Gold Digger: Miners go full-turtle as costs hit ‘unprecedented’ high, but Aussie gold producers have a secret weapon
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Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.
Last quarter the global average all-in sustaining cost (AISC) for gold producers reached an all-time high of $US1,289/oz, an 18% year-on-year rise for the second consecutive quarter.
AISC is a widely used metric to measure all direct and recurring costs required to mine and process gold. A low AISC also makes for healthy profit margins as well as insulation against gold price variations.
Metals Focus calls these increases unprecedented.
“The modest 3% y/y average gold price increase in Q2 did little to dampen the loss of profitability as AISC margins fell 20% y/y,” it says.
“Critically, the 10% fall in the gold price since the end of the quarter, in addition to ongoing cost inflation, looks set to produce a margin squeeze in Q3.22 unparalleled in recent years.
Unsurprisingly, gold miners’ equity valuations have suffered.
The HUI, an index tracking major gold miner share prices, has fallen 21% to-date in Q3, a retracement not seen since the start of the last major gold producer bear market in 2013, says Metals Focus.
Gold investor sentiment waxes and wanes based on the USD price, which is battling to stay above $US1,600/oz at present.
Meanwhile, our local gold producers have a price buffer – regardless of increasing AISC — thanks to a weakening Aussie dollar.
Just check out the performance of the USD and AUD gold price over the same 3-month period:
USD gold is down 7.93%, while the AUD gold price has dropped just 3.7%.
Respected Bloomberg Intelligence senior commodity strategist, Mike McGlone expects to see an end to the US Federal Reserve’s rate hiking by the end of the year, which he says ought to spur a rally for Bitcoin and gold.
In fact, the outlook for the rest of the decade favours Bitcoin and gold over commodities, he says.
“The most central banks in history hike[d] rates with the world tilting toward recession. Lower commodity and risk-asset prices may be the only way out with deflationary implications, which should buoy the price of gold and its digital version, Bitcoin,” he says.
Here’s how ASX-listed precious metals stocks are performing:
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