The market price of gold has been anything but stable this year, and as a result, many gold mining companies are struggling to turn a profit.
“Gold companies have continued to cut capex, exploration, and corporate costs in order to make ends meet in a lower gold price environment,” explained Citigroup in a recent report on the global gold sector. “Despite these cuts, we estimate that most of the global gold cost curve is burning cash at spot levels.”
Cutting Costs Reduces Production
The problem lies in the fact that production declines along with decreases in spending. So as companies attempt to save money upfront, the cost of production per unit of gold actually increases. “Whether or not capex is cut, we see both scenarios as bad for shareholders,” read the report. “There seems to be no easy way out.”
But things could soon be looking up for gold, as December futures rose above $1,300 at the close of last week. In light of the recent government shutdown, two analysts commented that “In such a climate gold will be attractive as a ‘safe haven’ globally. We can see little to no good reason why the gold price should fall. We can see every good reason why it should rise.”
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