Losing Faith in Gold?

Long and interesting article on Bloomberg's website by Peter Robison & Ekow Dontoh:

"Losing Faith in Gold From Ghana to Vancouver Proves Rout"

There is an infographic from Bloomberg:

"Damage of Declining Gold Prices Felt Globally"

I recommend to read the whole article, some snippets:


"Gold’s swift fall, including two days in April when it plunged the most since 1980, has ravaged hopes and livelihoods around the world -- from the 1 million miners in Ghana who scour in the dirt, to thousands of executives and geologists at mining exploration firms that are running out of cash in Vancouver. Gone too are jobs for auditors, bankers and analysts in the finance capitals of Toronto and London. Investors who bet big and lost are shifting assets elsewhere and scaling back retirement plans."

"At the September 2011 peak, the market value of the world’s gold mining companies reached $486 billion, more than the gross domestic product of the United Arab Emirates. Since then, they’ve lost $271 billion, including a 71 percent plunge in U.S. shares of AngloGold Ashanti Ltd., a Johannesburg-based producer held by Paulson."

"Seitz went to London in April to raise money for his newest venture, a developer of Kazakhstan gold assets called IRG Exploration & Mining Inc. He met with eight analysts and bankers. Six weeks later, four of them had lost their jobs, he said. “In my professional career, it’s been the toughest couple years of my life,” Seitz said."


However, despite the rather negative tone in the above article, I am not bearish about either gold or the gold miners, about which I have written before. I think that this kind of article is typically written near the bottom of the market, not the top. Small, inefficient mining companies will not be able to survive at the current low prices, but the larger, better funded ones will.

Barrick Gold made a nice run-up from it's lows (around USD 14). I have not yet sold any of my shares in Barrick or any of the other mining companies that I owe.

(Gold) Miners, a contrarian play?

Most people will know that gold has come down quite a bit lately, about 30% from its top.

But they might not know that the gold miners have come down much more in value.

Below is the chart of Barrick Gold, its share is down 70% since its top of $55 in 2011:

Well known gold funds like the ones from Van Eck and Blackrock have also faired badly, they are about 50% down over the last 2 years.

Is the sell off overdone? The price of gold has come down, which will surely have an effect on the profits. Also, many miners have bought assets in the last years, some of these assets have to be written down in value, giving one-off negative surprises.

However, I think that in the long run there will be inflationary pressures, and that the price of gold (and other precious metals) will rise again. For the blue-chip miners, this sell off might not be all bad news, competitors with insufficient cash might be put out of business.

I have started to pick up some of the miners, both the gold miners and the more general ones (like BHP). Although their share prices might easily fall further, in the long run I expect them to do ok.

Business Insider has an interesting info graphic on their website, explaining the cost of gold mining and why there are not many gold miners in Asia: there are not many mines (some are in Russia), and the cost is relatively high.