Gold stumbles on US employment data
Oct 6, 2014 at 10:58 am in General Trading by contrarianuk
Gold is currently trading at $1,194 an ounce after falling as low as $1,183 in Asian trading as Friday’s strong non-farm payroll number from the US made the metal even less appealing in the face of potential Federal Reserve interest rate hikes.
Last week’s falls in the price of gold mean that the price is back to levels last seen at the end of 2013 and the gains seen in early 2014 have rapidly evaporated with the price as high as $1,391 back in February.
With the average price of global production around $1,150 an ounce, producers must be hoping that a scenario where the metal drops back to around $1,000 an ounce isn’t going to happen anytime soon. Many producers have booked reserves at much higher prices and accounting rules require miners to calculate the value of their reserves based on recent prices. If prices fall too much, the miners need to charge impairments through the income statement.
Gold’s traditional use as a hedge against inflation and volatility seems to be little in demand right now as fears of deflation grow in Europe and inflationary pressures seem relatively subdued in the United States. The risk of a collapse in equity prices seems distant at the moment and hence the metal’s use to diversify portfolios and serve as a “safe haven” is being undermined by a steadily rising US stock market. With gold at $1900 an ounce back at its peak in 2011, its comes a long way back, but many are betting that it will fall even further. Not good news for higher cost producers just like the situation currently being seen in the iron ore industry with marginal producers under severe pressure as profits evaporate. Those banking profits on gold in late summer were smart after the surprising resilience in the price in the first half of 2014, the last quarter of 2014 should see plenty of volatility.
Contrarian Investor UK
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