Gold equities recoiled as if they had touched a live wire in US trading on Friday, opening the way for a similar reaction in Australia on Monday

John Robertson

PortfolioDirect

Gold equities recoiled as if they had touched a live wire in US trading on Friday, opening the way for a similar reaction in Australia on Monday. The NYSE gold share price index rose 7.9%. The chart shows US gold equity prices (NYSE BUGS index) since 1996 to put recent levels in perspective. Before reacting on Friday, they were as low as they had been for over a decade during which time production costs have soared. The industry is less profitable at $1,000/oz than it had been at $500/oz. It is hard to justify paying when the value does not warrant the investment. In the gold market, mine production accounts for such a small proportion (less than 2%) of total available supplies that the industry cost structure will be less influential in setting the low point for prices than in other metal markets. Producers face the threat of a historic profit squeeze that many may not be able to withstand. This is what the equity market appears to be saying about the industry.


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John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...

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