{"id":39773,"date":"2013-07-09T01:22:41","date_gmt":"2013-07-09T05:22:41","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=39773"},"modified":"2013-07-09T01:22:41","modified_gmt":"2013-07-09T05:22:41","slug":"gold-breaks-a-record","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/07\/09\/gold-breaks-a-record\/","title":{"rendered":"Gold Breaks A Record"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

What a quarter that was for the gold<\/strong> bugs. Most would rather forget it ever happened.<\/p>\n

The metal fell 23% in the last three months, which was an all-time record<\/em>. Failing a miracle, gold will be down this year for the first time in over a decade.<\/p>\n

Gold stocks<\/strong> fared worse still. The Aussie gold stock index is down 55%, while smaller stocks fell further. It has been nothing less than a train wreck on par with the end of the uranium boom.<\/p>\n

The question is where does the market go from here? Is this the end of an era, or is a huge opportunity brewing?<\/p>\n

A few weeks ago, I advised Diggers and Drillers<\/em> subscribers to sell our silver position, and also that I was selling my own. <\/p>\n

I had to axe a number of gold stocks<\/a> too as they had fallen unacceptably far. After being a major precious metals bull, there were plenty of emails using words like ‘unacceptable’, ‘major U-turn’, and ‘lost the plot’.<\/p>\n

The bottom line was that the market has changed.<\/em><\/p>\n

As conditions change, views have to change. Right now, the driving force for much of the market, not least in precious metals, is the action in the US bond market.<\/p>\n

Yields on US 10-years have jumped from 1.6% to 2.7% in just two months<\/em>.<\/p>\n

Let me tell you, this is a massive jump.<\/p>\n

But why is this jump such a big deal. And why has this forced me to reluctantly change my tune, and sell the family silver?<\/p>\n

The direction of gold<\/a> has a lot to do with bond yields; specifically real bond yields, which are now very comfortably into positive territory.<\/p>\n

Gold pays no yield. This isn’t an issue when bonds don’t either, but for some investors at least, gold looks less attractive when bonds have real yield.<\/p>\n

US Ten-Year Bond Yield Soaring<\/h2>\n<\/p>\n

<\/a>
\nSource: Bloomberg<\/strong><\/p>\n

The Federal Reserve <\/a>previously warned of bond yields creeping up, and possibly getting to the current level sometime in late 2014. It only took just a few months and this surge has happened much faster than even they expected.<\/p>\n

The bottom line is that it looks as though they have lost their grip on the bond market.<\/p>\n

It won’t be just precious metals<\/a> holders watching these bond yields, because the whole global market is underpinned by the bond market.<\/p>\n

Even just talk of tapering has caused rates to soar, so what happens when they actually do it? It looks likely that rates could rise further as the bond market gets out of control, and this would put more pressure on metal prices.<\/p>\n

But this brings us to…<\/p>\n

A Conundrum for the Gold Producers <\/h2>\n<\/p>\n

At the moment, gold is now trading around its cost of production.<\/p>\n

In other words, at the current price of US$1,230 \/ounce, about half of the global gold mining industry is losing money<\/em>.<\/p>\n

They have to cut costs just to survive, and we are now seeing many gold producers announce layoffs, pay-cuts, drops in production, and in some cases close their doors. It’s brutal, and from what I’ve heard on the grapevine, more is on the way.<\/p>\n

For many Aussie midcap gold stocks, companies’ ‘all in costs’, are generally around the $1,100-$1,200 level.<\/p>\n

This chart is from an Argonaut Securities presentation at the Mines and Money conference I spoke at in Hong Kong earlier this year. It shows their estimates of the ‘all in costs’ for some ASX gold producers. You can see that most of them will be having a tough time at current price levels:<\/p>\n

Gold Now Trading Around the All-In Cost of Production<\/h2>\n

\n<\/a>
\nSource: Argonaut Securities<\/strong><\/p>\n

We’ll probably see supply of mined gold fall in the coming quarters, and years as the medicine works through the system.<\/p>\n

And I’ve heard the supply of scrap gold (the cash-for-gold stalls in your local shopping centre) has dried up as well – because it’s not considered worth selling at these low prices.<\/p>\n

And as a year twelve economics student will tell you: falling supply feeds through to higher prices.<\/em><\/p>\n

And so the merry go round starts all over again.<\/p>\n

So, although the current market hardly feels like it, it will lay the foundations for, and ultimately lead to, the next bull market.<\/p>\n

The only question is how long will we have to wait for a full recovery?<\/p>\n

I suspect… <\/p>\n

It May Take a While<\/h2>\n<\/p>\n

If you look back to the three major corrections in the last ten years and also the epic 45% fall in the 1970′s bull market, in each case the recovery took longer than the correction<\/em>.<\/p>\n

Seeing as this current correction is almost two years long already, it could take two years or more to reclaim lost ground.<\/p>\n

But that doesn’t mean there isn’t opportunity out there today.<\/p>\n

The last time the turnaround was triggered, and then sustained, by the Fed’s Quantitative Easing programs. <\/p>\n

What could trigger a turnaround this time? A black swan event like war in the Middle East? A new version\/scale of QE thanks to a new Fed President? In these markets, anything can and will happen.  <\/p>\n

The lower prices go<\/a>, the bigger the opportunity brewing in precious metals for the brave and the patient investor.<\/p>\n

In the meantime, I’ll be exploring the rubble of the resource sector for other opportunities. After thirty months of falls for the small resource sector, prices are the lowest I’ve seen them. Some deserve to be cheap, but many others don’t. This situation is giving investors an incredible opportunity to buy quality companies at fire-sale prices. <\/p>\n

Energy stocks are lining up to be the next big thing, with oil prices bucking the bearish trend in commodities today. It’s a diverse sector with some good short-term, and long-term, opportunities out there. <\/p>\n

One small-cap energy stock<\/a> I tipped recently with projects in the East African Rift System, the most sought after energy ‘post code’ today, has side-stepped the market carnage to quietly notch up 24% in a month. <\/p>\n

While we wait for precious metals to find their feet again, and industrial commodities to see what China will do next, energy is one sector we can be more confident punting on: oil, gas, and don’t forget uranium too…<\/p>\n

Dr Alex Cowie+<\/a>
\nEditor, Diggers & Drillers<\/em><\/strong><\/p>\n

From the Port Phillip Publishing Library<\/em><\/strong> <\/p>\n

Special Report: Panic of 2013<\/a><\/p>\n

Daily Reckoning:<\/em> <\/strong>The End of a Share Market Correction… or the Beginning?<\/a> <\/strong><\/p>\n

Money Morning<\/em>: Time to Plan for the Year-End Stock Rally?<\/a> <\/strong><\/p>\n

Pursuit of Happiness:<\/em> <\/strong>Make Sure You’re Not a Property Investing ‘Loser’<\/a> <\/strong><\/p>\n

Diggers and Drillers<\/em>:
\nWhy You Should Invest in Junior Mining Stocks Now<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au What a quarter that was for the gold bugs. Most would rather forget it ever happened. The metal fell 23% in the last three months, which was an all-time record. Failing a miracle, gold will be down this year for the first time in over a decade. Gold stocks fared worse still. The … <\/p>\n

Continue reading “Gold Breaks A Record”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-39773","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/39773","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=39773"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/39773\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=39773"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=39773"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=39773"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}