India and China are two of the biggest gold importers in the world. Up until this year, India was number 1, but in July the Indian government increased the import duty on gold and import conditions were placed on banks, all in order to slow the amount of funds going internationally and improve its current account deficit.
Too much foreign exchange was going out of the country, making it hard to stabilise the Indian rupee. In FY2012, gold imports came to 1,067 tonnes, but in the past five months the total is only about 400 tonnes.
China is increasing its take, and estimates are that it will import about 1000 tonnes for the year. Lower gold prices are fueling the purchases, and Chinese investors are looking for other ways to invest their wealth. The Chinese government has some restrictions regarding the kinds of assets that citizens can invest in domestically, and the real estate market in many regions there have been on the rise for a long time.
Australian gold miners are still adjusting to gold prices, which began selling off in October 2012 when it was US$1,774 an ounce. At US$1,242 an ounce, some miners are not as profitable, and have either been slowing production or even selling off less-profitable mine assets.
Newcrest Mining (ASX: NCM) has broke below $8, closing at $7.77, or 40% below its book value per share. Its Lihir mine, the largest producer of gold of its mines, had a total production cost of $895/ounce in FY2013. Its second biggest producing mine, Telfer, had a total cost of $1,411/ounce in FY2013. The third largest producer, Cadia Valley, had a low $691/ounce.
AngloGold (ASX: AGG), the South Africa-based miner and world's third largest gold producer, announced this month that cost cutting measures and increased production have led to a 10% improvement in total cash cost, which is now at $809/ounce. Its share price closed at $2.81, down from its $3.45 price it hit about two weeks ago.
Alacer Gold (ASX: AQG) closed at $2.07 on Wednesday. Last month it settled the sale of its Australian business unit to Metals X (ASX: MLX), which includes its Higginsville and South Kalgoorlie gold mining operations. The company intends on concentrating on its 80% owned gold mine, Copler, in Turkey. The mine's total cash cost for production was less than $425/ounce, and produced 240,000 – 250,000 ounces in 2013.
Foolish takeaway
Until gold prices really find a strong bottom, gold miners will feel the pressure of the market weighing on them. Gold buyers are taking advantage of the lower prices, but the total volume is not enough to stabilise the spot market just yet. Investors must know exactly what the costs of each miner and their mines are to fully assess future earnings.
