Gold Producers Face Divergent Cost Outcomes

A gold producer in Brazil should be preferred as an investment to one in Thailand or the Philippines. Currency markets have become more than usually volatile over the past six months as the net effect of differing monetary policy settings across countries have impacted on foreign exchange markets. Gold production is an industry with an unusually high and diverse exposure to currency movements. Not all gold producers will have been affected to the same extent by the recent currency moves since they all sell a US dollar denominated product but manage a local currency cost base. Producers with Australian dollar costs have benefited from an 18% currency depreciation since August 2014 but the gain for companies exposed to costs in Brazil, Turkey and Burkina Faso has been as much as 45%. As the chart shows, producers in Thailand and the Philippines would be lagging the pack as exchange rate beneficiaries. Some investors might be in for a shock (or a pleasant surprise) if they have been oblivious to the effect on profitability of the relative currency movements.