Gold in freefall as confidence evaporates
The gold price has fallen for a fifth straight day to its lowest in 34 months and is set for the worst quarterly slump in at least 90 years amid speculation the US Federal Reserve will reduce stimulus.
Silver is headed for its biggest quarterly loss since 1980.
Spot bullion slid as much as 1.7 per cent to $US1180.50 an ounce early on Friday, its lowest since August 2010.
Prices have dropped 25 per cent since the start of April, the biggest quarterly slide since at least 1920.
The losses are already having an impact on local stocks.
Goldminer Kingsgate Consolidated on Friday warned it would take a $US300 million ($324 million) write-off against its Challenger goldmine in South Australia as it slashed output to cope with the falling gold price.
Kingsgate bought Challenger for $376 million, but operations at the mine were subsequently hit by a series of operating issues that had restricted output and earnings.
Now, with the sharp decline in the gold price, Kingsgate said it would cut output at the mine to 70,000-80,000 ounces of gold a year, down from a target of about 100,000 ounces once production difficulties had been resolved.
The cut in output came as it decided to focus on mining higher grades at the mine. Kingsgate said the Challenger mine was expected to be "cash-flow positive" after a three-month transition period.
It also signalled a significant downgrade to the ore reserves at the mine after a review that was now under way.
On Thursday, RBC Capital Markets told investors there was a heightened risk of a large write-down in asset values at Kingsgate, along with other goldminers such as St Barbara, Silver Lake and Alacer.
Gold is heading for the biggest annual decline in more than three decades.
Investors are selling bullion from exchange-traded products at a record pace as unprecedented money printing by central banks fails to spur inflation.
Analysts from Morgan Stanley to Credit Suisse and Goldman Sachs trimmed gold forecasts this month on the prospects of reduced asset purchases.
"We've had quite a lot of positive data out of the US and people are still focused on the tapering of stimulus, so gold's been hit quite hard," National Australia Bank economist Alexandra Knight said.
"There's definitely been a loss of confidence in gold and that's seen in the [exchange traded fund] liquidations."
US Federal Reserve chairman Ben Bernanke said this month the central bank, which bought $US85 billion of Treasury and mortgage debt a month, might trim purchases this year and end the program next year should the economy continue to improve.
Data this week showed US consumer spending, durable goods orders, consumer confidence and home sales rose in May, even as economic growth in the first quarter was less than previously estimated.
Gold has fallen 29 per cent this year as investors have sold 583.2 tonnes from ETPs, erasing more than $US63 billion in the value of the funds.
Modest inflation growth and concern about the strength of the global economy is also hurting silver, platinum and palladium, which are used more in industry.
The fall in gold prices has left central banks around the world with theoretical losses of $US655 billion, according to estimates.
The price of bullion has fallen a staggering 34 per cent since its $US1908 peak in August 2011.
The total value of gold held in central bank vaults is now worth just $US1.22 trillion, down from $US1.28 trillion at the market peak.
The Federal Reserve faced the largest losses, with the value of its holdings falling from $US323 billion in August 2011 to $US213 billion this week. The US has the largest gold reserves of any nation, making up 26 per cent of all the gold held in central banks worldwide.
The 79.9 tonnes of gold held by the Reserve Bank of Australia are worth $US3.06 billion, down from more than $US4.56 billion in September last year.
Meanwhile, copper and the London Metal Exchange index of six primary metals headed for the biggest quarterly falls since September 2011.
Copper for delivery in three months on the LME dropped as much as 1.3 per cent to $US6660 a tonne. Copper fell 10 per cent this quarter while the LME index dropped 9.9 per cent. The index touched 2911 on June 24, the lowest since June 2010.
China, which is facing a slowing economy, consumes more than 40 per cent of the world's copper.
"What concerns the market most is China's macro conditions," Cofco Futures analyst Liang Lijuan said from Beijing. "Copper has further downside."
On the LME, tin, lead and zinc fell, while aluminum climbed.
Frequently Asked Questions about this Article…
The article says the gold price slump is driven mainly by speculation the US Federal Reserve will reduce its asset purchases (tapering), stronger-than-expected US economic data and a loss of confidence that has triggered record selling from exchange-traded products (ETPs). Major banks and analysts (Morgan Stanley, Credit Suisse, Goldman Sachs) have trimmed forecasts on the prospect of reduced stimulus, which has weighed on bullion.
Bullion has fallen about 34% from its US$1,908 peak in August 2011 and has lost roughly 29% so far this year. Spot gold slid as low as US$1,180.50 an ounce (the lowest since August 2010) and prices dropped about 25% since the start of April, putting gold on track for its worst quarterly slump in at least 90 years.
The falling price has already forced miners to reassess assets. Kingsgate Consolidated warned it would take a US$300 million (A$324 million) write-off against its Challenger goldmine, cut output expectations to 70,000–80,000 ounces a year (from a target near 100,000 ounces) and signalled a downgrade to ore reserves after a review. RBC Capital Markets also said there is heightened risk of large write-downs at Kingsgate and other miners such as St Barbara, Silver Lake and Alacer.
Investors have been selling gold from ETPs at a record pace — about 583.2 tonnes were sold this year, erasing more than US$63 billion in fund value. That large-scale liquidation reflects falling confidence in gold and amplifies downward pressure on the gold price, which is important for investors to monitor when tracking market momentum.
According to the article, the fall in gold prices has created theoretical losses of about US$655 billion for central banks. The total value of gold held in central bank vaults is now about US$1.22 trillion, down from US$1.28 trillion at the market peak. The Federal Reserve’s holdings fell in value from roughly US$323 billion in August 2011 to about US$213 billion; the Reserve Bank of Australia’s 79.9 tonnes are now worth US$3.06 billion, down from more than US$4.56 billion in September last year.
Fed chair Ben Bernanke indicated the central bank might trim purchases this year and could end the program next year if the economy continues improving. Recent US data (rises in consumer spending, durable goods orders, consumer confidence and home sales) have reinforced expectations of tapering. That shift away from aggressive stimulus has reduced some investors’ inflation and safe-haven bets, contributing to sharp selling and volatility in gold.
Silver is headed for its biggest quarterly loss since 1980, and industrial metals such as platinum and palladium are also under pressure from modest inflation and worries about global economic strength. Copper plunged about 10% this quarter and was quoted as low as US$6,660 a tonne, with the LME index of six metals down about 9.9% — partly due to concerns about China’s slowing economy (China consumes over 40% of the world’s copper). These moves suggest broad weakness across metals markets, not just gold.
Based on the article, investors should watch: announcements from the US Federal Reserve about asset purchases (tapering), US economic data that could influence Fed policy, ETP flows and liquidation trends, analyst forecast revisions from major banks, and company-level developments such as miner production cuts, reserve downgrades and potential write-offs (for example, Kingsgate and peers). These factors are currently driving price direction and market confidence.
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