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 $17.00.
Frequently Asked Questions about this Article…
The article says a record sell-off drove the steep decline: weak Chinese growth data and shock events (including Boston explosions) helped spook global markets, following Wall Street's worst day of the year. Gold, which had been reversing from a decade-long rally after peaking at US$1,888/oz in August 2011, plunged in a one-day drop of 9.4% to US$1,360.60 for the April contract. Analysts from Credit Suisse and other banks warned the move could signal broader worries about the global economy.
The S&P/ASX 200 fell after the sell-off, closing 17.1 points lower (down 0.3%) at 4,950.8 after touching an intraday low of 4,914. Buyers returned later in the day to recover some losses, but the metal rout dragged the resources sector and the broader market.
Newcrest Mining, Australia's biggest listed gold producer, was hit hard — the sell-off pushed its share price to its lowest level since 2006. Newcrest finished the day down 5.1% at A$17.00, according to the article.
Evolution Mining was the worst performer on the ASX 200, plunging 18.1% to 99.5¢. Mining services company Boart Longyear also fell sharply, closing 12.7% lower at 96.5¢. These losses reflect the strong downward pressure on the gold sector that day.
Bank strategists and analysts cited in the article expressed concern. Credit Suisse’s Damien Boey said the gold decline “foreshadowed that something is not right with the global economy.” JPMorgan’s Joseph Kim warned persistent weakness could lead miners to revise life-of-mine plans, reschedule production or even close operations as economics deteriorate. Several banks, including Goldman Sachs, had already lowered gold forecasts before the recent plunge.
Yes. The article notes gold officially entered a bear market after a prior 4% drop on Friday that pushed it 20% below its recent high. The situation worsened on Monday with a 9.4% one-day fall (US$140.40), taking the April contract to US$1,360.60 — the largest single-day decline since February 1983.
The article highlights a few key indicators to monitor: Chinese growth data (which helped trigger the sell-off), global GDP growth and commodity price trends, plus domestic indicators flagged by ANZ economists — unemployment, job advertisements and capital expenditure (capex). These releases can signal whether commodity weakness will persist and affect miners’ prospects.
The RBA minutes noted the Bank was ready to push interest rates lower if required, although it judged the economy was unlikely to need cuts immediately. ANZ economists said further monetary easing remained a strong possibility depending on labour and capex data. The Australian dollar was lower at US$1.039 on the day of the sell-off, so RBA commentary and domestic economic releases could influence the currency and market sentiment for investors.
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