The three risks – a falling gold price, the advancing Aussie dollar and weakening demand from China have already sparked a wave of investor fear in the last two weeks.
Newcrest Mining shares have have lost over 21% since mid-March, while Evolution Mining Limited (ASX: EVO) has dropped 18% and even Northern Star Resources Ltd (ASX: NST), one of the year’s best performing gold miners, has pulled back 19%.
The falls are being driven by the falling gold price which is down 7% over the same time period. This is partly because of comments made by Federal Reserve Chair Janet Yellen about raising interest rates, hinting at a stronger U.S. economy, and partly due to easing fears about war in the Ukraine.
Compounding the impact of falling gold prices is the sudden advance of the Australian dollar. The Aussie dollar has appreciated almost just under 6% against the USD since March, shooting past US$0.92 and reducing extra margin Australian exporters get on commodities priced in USD.
The third risk factor is the potential for weaker demand for gold in China. China was the world’s largest buyer of gold in 2013, but a range of factors, including the weakening yuan and the end of the country’s Lunar New Year holidays could see demand slow according to an article by Bloomberg.
The three risks are gathering like dark storm clouds over gold producers, but Newcrest could be poised to cope better than most. The company is among the lowest cost producers and is helped by large economies of scale and the ability to target higher-grade ore.
Newcrest Mining has already fought its way through the storm of 2013. The latest risk factors will come as unwelcome news for current investors given the potential impact on company earnings, but with Newcrest’s all-in sustaining costs for the December quarter less than A$1,000 per ounce, operationally the big gold miner is well positioned should a storm hit.
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