Hedge funds’ bullish bets on gold jump to four-year high
Hedge funds and other large speculators boosted their net-long position in gold.
Gold on Friday dropped more than 2% after a stronger than expected jobs report in the US rekindled fears that interest rates in the world’s largest economy may rise sooner than thought.
In afternoon trade on the Comex division of the New York Mercantile Exchange gold for April delivery shed 2.2% or $27.70 to $1,235.00 an ounce after earlier in the day falling to a low of $1,228 an ounce.
Gold’s 2015 gains – the metal is still up 4% or just over $50 since the start of the year – have been ascribed to safe haven buying amid currency turmoil, a slowing global economy and a debt crisis in the Eurozone.
But with the first hike in more than six year likely at the Fed’s June meeting raising the opportunity costs of holding gold because the metal provides no yield, gold traders refocused their attention on fundamental factors.
Higher rates also boost the value of the dollar – already trading at multi-year highs – which usually move in the opposite direction of the gold price.
On Friday the greenback surged 1.3%, a major move for the forex market more accustomed to basis point fluctuations. The USD is now also back within shouting distance of 12-year highs against the currencies of major US trading partners hit last week. The dollar index has strengthened by 15.5% over the last year.
The sell-off was led by the world’s most valuable gold stock, Goldcorp (TSE:G, NYSE:GG). The counter fell 6.5% on the NYSE and is now worth $18 billion in New York and more than C$22.3 billion in Toronto. Year to date gain for the Vancouver-based firm is a robust 24%.
Goldcorp is forecasting a whopping 20% production increase this year to 3.45 million ounces despite cutting capex costs nearly in half to $1.3 billion. Goldcorp latest project to come on stream is the Argentina-based Cerro Negro gold and silver mine. The high-grade operation boasts reserves of 5.7m ounces.
Barrick Gold Corp (NYSE:ABX, TSE:ABX) dived 5.4% – the world’s top producer market value is down almost one third over the last six months. Investors have been worrying over further asset writedowns, a declining production profile and problems at board level.
The world’s number one producer of the metal, expected to have produced roughly 6 – 6.5 million ounces in 2014, is worth $13.8 billion in New York. That compares to $64 billion capitalization when gold was at $1,900 in 2011.
World number two in terms of production Newmont Mining Corp (NYSE:NEM) was spared some of the carnage, declining 3.6%. Newmont, the only gold company that forms part of the S&P500 index and which has been publicly traded since 1940, is having a good 2015 so far, with 15% gains this year.
Randgold’s Loulo plant in Mali
AngloGold Ashanti (NYSE:AU), the world’s third largest gold producer in terms of output fell 5.6% for a market value of $9.1 billion on the NYSE. Up more than 40% in 2015, AngloGold is the star performer among the heavyweights in the sector after releasing strong third quarter results which boosted its production outlook to the top end of previous guidance.
AngloGold Ashanti is expected to have produced 4.35m – to 4.45m ounces in 2014 despite the sale of the Navachab mine in Namibia in May, losses caused by the earthquake in South Africa, and the transition of the Obuasi Mine to limited operating state by year-end.
Yamana Gold (TSE:YRI) was one of the biggest losers on the day dropping 8.2%, but the Toronto-based company can still boast double digit gains for the year to date. The counter was hammered last month after announcing it is raising at least $260 million by issuing 49.2 million shares to help pay down debts of roughly $2 billion.
Apart from some operational issues at its Argentina and Brazilian mines, the company has also come under fire for its generous executive pay despite a share price that’s halved over the past year. Yamana is worth $4.4 billion on the TSX.
Agnico Eagle Mines (TSE:AEM, NYSE:AEM) also sold off heavily, losing 8.6% on the day and cutting its market capitalization down to $6.6 billion in New York and making it the world’s 7th most valuable listed gold miner. Despite today’s sharp pullback the stock is up 27% year to date.
The Toronto-based company operates nine mines located in Canada, Finland and Mexico and has also found investor favour thanks to an improving production profile. Agnico’s Meadowbank mine in Canada and Kittila operation in Finland is humming along helping it to raise 2015 output guidance to 1.6 million ounces.
Randgold Resources ADR’s trading on the Nasdaq (LON:RSS, NASDAQ:GOLD) also came under pressure with the punters’ favourite losing 4.6%. The Africa-focused miner with a $7.5 billion valuation has gained 20% this year although it remains well below a more than four-year high reached in July.
Randgold has been piling on the ounces at its mines in West and Central Africa. Its Kibali mine in the Democratic Republic of Congo which boasts reserves of 12 million ounces should hit 600,000 ounces this year and earlier this week the company said it’s looking at the development of a third underground mine at its Loulo-Gounkoto gold mining complex in Mali.
Eldorado’s Jinfeng open pit and underground mine in China’s southern Guizhou Province
Randgold, which have been active in West Africa for almost 20 years, is one of the fastest growing gold miners in the world, moving it up the ranks over the past couple of years to become the sixth most valuable gold counter.
Toronto’s Kinross Gold (TSE:K) was knocked 5.6%, slicing its market worth to $4.4 billion. After starting the year with a bang, the stock is up nearly 24% in 2015. The company produced 2.6 million ounces last year with some 720,000 ounces coming from Russia, making Kinross much cheaper than its peers on an ounce for ounce basis.
Canada’s Eldorado Gold Corp (TSE:ELD) fell 4.4%. A promising start to 2015 for the stock came to an abrupt end on January 21 when the Vancouver-based gold producer’s outlook for the year came in way below expectations.
The company, now worth $4.4 billion on the Toronto big board, announced record production of 782,224 ounces during 2014, but slashed forecast production for this year to between 640,000 and 700,000 ounces and upped costs at the same time.
Then a week later, Eldorado took another nosedive following comments that the new government in Greece would likely block its Skouries project in the troubled country.
The proposed mine has had locals divided since early 2011, subsidiary Hellenic Gold received government approval to mine in the northern peninsula. Eldorado also owns mines in Turkey, China and Brazil (which it is mothballing) and a project Romania.
Gold Fields (NYSE:GFI) ended the day down 4.3%. The Johannesburg-based company, targeting 2 million ounces a year, is up 23% in 2015.
Fellow South African miner Harmony Gold (NYSE:HMY) slid 5.6%, cutting into its impressive advance year to date. The company’s ADRs have skyrocketed more than 50% this year thanks to a positive pre-feasibility study of its 20 million ounce Wafi-Golpu project in Papua New Guinea and renewed institutional interest in the counter.
Wafi-Golpu is a joint venture with Australia’s Newcrest Mining (OTCMKTS:NCMGY, ASX:NCM). The Melbourne-based company is up 45% over the past year thanks to a management overhaul and with most of the pain associated with its giant Lihir mine in PNG behind it. Newcrest, the world’s fourth most valuable miner behind AngloGold, is targeting total gold production of 2.2 – 2.4 million ounces in 2015.
