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Actionable news in NEM: NEWMONT MINING Corp,

Gold May Drop To $1050 An Ounce By Year End

Summary

It takes about $1050 USD to produce one ounce of gold but gold trades at close to the break-even point now.

Technicals warned us on September 30, 2016 to be cautious.

Gold plunged 4.8% within two days (October 4 - 6); one of the biggest single-day drops.

Gold mining companies have been losing money for the last 11 years; margins in the gold sector are very tight.

Historically, most of the time, gold prices fluctuate due to uncertainties; not much due to supply and demand.

Source: Minining.com - Freeport-McMoRan Indonesian GOLD mine complex

Introduction:

According to scientists, gold isn't truly formed at least, not on earth; it comes from outer space. 52% of gold is used as jewelry and the rest is used as investments and in industrial applications.

Source: numbersleuth.org

According to the report, all of the gold ever mined in the history of humanity amounts to about 152,000 metric tons; some report says 165 tons. It is only about enough to fill 60 trailers. The report further mentions as follows:

Scientists believe that there is still eight times more gold in and under the oceans than has ever been mined close to the planet's surface.

2500 metric tons of gold is mined annually. From 2009 to 2010, India and China were the largest consumer of gold jewelry. India consumed about 746 metric tons, China 428 metric tons and the US about 129 metric tons.

Source: numbersleuth.org

The below table shows gold jewelry consumption for 2015: India alone consumed about 675 metric tons in 2015; yearly gold production is around 2500 metric tons.

Source: Investopedia

Annual Gold Production: In 2005, world gold production amounted to 2,470 metric tons. China is currently leading global gold mining production (490 metric tons in 2015) while Australia is second, producing about 300 metric tons in the same year.

Source: Statista

Chart was Broken:

Based on the chart below, the uptrend line for gold commodity was touched five times, and seemed to be a valid support level but the uptrend line was broken on September 30, 2016. Within two days (October 4 - 6), gold plunged from $1309 to $1249 which is about 4.8%, one of the biggest single-day drops. It doesn't happen very often. The chart warned us on September 30 to be cautious. If anyone went against the chart he or she would have been hurt by the price drop. Below is the one year chart:

Source: Tradingview (One-year chart)

Below is the 18-year chart; we can see there is support around $1050.

Source: Tradingview

Direxion Daily Gold Miners Bear 3X Shares (NYSEARCA:DUST)

DUST Exchange-Traded Funds (ETFs) designed to seek daily investment results of 300% of the opposite of performance of NYSE Gold Miners index. For example, if the index is down by 2%, DUST will go up by 3 x 2% = 6%. DUST was up about 43% within two days (October 4 - 6) due to gold's fall.

Source: Tradingview

Direxion Daily Gold Miners Bull 3X Shares (NYSEARCA:NUGT):

NUGT Exchange-Traded Funds (ETFs) designed to seek daily investment results of 300% of performance of NYSE Gold Miners index. NUGT was down about 52% within two days (October 4 - 6) due to gold's fall.

Source: Tradingview

Top 3 Gold Mining Stocks' reaction after Gold Plunge (Oct 4 ~6):

  1. Barrick Gold Corporation USA (NYSE:ABX) was down about 13% (down from $17.38 to $15.38)
  2. Newmont Mining Corp (NYSE:NEM) was down about 13% (down from $38 to $33.6)
  3. AngloGold Ashanti Limited (ADR) (NYSE:AU) was down about 16% (down from $15.7 to $13.5)

How much does it cost to produce one ounce of gold?

Source: Barric

Based on the top three gold mining companies' second quarter earnings, they lost money in their second quarters (gold was traded at around $1260).

  1. Barric reported a net loss of -$3.12 per share (non-GAPP performance); all-in-costs of gold per ounce in 2015 was about $900
  2. Anglo reported net loss of -$2.3 per share (non-GAPP performance); all-in-costs of gold per ounce in 2015 was $1001
  3. Goldcorp reported a net loss of -$6.5 per share (non-GAPP performance); all-in-costs of gold per ounce in 2015 was $1038

All-in-costs is still a non-GAPP measure (this excluded impact of impairments).

Source: Anglogold

In the current situation, gold production would likely fall or remain flat. Gold production would go up when prices are higher, i.e...


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