Every Which Way for Gold

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Yesterday's excellent RBCCM gold meeting in London elicited no true consensus on where gold is going in the short and medium terms. Just about everyone's longer term view was positive but the next six to nine months generates a variety of opinions, most of which are now pretty firmly negative. While virtually no-one seems to be expecting any sharp falls in the gold price, they are not looking for major increases in the near future.

It depended on who you listened to at yesterday's excellent RBCCM gold meeting in London as to views on where gold is going in the short and medium terms. Just about everyone's longer term view was positive but the next six to nine months generates a variety of opinions, most of which are now pretty firmly negative. While virtually no-one seems to be expecting any sharp falls in the gold price, they are not looking for major increases in the near future.

During lunch there were two keynote speakers - one who is well known to gold enthusiasts was Pierre Lassonde of Franco Nevada, but even he was not his usual ultra bullish self as far as the gold price is concerned, although reading between the lines he is obviously still long term confident. He followed on from one of RBC's economists - Russell Jones, Head of Fixed Income and Currencies Strategy Research - who was worried about deflation ...Pierre Lassonde pointed out that gold fundamentals on the supply/demand side remain strong in terms of being price supportive. Over 80 percent of current mined gold production is over 15 years old with some big mines nearing the ends of their days, ore grades are falling, underground mines are getting deeper, costs are rising and junior gold exploration has come to an abrupt halt. Production is likely to fall around 7 percent over the next few years, possibly more, but even so he expected the gold price to come down further before it recovers.

...there is obvious long term confidence in the gold price. No-one is talking of putting in new gold hedges at current levels, although most of those with base metals byproduction seem quite happy to enter hedge agreements for what they might term to be lesser metals - after all they are gold miners!...

Gold's performance recently has been something of a disappointment to most of the gold mining companies, but having seen far worse collapses in other metals they are perhaps thankful they are primarily in the precious metals sector. While base metals producers worldwide have been announcing major production cuts, no-one in the gold sector is doing this except in the extreme on some mostly small unprofitable operations. Most are producing on positive margins, albeit rather smaller ones than they would have been anticipating six months ago.

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