Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
After six straight days of declines, the gold market finally clawed back some lost ground on Friday after jobs data out of the US disappointed and safe haven buying returned on rising tensions in Eastern Europe.
In late afternoon trade on the Comex division of the New York Mercantile Exchange gold for December delivery was changing hands for $1,178.50 an ounce, up $35.90 or 3.1% from Thursday’s close.
In early trade the metal fell to a day low of $1,130.40, levels last seen April 2010. Trading volumes were heavy once again with the most active contract trading the equivalent of 28.7 million ounces, double the three-month average.
US non-farm payroll data released on Friday showed the economy added 214,000 jobs in October, below the 255,000 expected. The unemployment rate fell to 5.8% and when the numbers are not seasonally adjusted, October 2014 comes out as the best employment gain for the month ever.
Gold traders nevertheless used the upfront numbers to pick up gold which by most accounts had reached deeply oversold territory after falling more than 7% in a week.
Safe haven buying also returned after Ukraine accused Russia of sending heavy military equipment including 32 tanks over the border after fresh fighting between the government and rebels in mainly Russian-speaking eastern Ukraine.
Fears of fresh aggression from Russian President Vladimir Putin were also stoked after the strident leader defended the Molotov-Ribbentrop pact signed on the eve of the Second World War at a meeting of historians earlier this week reports the Financial Times.
Putin argued that there was nothing wrong with the non-aggression treaty between Russia and Nazi-Germany which secretly carved up Poland and other countries between them. Putin’s latest comments come two weeks after he accused the US of violating international rules and re-asserted Russia’s role as a major power in the world and the region.
Fears about a full-blown currency crisis in Russia is also rising. The rouble fell 8% this week, it’s worst performance since 2003 and is now down 30% this year as a result of the Ukrainian crisis, international economic sanctions and the fall in the price of oil, by far the country’s biggest export earner.
Gold is attractive during times of turmoil as a storer of wealth and after ending 2013 at $1,205 an ounce, the gold price leaped out of the gates to reach $1,380 an ounce mid-March on the back of safe haven buying after Russia seized the Crimea and the Ukrainian conflict looked as if it could spiral out of control.
But as Ukraine and later the Iraq-Syria conflict receded from the headlines, gold failed to consolidate these gains during the summer doldrums, falling below $1,200 for the first time this year early October.
The metal made a sharp recovery from there to hit a high of $1,255 an ounce by October 21, only to plummet after the US Federal Reserve signaled the end of its economic stimulus program.
The winding down of the Fed’s asset purchase program known as QE led to a record-setting surge in equities, boosted the dollar to four year highs and saw a sharp increase in bond yields.
Gold and the dollar usually move in opposite directions as it tarnishes gold’s allure as a storer of wealth, while higher interest rates raises the opportunity costs of holding gold which produces no income.
Image of Vladimir Putin wax figure by Thomas Hawk.
5 Comments
Bob
Mr. Els notes: “gold failed to consolidate these gains during the summer doldrums …”
Does he somehow think the gold price fluctuates in a supply and demand vacuum independent of outside influences? Does that not pique his intellectual curiosity?
How many simultaneous wars have to be fought, how much paper has to be printed, how many people have to die, before somebody finally “notices” the incongruity perverting price discovery, and says STOP?
Jennifer Nodine
Very well put, Bob.
Marcus
Soon Russia will ask for payment of Russian Gas in Russian Roubles… Once that happens, it may be a floor to the Russian Rouble as we know it.
Louis Nardozi
“as a result of the Ukrainian crisis”
No, as a result of US manipulation of the ruble and collaboration with the Saudis to manipulate lower the price Russia receives for oil. Meanwhile, the dedollarization continues unabated.
ACBO
Putin argued that there was nothing wrong with the non-aggression treaty
between Russia and Nazi-Germany which secretly carved up Poland and
other countries between them.So later the Russians killed 30,000 elite polish gentry & citizens in the black forest so they could establish control over poland because Russia feared Poland as past history would show. ‘Puke-in’ s full of it & should pull the stick out of his arse.
He says it is OK…?? The man’s mad & full of his own importance [Impotence]