.1% for the day. Since it announced the indefinite suspension of its dividend, the stock is down 13%. Year-to-date the miner has lost 71.7% of its value.
Scott Carter, CEO of Lear Capital and an expert on gold, said in a phone interview Thursday afternoon that he isn’t surprised to see gold futures and gold miners tumbling in the face of the news, but added that there are other factors hitting the metal this year, like high business expenses and labor costs. It costs $1,250 to produce an ounce of gold, he said, so gold is in “oversold” territory and it’s getting harder and harder to get good value from the gold extracted from the ground. This, in turn, is bad for the shares of companies like Barrick and Newmont.
“This is a very difficult time for mining stocks. It’s a tough time for a mining stock to be a part of a portfolio,” Carter said. And in order to rebound, “gold will have to retake $1,250 an ounce,” he said. “We’ll have to recapture that level and build a base there before we can move forward.”
However, Carter predicts better times for gold ahead, because he believes that the economy isn’t quite as strong as the Fed and the equity markets may claim. “Without the Fed, I think this economy is really weak,” he said. “We still need interest rates low. If the Fed is going to stay in economy, that backdrop is very bullish for gold and silver, and that will eventually break into the price of gold.”
Source: Forbes Business