Saturday, 13 April 2013

The puke moment for precious metals and miners

This is worse than a nightmare !
With gold down $84 today and silver shedding $1.81, we can't have much more... and we got more on Monday.
Continuing the slide at that pace, by the end of April we will get paid to carry away those metals previously considered precious... and smelly beggars outside the shopping mall will put down a sign in front of them saying: "no gold please". You don't buy the story? Then it's perhaps the time to stop shorting those metals.

Today the HUI gold miners index, barely holding 300, shedded 6%. The HUI index dropped to 20.4% of the price of the yellow metal: below the 2008 financial crisis bottom.

HUI relative to gold, daily observations over 6 months. Have you had enough?
None of the HUI nor of the XAU components is up today. Even among juniors there are almost no counter-trend movers. Praise yourselve happy if you've lost less than 5% on your mining portfolio today.

Mining costs
As Nick Holland ( CEO at Gold Fields) mentioned recently, equipment costs (all material investments) have been rising in price at a yearly compound 10% rate since 2009. This far outstrips the consumer price inflation in all of the developed world. At Barrick, the investment cost for resource development, permitting and mine construction added to the operational costs, result in a total cost per ounce of over $1400, putting in jeopardy all future expansion of production capacity.

GLD
The implosion of precious metal prices and gold in particular, has resulted in the dumping of shares of the gold bullion ETF, GLD. This forced the GLD custodian to proceed to selling close to 200 tonne of gold last few weeks. This amounts to over twice the mining output during this period. Add the COMEX short selling and the redemption of many leveraged 'out-of-the-money' gold holdings and you've got the recipe for what we have witnessed last Friday.

Sudden swoons are the fate of precious metal prices
Finally, allow me to link to the posting, titled above. Dated autumn 2012, it's more actual than ever...

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