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Gold investors warned the open-cut party is over

Barry FitzGerald

Resources Editor
Melbourne Mining Club
Northern Star’s Bill Beament, at the Melbourne Mining Club, calls on investors to reset their gauges to go underground. Picture: Stuart McEvoy Source: News Corp Australia
GOLD equity investors have been urged to reset valuation metrics to take account of the dramatic shift in the industry from one based on low-grade open-cut mines to one based on the more selective mining of higher-grade ores in underground mines.

The message from Bill Beament, managing director of the fast-grown 600,000-ounce-a-year gold producer Northern Star Resources, was delivered at the Melbourne Mining Club yesterday.

Mr Beament was speaking after a roller-coaster ride for the gold price in the previous 48 hours, with gold dropping at one stage to below $US1150 an ounce only to rebound to more than $US1200 an ounce. Northern Star’s share price was also on the big dipper, plunging to 96.6c on Monday only to rebound to $1.07 yesterday.

He said the $12 billion industry’s greater reliance on underground production was a necessity as the open-cut party that got going in the 1980s is all but over. And apart from anything else, there is a pressing need for the industry to go underground and step-up deep exploration for more gold resources as based on current gold prices and known reserves.

There will be only three operating mines left in Australia in 10 years. (Newcrest’s Cadia, Newmont’s Boddington and by-product production at BHP Billiton’s Olympic Dam.)

Mr Beament said the return of underground mines dominating Australian gold production would deliver greater resilience for producers in periods of gold price weakness because of the greater ability to selectively mine higher grade ores than is the case in open-cuts.

But he said a challenge for the industry was to get investors to adjust to the new “norm”, particularly around the contentious issue of mine life.

The open-pit era regularly delivered mine lives of seven to 10 years with the low-cost drilling of shallow ore bodies from the surface. Mr Beament said that as long as it lasted, it gave rise to the view that a project with fewer than seven years of proven reserves was barely bankable, let alone an attractive investment proposition. “In Australia, the investment community places a heavy emphasis on a company’s resources and reserves. Valuations are based in large part on these measures and overall market sentiment is driven to a large degree by mine life,’’ he said.

“But in the world of underground mining, in most cases it is simply not feasible to conduct the drilling programs needed to establish mineral inventories of this magnitude,’’ he said, adding that the cost of doing so meant it was also not in shareholders’ best interests.

“So this creates a conflict between what the investment community supposedly demands and what is truly in shareholders’ best interest,’’ he said.

Mr Beament called on investors to reset their gauges. “Proven mine lives of around three to five years will be the new norm. Most underground miners just can’t justify the cost of establishing a proven inventory beyond this. And the market is moving back to where it should be,’’ he said.

Northern Star has grown rapidly in recent years through acquisitions and now operates five underground mines.
Gold prices could fall 12% to US$1,050 by end-2015: Bank of Singapore

SINGAPORE (Dec 22): Gold prices could fall 12% by the end of next year as a rising US dollar is expected to offset demand for the precious metal from China and India, says Bank of Singapore.

Gold could decline to US$1,050 an ounce by end-2015 from slightly under US$1,200 currently, according to the private bank's foreign-exchange strategist Sim Moh Siong and chief economist Richard Jerram.

"The Indian government scrapped quantitative curbs on gold imports, likely comforted by the dividends to the current account deficit from sharply lower oil prices. But we don’t believe that physical demand from China and India will be enough of a game changer to reverse gold’s dimming fortunes," they wrote in a note to clients.

"The combination of rising carry costs and a stronger US-dollar environment that we anticipate in 2015 entails material downside risks for gold prices over the medium term."

Golden days for bullion long gone as prices sink
July 1, 2015 - 2:19PM
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Stephen Cauchi

Gold prices could rise as investors seek a safe haven from a possible Greek exit contagion. Photo: Phil Carrick

Not even the Grexit crisis has been enough to rescue gold from its bear market, but bullion fans take heart - better days are ahead, according to US gold analyst and Van Eck Global fund manager Joe Foster.

"Gold really responds to financial stress or economic stress in the US more than anything," said Mr Foster.

"The things going on in Greece aren't affecting the US and they may not even affect Europe. The only people who aren't prepared for a Grexit is Greece. Even if Greece exits the Eurozone it won't have much of an impact on the global economy."

Gold spiked just $US15 per ounce after the announcement of the Greek referendum to $US1185 and has now settled back to $US1174. It's still well off the year's highs of $US1301.02 reached in January.

And the precious metal remains in the bear market it's endured since prices fell steeply in 2013. In 2011, when the bull market was at its peak, prices reached $US1900.

Van Eck Global - a New York-based investment firm - announced the Australian listing of one of the world's most popular Exchange Traded Funds, the Market Vectors Gold Miners ETF, on Tuesday. The ETF invests in global gold mining companies of all sizes.

Mr Foster admitted that it was a "tough time if you're a gold investor".

However, gold could rally if the interest rate rises predicted for the US caused economic difficulty, he said.

"What really drives gold is some sort of financial stress here," he said. "The next chance for gold to have some sort of catalyst on the positive side is around this Federal Reserve rate increase."

And, indeed, economic difficulty in the US could well be on the way, said Mr Foster.

"I'm of the view that the US economy isn't strong enough to withstand very many rate increases so in my view we'll get some poor economic numbers at some point that's going to spook the market and that will be good for gold."

America has high levels of debt and interest rate increases could be very punishing, he said.

"Debt servicing will be a lot more expensive," he said. "There's a huge amount of sovereign debt in the US. The biggest risk would be a spike in interest rates....but this would be good for gold."

Gold was a safe haven but so too was the US dollar, he said. "When people sense problems with the dollar they turn to gold."

Although gold was out-of-vogue, it had also bottomed, said Mr Foster. "I think we've seen a low - we won't get lower gold prices than what we've seen." He declined to provide any price forecasts.

However, Bloomberg reported that Barnabas Gan, an economist at Oversea-Chinese Banking Corporation in Singapore, has predicted prices will drop an additional 11 percent by the end of 2015. This will lower gold to $US1,050 an ounce, a five-year low.

On the bright side, Australia's gold sector was looking promising. "We're seeing a lot more going on with Australian gold equities and there's a lot of action with Australian gold companies that we haven't seen in quite some time," he said.

Evolution Mining was now a "significant player" after its March acquisition of Barrick's Cowal gold mine in New South Wales, he said.

Mr Foster also mentioned Gold Road's discovery of the Gruyere deposit in eastern Western Australia, which the company announced this week was worth 5.5 million ounces - the biggest in the country in the last decade. "To come up with a discovery like that in bear market is quite an accomplishment."
July 17, 2015 4:13 PM
Let’s Be Honest About Gold: It’s a Pet Rock
Christophe Vorlet
Gold is supposed to be a haven amid hard times and soft money. So why, even as Greece has defaulted, the euro has sunk against the dollar, and the Chinese stock market has stumbled, has gold been sitting there like a pet rock?
Trading this week below $1,150 an ounce, the yellow metal has fallen more than 39% since it peaked at nearly $1,900 in August 2011. Since June 2014, investors have yanked $3 billion out of funds investing in precious metals, estimates Morningstar, the financial-research firm; total assets at precious-metal funds have shrunk 20% in 12 months.
“A lot of investors have become disillusioned with gold,” says Suki Cooper, head of metals research at Barclays in New York. “Safe-haven demand hasn’t been strong enough to lift prices, but has only been strong enough to keep them from falling.”
Many people may have bought gold for the wrong reasons: because of its glittering 18.7% average annual return between 2002 and 2011, because of its purportedly magical inflation-fighting properties, because it is supposed to shine in the darkest of days. But gold’s long-term returns are muted, it isn’t a panacea for inflation, and it does well in response to unexpected crises—but not long-simmering troubles like the Greek situation. And you will put lightning in a bottle before you figure out what gold is really worth.
With greenhorns in gold starting to figure all this out, the price has gotten tarnished. It is time to call owning gold what it is: an act of faith. As the Epistle to the Hebrews defined it forevermore, “Faith is the substance of things hoped for, the evidence of things not seen.” Own gold if you feel you must, but admit honestly that you are relying on hope and imagination.
Recognize, too, that gold bugs—the people who believe in owning the yellow metal no matter what—often resemble the subjects of a laboratory experiment on the psychology of cognitive dissonance.
When you are in the grip of cognitive dissonance, anything that could be regarded as evidence that you might be wrong becomes proof that you must be right. If, for instance, massive money-printing by central banks hasn’t ignited apocalyptic inflation, that doesn’t mean it won’t. That means it is more likely than ever to happen—someday.
You don’t want to be one of these people, spending years telling reality that it is wrong. There is a case to be made for owning gold, but it speaks in a whisper, not in the shouts of doomsday so customary among gold bugs.
Because gold, unlike stocks, bonds, real estate and other financial assets, generates no income, valuing it is all but impossible. “It’s intrinsically worthless or intrinsically priceless,” says Paul Brodsky, a former hedge-fund manager who now is a strategist at Macro Allocation, an investment-research and consulting firm in New York. “You can build a financial model to value it, but every input is going to be your imagination.”
Gold is two things, neither of which is easy to price: a commodity and a currency.
First, the commodity: At recent prices, mining companies are losing money on more than an eighth of the gold they dig out of the ground, says Ms. Cooper of Barclays. That could lead to a decline in supply. And if demand—even from noninvestment buyers like consumers in China or India—rises unexpectedly, there might not be enough gold to go around.
William Rhind, chief executive of World Gold Trust Services, sponsor of SPDR Gold Shares, an exchange-traded fund with $26 billion in assets, also foresees what he calls “a continuing shift in demand from West to East, and from investors to consumers.”
Those factors, Ms. Cooper says, suggest that gold is unlikely to slide much lower and could eventually go quite a bit higher.
When? How much? Who knows?
As a currency, gold has a latent and indeterminate value, Mr. Brodsky says. If the world goes to financial hell in a handbasket, you wouldn’t lug gold ingots to the supermarket so you could stock up on canned goods. But you might pay for those goods with dollars that are again backed with gold, as they were until 1971.
The metal is “cumbersome and archaic and barbaric,” Mr. Brodsky says, “but it remains a store of value, and gold might be called upon again to be the basis for money, as a real backing of currency.” Basing the value of their money on something scarce, rather than the unrestricted right to run the printing press, would enable central banks to strengthen their currency, he says. It also would create a significant new source of demand for gold—if, that is, it ever happens.
Gold is often viewed as a hedge against inflation, and it has outpaced rises in the cost of living—but not as robustly as the alternatives.
Since 1975, the beginning of the period in which private ownership of gold has again been legal in the U.S., the metal has returned an average of 0.8% annually after inflation, compared with 5% for bonds, 8.3% for stocks and even 1.1% for cash, according to Christophe Spaenjers, a finance professor at HEC Paris business school. “It can be very difficult to rationalize the price movements of gold, even with the benefit of considerable hindsight,” he says.
So, if buying gold is an act of faith, how much money should you put on the line?
Laurens Swinkels, a senior researcher at Norges Bank Investment Management in Oslo, reckons that the total market value of the world’s financial assets at the end of 2014 was about $102.7 trillion. The World Gold Council estimates that the world’s total quantity of gold held for investment was about $1.4 trillion as of late 2014. So, if you held the same proportion of gold as the world’s investors as a whole, you would allocate 1.3% of your investment portfolio to it.
Anything much above that is more than an act of faith; it is a leap in the dark. Not even gold’s glitter can change that.
— Write to Jason Zweig at, and follow him on Twitter at @jasonzweigwsj.
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The Intelligent Investor
Owning farmland would be a better idea if you thought the world is going to hell, when you get right down to the basics people really only need food and water to survive.

money is only useful if the world is going to "half-hell" with a financial system of sorts still in place, a full hell would mean there is no more "trust system" all the supermarkets and mini-marts in the world operate on someone willing to extend them something on credit but if banking system collapsed nobody can do that so supermarkets would close down and there wouldn't be any canned food to buy and money would just be colorful bits of paper, you will feel richer with a few sewer rats, goldfish and home pets will have long gone before that. Big Grin
(19-07-2015, 10:38 AM)sgd Wrote: [ -> ]Owning farmland would be a better idea if you thought the world is going to hell, when you get right down to the basics people really only need food and water to survive.

But what if the farmland becomes a war zone or if the area is suffering from a severe drought? Wink
(19-07-2015, 12:34 PM)HitandRun Wrote: [ -> ]
(19-07-2015, 10:38 AM)sgd Wrote: [ -> ]Owning farmland would be a better idea if you thought the world is going to hell, when you get right down to the basics people really only need food and water to survive.

But what if the farmland becomes a war zone or if the area is suffering from a severe drought? Wink

you do need water for crops to grow, if there were no water it's probably not worth owning it or warring over it.
As gold does not provide a cashflow, I would deem it as an insurance.
Gold cannot grow mini-gold, so it's insurance for me sir! Big Grin
Gold prices plunged to the lowest in more than five years on Monday (Jul 20).

SPDR Gold Shares (GLD) -NYSEArca
108.65 Down 1.11(1.01%) 18 Jul 04:00 SGT|Pre-Market : 106.86 Down 1.79 (1.65%) 16:17 SGT

iShares Silver Trust (SLV) -NYSEArca
14.23 Down 0.12(0.84%) 18 Jul 04:00 SGT|Pre-Market : 14.16 Down 0.07 (0.49%) 16:16 SGT
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