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Gold
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goldmines

A geopolitical insurance

The gold price has been range-bound since the start of this year, fluctuating between USD 1300 and 1350/ounce. From a technical point of view, however, looking at the price evolution since the 2016 year-end USD 1150 low, the long-term trend is upward, with higher lows and higher highs.

goldGraph(Source : Bloomberg)

To uphold this trend it is important that the gold price remains above USD 1320/ounce and soon break through the USD 1350/ounce “resistance level” – failing which it could fall back to USD 1250/ounce. This may seem a somewhat odd manner of looking at the possible evolution of the gold price, but “technical trading” by short-term oriented professional speculators still dominates “fundamentals”-based investing. By “fundamentals” we mean investors that allocate money to gold based on the “fear factor”, be it fear of inflation or fear of geopolitical accidents. Although there are numerous reasons in this “Trump era” to opt for some protection, investors still remain on the sidelines in the belief that all will end well.

As for the goldmines, they have done a great job over the last couple of years to reduce their production costs, keep their capital expenditures under control and reduce their (excessive) debt to acceptable levels. They are now in much better shape than some years ago but, strange as it may be, have not been rewarded for their efforts by the stock market. When looking at the stock price moves of the largest North American players since year-end 2016, the picture is uneven: Barrick Gold (ABX) has lost 25%, Goldcorp (GG) is down 7% while Newmont Mining (NEM) has gained 10%. Over the same period, the gold price advanced by 15%. Today, goldmines are in effect valued as ordinary commodity producers.

Last update : March 2018

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