It is hard to believe that just over a month ago, the price of gold was plunging, sending panicked investors fleeing, share prices plummeting and short sellers rubbing their hands together in delight.
At that point, gold was skirting US$1,239 per ounce and the major concern was that the US would end its policy of quantitative easing, a program of bond buying that has so far injected hundreds of billions of dollars into the US economy. Gold romantics expected this to result in aggressive inflation which would drive people to buy gold as a form of hedge.
Fears have since subsided somewhat and gold has staged a recovery in price, up 12% to US$1,397 per ounce. Gold producing companies that saw their share prices hammered have started to rebound. Newcrest Mining (ASX: NCM), which was one of the biggest decliners when the price started to turn, has risen 40% since hitting a low of $9.31 in late July.
Newcrest reported a full year loss of $5.7 billion, furnished by $6.2 billion in writedowns. However most importantly for Newcrest is that the current price is close to the $1,450 per ounce threshold where the company has said it will be operating at neutral or positive cashflows in the 2014 financial year.
Newcrest is not alone in making a sharp comeback. Silver Lake Resources (ASX: SLR) shares have spiked 24% in the last month. Silver Lake has 6.4 million ounces of gold resources and Managing Director Les Davies has said the company is poised to add up to an additional 100,000 ounces of production within 18 months to two years if the gold price continues to improve.
Alacer Gold (ASX: AQG), which is looking to sell two of its Australian gold mines, has also seen a pick-up in share price of 23% in the last month.
Gold stocks will continue to rise if the gold price picks up from the lows seen earlier this year. However, the long-term winners will still be the lowest cost producers with above marginal operations.
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Motley Fool contributor Regan Pearson does not own shares in any companies mentioned in this article.
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