GOLD PRICES rallied almost $10 per ounce from Friday’s new 6-year lows in London trade Monday, rising against all major currencies as Western stock markets bounced from earlier losses and mining shares outperformed, adding 1.4% to the PHLX Gold/Silver Sector (INDEXNASDAQ:XAU).
Hitting $1062 as New York trade opened after the Thanksgiving and Black Friday shopping weekend, the gold price also rallied above €1000 per ounce for Euro investors – a level recovered in January this year.
US crude oil prices rallied back above $42 per barrel as politicians and their advisors from 195 countries – now flown to Paris – began the United Nations’ climate change summit.
Despite crude losing 40% against the Dollar in the last 12 months, Opec members such as Saudi Arabia are expected to leave production quotas unchanged when the oil cartel meets Friday in Vienna, leading Russia to send only ‘lower level’ officials.
“The more we continue to produce unprofitable gold, the more pressure we put on the gold price,” said Mark Bristow, CEO of mid-tier gold mining producer Randgold Resources (LON:RRS), last week.
“How long are we going to supply…unprofitable gold?”
Gold output from the 3 largest US-listed producers rose 13% in the third quarter from a year before, data from Bloomberg show, despite gold prices averaging a 12% year-on-year drop against the US Dollar.
The price of gold has since lost another 5%, with the stock price of those producers – Barrick (NYSE:ABX), Newmont (NYSE:NEM) and GoldCorp (NYSE:GG) – now falling 8%, 9% and 21% respectively since they issued their Q3 results.
“[The majors] have got large capital spending profiles and they’ve got massive debts profiles that have to be refinanced,” says Bill Beament, CEO of small Australian miner Northern Star (ASX:NST), last seen growing year-to-date output by 35%.
The world’s #2 mining nation after China, Australia saw its total gold output rise 2% in Q3 from the same period last year, encouraged by a 1.3% rise in Australian gold prices, according to a new report from analysts Surbiton Associates.
“The declining value of the Australian Dollar has once again been the great saviour of our gold sector,” reckons Surbiton director Sandra Close.
Focused on West and Central Africa, Randgold’s own gold output rose 2% in Q3 from a year before to set another new all-time quarterly record.
“The industry can’t survive at the current spot,” CEO Bristow said when presenting those results a month ago, adding in a presentation last week to bankers in Toronto that half of the world’s current output isn’t “viable” at these market prices.
Randgold’s total cash costs so far in 2015 have risen almost 5% in US Dollar terms, while revenue has fallen the same proportion on a 4.1% rise in year-to-date sales.
The West African CFA Franc – used in both Mali and Cote D’Ivoire, where Randgold owns 4 of its 5 mines – has dropped 15% in value against the US Dollar over the last 12 months.
“While industrial metal producers have promised output cuts,” says Bloomberg, “we don’t have that psyche in the gold industry,” it quotes Bristow.
“We just send it off our mine and somebody buys it.”
Analysis of the global mining sector from consultants Ernst & Young says that across a sample of 88 companies working gold, silver, platinum and all base metals, capital investment in 2014 “still exceeded 2009, despite a comparable metal price outlook.”
“Although mergers and acquisitions have been subdued since 2011,” the report goes on, “shareholder distributions [through dividends and buybacks] have not fallen as sharply [because] some management teams have persevered with existing corporate policies, tapping credit lines [and] maybe believing spot prices [to] represent temporary, short-term deviations from in-house pricing curves.”
