A spot of window dressing in the battered gold markets in New York on Friday night our time with the metal ending up 2.2% as investors who were shorting the metal decided to cover their positions.
The rise to a close of $US1,235 an ounce for the August front month on Comex, still left gold looking very black and blue.
It lost 5% over the week, 23% for the quarter (that late rise trimmed the loss back from just over 25%) and 27% for the first six months of the year. In the financial year to June 28, the front month on Comex shed $US371 an ounce, or around 24% for the 12 months (about what it fell in the June quarter).
Gold fell under $US1,200 an ounce on Friday.
Comex September silver rose Friday, settling at $US19.47 an ounce, up 6% on the day (more window dressing), but down 2.7% on the week, 31% on the quarter and 35% on the year.
A real tale of woe and the 23% slide was still the biggest quarterly fall in at least 45 years, such was the battering the metal took in April (down $US200 an ounce in two days) and June.
And the psychology has changed among individual investors.
After April’s two day plunge, investors flocked to buy physical gold in their thousands, driving up sales of coins, such as the American Eagle.
After the battering last month (which was topped off by the nasty $US50 plunge on Thursday), sales of gold coins have fallen sharply. All those investors who waded into the physical market in April are nursing horrible losses of a couple hundred dollars or more an ounce.
Reuters pointed that up to last Thursday, sales of the US Mint’s American Eagle gold coins in June stand at only 47,000 ounces, 80% lower than what was sold in all April, when sales hit a three and a half year high. Silver Eagles sales are down 20%.
Reuters also pointed out that the world’s eight largest gold Exchange Trade Funds (ETFs) lost 530 tonnes of gold in the first half of 2013, equivalent to about 10% of annual gold production, as investors sold out in their thousands forcing the fund to liquidate their gold holdings as the price collapsed.
And for stockmarket investors, there’s an even starker problem emerging – more and more gold miners are facing financial strains from over valued balance sheets, collapsing cash flows and rising costs.
Newcrest has already set the bar with its now controversial $A6 billion write down, cost savings, dividend suspension and job cuts.
And a report out on Friday in Canada suggested that the huge global miner Barrick could reveal billions in write downs on uneconomic mines, especially at its $US8.5 billion Pascua-Lama project in Argentina and Chile in the Andes.
Barrick said it is also likely to take other “significant” impairment charges for the second quarter as it reviews goodwill and other assets, just as Newcrest did in June. The most likely cut is up to $US5.5 billion.
On Friday medium level gold miner, Kingsgate Consolidated (KCN) announced it will take a $300 million write-off against its Challenger gold mine in South Australia as it cuts production to cut costs and try and keep the mine open.
Seeing Kingsgate paid $376 million for Challenger, it’s a massive about turn, thanks to the plunging gold price. The mine has been bedevilled by operating problems which have reduced output and earnings.
Kingsgate said it will cut annual output at the mine to 70,000-80,000 ounces of gold, from an earlier target of 100,000.
The cut in output comes as it has decided to focus on mining higher grades at the mine to try and improve its financial position. But that will be tough. In the March quarter costs at Challenger were $US1,278 an ounce which is well above the spot price on Friday of around $US1,223 an ounce.
RBC Capital Markets told investors in a client note late last week that there was a heightened risk of large write downs in asset values at Kingsgate, along with other gold miners such as St Barbara, Silver Lake and Alacer.
Kingsgate shares fell 7% to $1.265 at the close on Friday.
KCN 1Y – Kingsgate joins gold’s impairers
And earlier in the week, OceanaGold Corp said it would put its Reefton mine in NZ on a care and maintenance plan for two years (until mid-2015) until the price of gold hopefully improves.
The plan will strip out between $NZ40 million and $NZ45 million of capital spending over the next two years.
"The decline in the gold price over the past two months has eroded much of the profitability at Reefton which has led to this revised plan," managing director Mick Wilkes said On Thursday, according to NZ media reports.
"While we are hopeful for an improved gold environment, we have taken the necessary steps to ensure a sustainable and profitable operation at Reefton over the next two years."
The cuts effectively trim 110,000 ounces of gold production from the mine’s output profile over the next four years.
OceanaGold is also conducting a technical study at the Blackwater project 15 kilometres south of the Reefton mine and says it expects to get the go-ahead as early as 2014 if it shows "positive economics".
OceanaGold closed around a three year low on Friday at $1.185 (down just over 2% on the day).
But it wasn’t just gold and silver – copper has lost 10% from the start of the year, and could lose a bit more if the crackdown on speculative deals and loans in China continues for much longer.
