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Posts Tagged ‘Gold’

Gold Is Flying High, but Getting Harder to Mine

Posted by hkarner - 18. August 2020

Date: 17‑08‑2020

Source: The Wall Street Journal

Miners have benefited from a gold price rally but face higher costs and tougher projects ahead

Gold miners are riding high as the metal trades at record prices, but digging it out of the ground is getting harder.

Gold is among the rarest metals in the earth’s crust and much of the easier‑to‑get ore has already been mined. What is left is harder to find and more expensive to extract, miners say.

While that isn’t an immediate worry, with gold prices hitting $2,000 an ounce for the first time this month, miners face the longer‑term prospect of higher costs and drilling in less hospitable places. A sharp selloff in gold this week also reminded companies that high prices can’t be taken for granted.

Gold prices are up around 28% this year. Miners have used the rally to pay down debt and increase dividends, rather than start new projects, with executives wary of repeating their costly overexpansion during the last big run‑up in prices.

Tanks containing muds from which gold will be extracted, operated by Endeavour Mining Corporation in Burkina Faso.

“We are definitely past peak gold,” said Mark Bristow, chief executive of Barrick Gold Corp., the world’s second‑largest gold miner by market capitalization. He estimates that the new metal added to miners’ reserves since 2000 replaces only half of the gold they mined in that period.

Miners are spending less money on finding new gold, with the industry’s exploration budget at $4.44 billion last year, 63% lower than its record high in 2012, according to Australia‑based Minex Consulting.

That comes as finding new gold is becoming more expensive as miners have to dig deeper and enter more remote terrain in search of untapped deposits. The average cost to find an ounce of gold was $62 between 2009 and 2018, more than double the cost for the previous decade, according to Minex.

“What new fresh discoveries have been made? Not a lot,” said Sean Boyd, the chief executive of Agnico Eagle Mines Ltd, a Canada‑based mining company that has turned to the Arctic to find higher quality deposits. “If they have, they’ve been found in tough parts of the world,” he said.

The grade of gold being mined—the amount of metal for every ton of rock mined—is also getting worse. The average mine grade has fallen from over 10 grams a ton in the early 1970s to around 1.46 grams a ton last year, according to Metals Focus, a precious‑metals consulting firm.

Lower grades of gold require digging up more earth to find the metal so are more expensive per ounce to mine. In 1990, the cost of mining an average ounce of gold, calculated by looking at the total cash costs plus capital expenditure, was $253, according to Refinitiv. Last year it was $705.

The fundamental problem for gold miners is that there simply isn’t that much to unearth. All the gold ever mined can fit into a 69‑foot cube, according to the World Gold Council. At around 0.005 parts per million, gold’s presence in the Earth’s crust is tiny compared with that copper, at over 50 parts, or iron, at more than 50,000.

Some miners and geologists argue the metal is nowhere near to running out as a minable commodity. Gold may be harder to mine, but technology can bring costs down and allow access to new mineral‑rich places, such as the ocean floor, they say.

“We say we are running out, but we are not really looking,” said Ferri Hassani, a professor at the Department of Mining and Materials Engineering at Canada’s McGill University. Mr. Hassani said, for instance, that nobody thought there would be gold in Iran, but geologists are finding it there.

People have talked of mining the ocean floor since the 1870s, when a British Navy research vessel charted nodules containing metal deposits throughout the seas. Aside from diamonds relatively close to the shore, oceans remain untapped, while most miners aren’t keen on digging in politically risky places like Iran.

Lower gold supplies won’t necessarily make the metal more expensive for buyers. Supply doesn’t affect gold prices in the way it does other commodities, given the metal’s status as a financial asset as much as a material for use.

The recent rally was driven by investors seeking havens amid the coronavirus pandemic and persistently low, and in some cases negative, interest rates. Gold is less attractive against other safe‑haven assets, like U.S. Treasurys, when rates are high.

Also, unlike many other commodities, like oil, the supply of this virtually indestructible metal doesn’t disappear.

Meanwhile, gold miners are enjoying the bounty of higher prices when Covid‑19 has disrupted production and increased costs. Share prices have jumped, with Barrick Gold and Newmont Corp. both up around 47% this year and Kinross Gold Corp. 88% higher.

Gold companies are doling out dividends. Barrick Gold announced an increase of 14% for its second‑quarter payout, while Newmont has increased its dividend by 79%.

South Africa’s Gold Fields Ltd. said it would capitalize on the high gold price by paying down around $750 million in debt by the end of the year.

Still, miners say they aren’t ramping up production, which has gradually increased over the last decade to 108 million ounces last year, according to Refinitiv.

Barrick, Newmont, Agnico Eagle and others say they will only approve new projects if they can make money with gold at $1,200, about 40% below where the metal is trading. During the last gold price bull run, which peaked in the fall of 2011, miners increased their reserves, started expensive new projects and went on acquisition sprees, much of which turned sour as the price fell 43% in the following four years.

“Everyone kept changing their cut off grade and following the gold price,” said Barrick’s Mr. Bristow.

This time, said Agnico Eagle’s Mr. Boyd, “The key will be to show that industry has not lost its discipline.”

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Gold Will Need More Bad News to Keep Prospering

Posted by hkarner - 17. August 2020

Date: 16‑08‑2020

Source: The Wall Street Journal

If an economic recovery continues, expect the precious metal to suffer

Modern‑Day Gold Rush Has Investors Digging for Profits

Questions about gold often get to the heart of what’s going on in finance and economics. Ask why the price is up so much this year, and the most popular answers are ones that might make the heart miss a beat: The Federal Reserve is creating so much money that serious inflation is on the way, or the dollar is heading toward inexorable decline (or both).

Some weird things have been under way with gold since the coronavirus crisis began, however. The metal developed a decent link to the performance of technology stocks: When the Nasdaq roared ahead, so did gold, reversing the pattern from earlier in the year. Further, gold tended to do well when Covid‑19 infection rates rose and the economy suffered, and badly when they fell and the economy recovered faster than expected.

This week, gold’s moves were particularly odd. After reaching a record above $2,000 an ounce last week, gold fell back along with tech stocks. It then barely eked out a gain Wednesday in spite of inflation coming in far ahead of forecasts.

The geeky but reassuring answer to all this is that gold is just driven by after‑inflation Treasury yields, as government bonds are the safe alternative to the inert metal. The parallel is to 2011‑12, when real bond yields plummeted and gold soared. When Treasury inflation‑protected securities, or TIPS, have negative yields, as now, the zero real yield of gold stops being a burden and becomes a benefit. Something similar applies to Nasdaq stocks, which typically have low dividends.

Yet, this is a fundamentally unsatisfying answer. There is a strong link between TIPS and gold, but not so strong as to explain everything. Now that gold plays no formal role in the monetary system, there is no particular reason to think that gold prices will keep up with inflation and so provide that zero yield in real terms—it might just be the pet rock its detractors claim.

My view is that there’s a bit of truth to all these explanations.

MONEY PRINTER GO BRRR: The Fed and other central banks are underpinning an explosion of bank reserves, while governments are handing out money. The potent mix kept household incomes up even as unemployment jumped, helping the economy avoid a far worse hit.

 

I don’t think gold is warning that we’re set for another major burst of inflation, though. The bond‑market‑implied rate of inflation for the five years starting in five years’ time is back up to where it was in January, but at just 1.8% is still below the Fed’s 2% target. Options tied to inflation imply a tiny chance of price rises averaging more than 3% for the next five years, with a far bigger chance of inflation below 1%, according to the Minneapolis Fed.

Sure, investors think there will be more inflation on the way than they thought in March (when the consensus was that inflation was dead). But other, well‑traded assets aren’t preparing for significant inflation. It is hard to believe that gold would send such a different signal.

Something else is going on, and for Michael Howell, CEO of Crossborder Capital, it is a broad asset‑price jump driven by what he calls “monetary inflation,” or the devaluation of fiat currencies.

“Everyone says the gold price goes up but in fact the dollar paper price is going down, gold is a fixed stock of wealth,” he says. This might not appear in retail price inflation the way it did in the 1970s, depending on what happens with oil, trade, wages and broader production costs.

 

I don’t share his belief that gold has some immutable value against which everything else is measured, and I think the price of money—the interest rate—matters much more than the quantity. But it is plausible that massive quantitative easing combined with increased savings during the pandemic has led investors to buy anything regarded as reliable. That includes the big tech stocks, where investors think future profits are a sure thing, as well as gold, explaining why the two have become linked.

DOOMED DOLLAR: To be clear, I don’t think the dollar is about to lose its status as the world’s anchor currency. But whatever the (minuscule) probability before the pandemic of the dollar ending its reign, it is clearly much higher now as America withdraws from international engagement and takes on China. That higher probability justifies diversification, and while it would be strange indeed to adopt gold again, the metal has history on its side.

GOOD AS GOLD: Gold offers perhaps the best form of catastrophe insurance short of a bunker full of tinned food and guns, as it is widely negotiable and reasonably easy to smuggle out of a country in case of emergency. At a time when societal collapse is easier to imagine, it makes sense that more people would want a fallback. Again, though, the probabilities remain tiny, and at best this accounts for only a small portion of the price rise.

This week, moves in the price of gold have been particularly odd after the precious metal reached a record the previous week.

GOLD RUSH: Sharp asset‑price rises generate their own momentum, and gold had begun to attract lots of private‑investor buying via exchange‑traded funds. At least some of the recent jump—and Tuesday’s big fall—are probably driven by excessive short‑term optimism leading to overdone moves that partially corrected.

Put all these factors together and gold really needs more trouble to prosper. Negative real interest rates on TIPS are already the lowest ever, and need either much higher inflation or the prospect of negative rates from the Fed to drop a lot more. If economic recovery continues, expect gold to suffer: There will be less need for insurance, fewer worries about the dollar’s reserve status and lower prospects of more Fed action. Of course, if the Fed lets inflation rip gold might ultimately rise a lot more—but for now, at least, investors see little chance of this.

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Which Way to Buy Gold: The Metal or the Companies?

Posted by hkarner - 11. Februar 2020

Date: 10‑02‑2020

Source: The Wall Street Journal

Bullion has many advantages for long‑term investors, experts say. But for those who want to bet on the current rally, gold‑mining stocks may be preferable

Gold is a store of value. But one downside of bullion is that it pays no dividend.

After years stuck in the doldrums, gold is back in fashion. A common question from individual investors is, should they put their money into the precious metal itself or gold‑mining stocks?

“It boils down to what you are trying to achieve” says Rohit Savant, vice president of research at New York commodities consulting firm CPM Group.

For those seeking a strategic, long‑term investment, Mr. Savant and other experts advise buying bullion—that is, bars or coins of the metal or funds that focus on such. For those seeking to make a tactical bet on the gold rally, shares of gold miners might be preferable in that they offer the potential for bigger gains over a shorter period. Either way, investors should brace for a wild ride.

 For much of the past decade, gold and gold‑company shares weren’t great investments. The price of the precious metal briefly peaked above $1,900 a troy ounce in September 2011. By late 2015, it had fallen to $1,060 an ounce, a low for the decade.

“If you look at the price of gold over that time, it was in purgatory,” says Art Hogan, chief market strategist at National Securities.

Gold stocks fared even worse. For much of the same period, VanEck Vectors Gold Miners (GDX) exchange‑traded fund, which tracks a basket of gold‑mining stocks, traded at less than half the value it was in late August 2011, according to data from Yahoo Finance.

Then suddenly, gold caught the interest of investors, as the U.S.‑China trade war dimmed the outlook for stocks and the some feared the White House wanted a weaker U.S. dollar. Bullion prices have rallied around 30% from September 2018, and the metal was recently trading at around $1,600 an ounce. Gold‑mining stocks have jumped almost 60% over a similar period. Wolfe Research now sees gold prices breaching the record highs of 2011, perhaps this year.

Pros, cons of bullion

For long‑term investors, investing in gold bullion has many advantages. It is a diversifier of risk when held as part of a broader portfolio. That’s because gold has virtually no correlation to movements in stocks most of the time, according to a research paper published in the Journal of Managerial Finance in 2015.

“The maximum correlation was less than 0.3, and that’s not a lot of correlation compared with other securities and their relationship to the S&P 500,” says Allen Michel, professor of finance at Boston University Questrom School of Business, one of the authors of the paper.

Another reason investors might want to hold a portion of their wealth in gold is as a store of value over the long term, Mr. Savant says. In other words, over long periods, gold prices move up as costs of living rise. That was certainly true during the double‑digit inflation of the 1970s, when bullion prices jumped more than 20‑fold to a then‑record $850 in 1980 from $35 in 1971. “The 1970s was a great decade for gold and terrible for stocks,” Mr. Hogan says.

Some experts also say bullion could help investors if there is a financial crisis and deflation. When a financial crisis hits, central banks may have no choice but to lower the cost of borrowing far below zero, says Don Coxe, chairman of Chicago‑based Coxe Advisors. That will make gold bullion even more attractive relative to negative‑yielding bonds because of its long history of maintaining its purchasing power.

The downside of bullion is that it never pays a dividend, and there are generally charges for insurance and storage in vaults, which can bite into profits. ETFs have helped reduced that burden, making small investments viable. “The storage costs have been mitigated by ETFs, which somewhat distribute the cost among the investor pool,” Mr. Savant says.

There are plenty of bullion ETFs from which to choose, including SPDR Gold Shares (GLD), the largest, with more than $45 billion in assets. Others include GraniteShares Gold Trust (BAR) and VanEck Merk Gold Trust (OUNZ).

Pros, cons of gold stocks

As the past decade shows, gold‑mining stocks are far more volatile than gold prices. From 2011 to 2018, gold‑mining stocks fell around twice as much as gold stocks on a percentage basis. On the way back up over the past year or so, gold miners outperformed bullion handsomely.

“Investing in the miners is a bet you will have a sustained rally in the gold price,” says Mr. Hogan. If bullion continues to rally, then gold‑mining stocks should continue to do even better. But if the rally in bullion stalls even temporarily or reverses, then miners might not be such a good risk compared with bullion.

Nevertheless, gold stocks and ETFs that focus on them—such as VanEck Vectors Gold Miners, as well as iShares MSCI Global Gold Miners (RING) and Sprott Gold Miners (SGDM)—do seem to offer diversification in the same way as bullion.

“There’s good reason to believe that gold‑mining stocks follow a similar pattern to gold” in that way, says Prof. Michel.

That said, “there are a lot of additional risks you take on when you buy the miners,” Mr. Savant says.

Notably, when gold‑industry assets are cheap, financing might not be easily available. All mining companies must continually replenish their resources by finding new mineral deposits. And worst of all, mining CEOs can get overly optimistic when the industry booms.

 “You always have that history of gold miners spending too much money at the wrong time,” says Mr. Hogan.

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This Year’s Hottest Trade: Buying Everything

Posted by hkarner - 23. Oktober 2019

Date: 22-10-2019
Source: The Wall Street Journal

Stocks, bonds, gold and oil have staged a rare concurrent rally

The New York Stock Exchange. The S&P 500 has risen 20% this year, even as Treasurys have rallied.

Stocks and bonds have staged a rare simultaneous ascent, logging the best performance in a quarter-century.

The S&P 500 has advanced 20% in 2019, while Treasurys have rallied. The last time the benchmark stock index rose more than 10% while the Treasury yield fell more than a percentage point in the first three quarters of the year was in 1995, according to Dow Jones Market Data.

That trend continued as the fourth quarter kicked off. Government bonds and gold notched gains last week as the S&P 500 hovered within 1.3% of its record reached in July and clinched its second straight week of gains. Den Rest des Beitrags lesen »

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Handelskonflikt treibt Goldpreis auf höchsten Stand seit 2013

Posted by hkarner - 9. August 2019

Der Preis für eine Feinunze stieg am Mittwoch auf mehr als 1.500 US-Dollar

Der Handelskonflikt zwischen den USA und China treibt Anleger in sogenannte sichere Häfen, zu denen auch Gold gezählt wird.

Frankfurt/London – Der Handelskonflikt zwischen den USA und China hat den Goldpreis auf den höchsten Wert seit Jahren getrieben. Am Mittwoch kostete eine Feinunze (31,1 Gramm) erstmals seit 2013 wieder mehr als 1.500 US-Dollar. Im Nachmittagshandel stieg der Preis für das Edelmetall zeitweise auf bis zu 1500,25 Dollar (1.341,07 Euro) und damit auf den höchsten Stand seit Frühjahr 2013.

Stärkster Preistreiber bleibt die Sorge vor den Folgen des eskalierenden Handelskonflikts zwischen den USA und China. Diese treibt die Anleger in sogenannte sichere Häfen, zu denen auch Gold gezählt wird. Den Rest des Beitrags lesen »

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Italy’s Populists Covet Central Bank and Its Gold

Posted by hkarner - 4. April 2019

Date: 03-04-2019
Source: The Wall Street Journal

Blaming the institution for the woes of ordinary Italians, lawmakers pursue a takeover

Some Italian politicians want to force the bank’s shareholders, mostly private banks, to sell their shares to the treasury.

ROME—Italy’s ruling populists pushed ahead this week with efforts to seize control of the central bank and its gold reserves, stepping up their confrontation with a symbol of the country’s establishment.

With two laws targeting the Bank of Italy under debate in parliament, the campaign is the latest attack on Italy’s independent institutions by leaders of the governing coalition, which is led by the antiestablishment 5 Star Movement and the nativist League.

The parties depict the central bank as a symbol of a technocratic elite aloof from the needs of ordinary Italians. Hundreds of thousands of small individual investors lost billions of dollars after several Italian banks failed in recent years, causing widespread anger against the Bank of Italy and previous governments. Den Rest des Beitrags lesen »

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Hyperinflationäres Gold bei 175 Millionen Dollar

Posted by hkarner - 13. August 2018

Dank an R.K.
|

Gold offenbart wirtschaftliches Missmanagement und die Währungsabwertung, die in den letzten 100 Jahren in den meisten Ländern der Welt um sich griffen. Wenn die Schuldenblasen platzen, kommt globale Hyperinflation.

 

Von Egon von Greyerz, Matterhorn Asset Management AG

Über der Weltwirtschaft hängt das Damoklesschwert, und nur ein einziges Rosshaar hält es. Eigentlich könnte man einer so offensichtlichen Gefahr dadurch entgehen, dass man das Haar mit einer Goldkette austauscht oder das Schwert ganz einfach entfernt. Doch die Elite und die Zentralbanker hatten andere Pläne. Das Haar wurde nicht durch eine solide Metallkette ersetzt, stattdessen hängt das Schwert heute an einem hauchdünnen Faden, der jederzeit reißen kann.

Vor einem Jahrzehnt stand das globale Finanzsystem kurz vor seinem Zusammenbruch. Auf der ganzen Welt pumpten Zentralbanken, allen voran die Federal Reserve, rund 25 Billionen Dollar an Krediten und Garantien ins System. Banken wie Citigroup, Morgan Stanley, Merrill Lynch und die Bank of America bekamen Billionen (siehe Tabelle unten). Den Rest des Beitrags lesen »

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Das „Krisenmetall“ Gold gerät selbst in eine Krise

Posted by hkarner - 4. August 2018

| 3.08.2018, welt.de

Leitender Wirtschaftsredakteur
Steigende Zinsen sind Gift für den Goldpreis
Vor allem in Krisenzeiten flüchten sich viele Anleger in den Kauf von Gold. Das Edelmetall galt bisher als sicher. Nun ist die Nachfrage so gering wie seit 2009 nicht mehr.
Die Gold-Nachfrage stürzt auf den tiefsten Stand seit 2009. Dabei müsste das Edelmetall durch das globale Chaos für Spekulanten attraktiver werden. Doch eine Entwicklung macht dem Krisenmetall deutlich zu schaffen.

Stell dir vor es herrscht Handelskrieg und keiner geht hin. Dieser leicht abgewandelte Satz von Bertolt Brecht lässt sich gerade beim Gold erleben. Das Edelmetall, das seine Qualitäten immer in der Krise entfaltet und deshalb unter Investoren auch Krisenmetall heißt, steckt selbst in der Krise.

Obwohl die Welt in Unordnung steckt und die Nachfrage nach sicheren Anlagen steigen müsste, hat das Krisenmetall den schlechtesten Start seit nahezu einer Dekade hingelegt. Im ersten Halbjahr rutschte die Nachfrage nach Gold auf 1959 Tonnen ab, das waren 127 Tonnen weniger als im Vorjahr und gleichzeitig das niedrigste Niveau seit 2009. Das offenbart der neueste Report des World Gold Council, einer globalen einer globalen Interessenvereinigung der Minenindustrie. Den Rest des Beitrags lesen »

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Bitcoin Isn’t a Currency, It’s a Commodity—Price It That Way

Posted by hkarner - 5. Januar 2018

Date: 04-01-2018
Source: The Wall Street Journal

If bitcoin has more in common with gold than dollars, it could have a long way to fall

Is a bitcoin worth the $15,000 it commands today, or is it really worth about $3,000? The huge runup in value since September suggests the lower figure.

Cryptocurrency fans typically fall into two groups. One sees the currencies as ways to buy and sell things; the other views them as investments. For now, the investment crowd is winning out: Bitcoin remains a cumbersome way to purchase most goods, but its value has skyrocketed, nearly quadrupling since mid-September.

If bitcoin is an investment, it most closely resembles gold. Both are stores of value that provide some built-in protection against inflation because there is a finite supply and because extracting new deposits gets more expensive over time, barring big technology changes.

If bitcoin really is digital gold, however, investors should analyze it like a commodity—looking at supply constraints and the factors driving demand. That exercise produces worrying results.

Bitcoin and gold are both stores of value that provide some built-in protection against inflation.

The most important factor in gold prices over the long run is production costs, which act something like a natural price floor when demand dips. Of course, gold prices can also temporarily move much higher when demand is strong but tend to fall back toward the marginal cost of production once worries about inflation or the dollar subside and gold begins to lose its appeal as a hedge. Den Rest des Beitrags lesen »

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No rush: the price of gold

Posted by hkarner - 8. September 2017

Date: 07-09-2017
Source: The Economist

When the going gets tough, the nervous tend to buy gold. And that has been true—up to a point—during the crisis over North Korea’s nuclear programme. The bullion price has picked up since the start of August. But that takes the metal back only to $1,337 an ounce, barely up on a year ago, and way below its record of $1,898 in September 2011. These days gold has rivals in the “safe haven” stakes, such as the Swiss franc (up slightly more in the past year) and bitcoin, an electronic currency (up nearly eight-fold). In addition, many investors bought gold once central banks started quantitative easing after the 2008 financial crash, expecting a surge in inflation as a result. Prices stayed subdued and the case for an inflation hedge dwindled. Still, gold bugs remain some of the few people who might welcome the prospect of war.

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