Gold exodus rattles market
A record sell-off of the precious metal on Monday plunged the country's biggest listed gold producer, Newcrest Mining, to its lowest share price since 2006, and raised fresh questions about the local metal sector's future.
Buyers returned to the market to recover some of the losses, with the S&P/ASX 200 Index closing 17.1 points lower, or 0.3 per cent, to 4950.8 points - after touching an intraday low of 4914 points.
The fall followed Wall Street's worst day this year, with the S&P500 tumbling 2.3 per cent after Chinese growth data disappointed and the Boston explosions spooked investors.
Credit Suisse strategist Damien Boey said the decline in gold prices "foreshadowed that something is not right with the global economy".
"There are various explanations, but it's a clear signal," he said.
The price of the metal has been undergoing extraordinary reversal from a decade-long rally. Since reaching a high of $US1888 an ounce in August 2011, gold has been on a downward slope. The decline picked up pace on Friday, when gold fell 4 per cent, officially taking it into a bear market, which is defined as a 20 per cent drop from its recent high.
The damage grew much worse on Monday, when the price of an ounce of gold dropped 9.4 per cent, or $US140.40, to $US1360.60 for the April contract - the sharpest such one-day decline since February, 1983.
A number of banks, including Goldman Sachs, have recently lowered their forecasts for gold. But the recent drop has been greater than even the most pessimistic predictions.
He said the recovery in mining stocks was buoyed by buyers being enticed by low prices, but that the sector's long-term outlook was uncertain. "It's really fighting gravity at the moment, because day by day, we see another commodity price fall," he said.
"If global GDP growth is going to slow, and commodities prices are going to fall 20 or 30 per cent, then where does that put our miners? Where does that put our mining capex plans?"
JPMorgan gold analyst Joseph Kim voiced a similar concern: "In our view, persistent weakness in gold could result in revisions to life of mine production plans and scheduling, or even outright closures, as miners react to revised economics under lower gold price," he said in a note to investors.
The Australian dollar was lower at $US1.039.
The Reserve Bank of Australia said it was ready to push interest rates lower if required, but that the economy was unlikely to need it.
The sentiment was released in the minutes of the Bank's latest meeting, with ANZ economists claiming further monetary easing remained a strong possibility "with unemployment, job ads and capex the key releases to monitor in the near term".
Gold miner Evolution Mining ended the day as the worst performing stock on the ASX 200, down 18.1 per cent to 99.5¢.
Mining services company Boart Longyear closed 12.7 per cent lower at 96.5¢, while Newcrest Mining finished the day 5.1 per cent lower at $17.
Frequently Asked Questions about this Article…
The article says the biggest gold rout in 30 years was driven by a large, record sell-off in the precious metal and follow‑through weakness after a bad day on Wall Street. Disappointing Chinese growth data and the Boston explosions spooked markets, sending the S&P500 down 2.3%. Credit Suisse and other strategists flagged the sharp fall in gold as a signal that something may be wrong with the global economy — which matters to everyday investors because it affects commodity prices, mining stocks and broader market sentiment.
According to the article, gold fell about 4% on the prior Friday — officially putting it into a bear market (a 20% fall from its recent high). The pain intensified on Monday, when gold dropped 9.4% (US$140.40) to US$1,360.60 for the April contract — the sharpest one‑day decline since February 1983. The article notes gold had previously peaked at US$1,888 an ounce in August 2011.
The local market felt the impact: Newcrest Mining, Australia’s biggest listed gold producer, fell to its lowest share price since 2006 and closed down 5.1% at $17. Evolution Mining was the worst performer on the ASX200, plunging 18.1% to 99.5¢, and mining services company Boart Longyear closed 12.7% lower at 96.5¢. The S&P/ASX200 briefly hit an intraday low and closed 17.1 points (0.3%) lower at 4,950.8.
No — while a number of banks (including Goldman Sachs) had recently lowered gold forecasts, the article says the recent one‑day and multi‑day declines were larger than even the most pessimistic predictions from those firms.
Yes. The article quotes JPMorgan gold analyst Joseph Kim warning that persistent weakness could lead miners to revise life‑of‑mine production plans, reschedule production or even close operations if economics deteriorate. Credit Suisse also questioned where miners would end up if global GDP slows and commodity prices fell 20–30%, potentially affecting capex plans.
Buyers did return to the market after the initial sell‑off and recovered some losses. The article notes mining stocks were supported in part by bargain hunters attracted to low prices, but it also cautions that the sector’s long‑term outlook remained uncertain amid ongoing commodity price weakness.
The Australian dollar was lower at US$1.039. Reserve Bank of Australia minutes said the Bank was ready to lower interest rates if required, though it judged the economy was unlikely to need it. ANZ economists flagged that further monetary easing remained a strong possibility and recommended watching unemployment, job ads and capex data as important near‑term indicators.
Based on the article, investors should watch the gold price and whether it stabilises, miner announcements about production or capex, global GDP and commodity price trends, major economic data (especially from China), and key Australian indicators like unemployment, job ads and capex. Also keep an eye on central bank commentary (the RBA minutes were cited) and analyst updates from major banks and strategists.
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