Gold is not so shiny any more. Russia’s invasion of Ukraine briefly sent the price of the yellow metal above $2,000 a troy ounce in March — and near its record high. Since then, spot bullion prices have fallen 15 per cent to around $1,700 an ounce.
Unfortunately for gold bugs, the pressure is likely to continue. Aggressive rate hikes by the Federal Reserve are pushing government bond yields and the US dollar to multiyear highs. Both dull the appeal of the metal, which, unlike bonds, offers no yield.
For miners, the sting of lower prices is being compounded by inflationary pressure. The 41 per cent drop in second quarter profitability at Newmont, the world’s biggest gold producer, underscored the extent of the margin squeeze.
At Newmont, all-in sustaining costs — an industry metric that measures day-to-day operating costs as well as some longer-term expenses — jumped 16 per cent during the quarter to $1,199 an ounce. Revenue for the quarter was flat as higher fuel and labour costs offset any gains in gold prices or sales volume.
Worse, the tight labour market is starting to weigh on production. Newmont lowered its annual production guidance to 6mn ounces from its previous forecast of 6.2mn ounces.
Investors are bailing. Global gold ETFs registered $1.7bn in outflows in June, after a $3.1bn outflow in May. The New York Stock Exchange Gold Bugs index — which tracks big US-listed gold miners — has lost two-fifths of its market value since April.
Newmont’s poor quarter will be seized on by critics of Gold Fields’ proposed takeover of Yamana Gold of Canada. The South African miner, faced with depleting reserves in its mines in Africa and South America, wants Yamana’s more youthful operations.
Its shareholders are leery about the all-share deal though. While Yamana will contribute under a third of the enlarged group’s ebitda, its investors will own almost two-fifths of the equity.
Rising production costs and lack of immediate price support for gold will not help convince them otherwise.
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