Gold Production May Plunge After Price Fall Supporting Gold

Today’s AM fix was USD 1,396.50, EUR 1,068.89 and GBP 909.42 per ounce.
Yesterday’s AM fix was USD 1,405.25, EUR 1,074.68 and GBP 918.64 per ounce.

Gold fell $13.80 or 0.98% yesterday to $1,398.20/oz and silver slid to $22.28 and lost 0.92%.

Gold rebounded to trade above $1,400/oz this morning as the dollar and equities retreated, increasing demand for the yellow metal as a safe haven and store of value.

The Shanghai Futures Exchange has cut its gold and silver margin requirements. The bourse will cut margin requirements for gold and silver futures to 4% from 7%, according to amended trading rules posted on its website. Trading limits for silver and steel rebar futures will be lowered to 3% from 5%, the exchange says. The amendment will go effect on June 25. 

The recent 22% decline in gold prices may lead to a substantial drop in gold production. During the 26% plunge in gold prices in 2007-08, gold production fell by 9.4%. Balance sheets in much of the gold mining sector are much worse than they were in 2007 and this may also force production cutbacks from the major producers, while growth from junior miners may struggle given the dire financing backdrop.

This will support gold in the long term.

Gold’s latest correction has put gold mining companies on the defensive globally and many are under severe pressure. Gold mining companies have been forced to cut costs, investment and most importantly for the price of gold – production. 

All of which will likely worsen already strained relations with workforces, particularly in poor countries in Africa and South America.

There are many uneasy agreements between mine workers and companies involving promises of higher wages, better working conditions and new rights. Soon, the pay promises are set to be tested.


Gold Spot $/oz, Daily, 3 Year – (Bloomberg)

The Philadelphia Stock Exchange Gold and Silver Index is the benchmark gold mining index in the world. It is a capitalization-weighted index which includes the leading companies involved in the mining of gold and silver globally. 


PHILA GOLD & SILVER INDX – (Bloomberg)

The index has performed miserably in recent years and is down 34.6% YTD and 34.56% in the last year. Indeed, the index is at levels seen nearly 30 years ago in 1984.

Printing and debasing currency is easy with central bankers just pressing a few buttons on a keyboard and electronically creating billions and indeed trillions of dollars, euro’s, pounds and yen today. 

Mining for gold and other precious metals is far from easy and gets harder every year. 

Miners are having to go deeper and deeper into the ground in the attempt to extract the precious metal from the bowels of the earth.  Ore grades are declining globally and peak gold has been reached in South Africa and may have been reached globally.

The poor miners in South Africa who are wielding machetes today will testify as to just how very hard it is to mine for the earth’s precious metals – despite the huge advancement in technology seen in recent years. 


Cross Currency Table – (Bloomberg)

Blood, sweat and tears are involved in extracting small amounts of gold from the earth’s crust. 

Global currency debasement means that the dollar, the euro, the pound, the yen and all fiat currencies in our current fiat based monetary system will continue to fall in value versus gold, silver and the precious metals over the long term.

NEWS
China gold imports to keep growing after hitting record high – Reuters

Gold Climbs Above $1,400 as Decline in Stocks Increases Demand – Bloomberg

Reserve Bank of India nears panic in its war against gold – The Economic Times

82% of the Asians believe that price of gold will increase – The Economic Times

COMMENTARY
Gold Default: The “Zero Hour” Scenario – The Daily Reckoning

JPM Vaulted Gold Slides To New All Time Low – Zero Hedge

Major Insider: Time to Buy Gold; The Chinese Want to Make the Yuan Gold Backed
– The Economic Policy Journal

Caveat Emptor: Another Level of Non-Quantifiable Risk Added to Trading Metals On the Comex – Jesse’s Café Américain

For breaking news and commentary on financial markets and gold, follow us on Twitter.

 

Mark O'Byrne

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