Gold on Friday dropped more than 2% after a stronger than expected jobs report in the US rekindled fears that interest rates in the world’s largest economy may rise sooner than thought.
In afternoon trade on the Comex division of the New York Mercantile Exchange gold for April delivery shed 2.2% or $27.70 to $1,235.00 an ounce after earlier in the day falling to a low of $1,228 an ounce.
Gold’s 2015 gains – the metal is still up 4% or just over $50 since the start of the year – have been ascribed to safe haven buying amid currency turmoil, a slowing global economy and a debt crisis in the Eurozone.
But with the first hike in more than six year likely at the Fed’s June meeting raising the opportunity costs of holding gold because the metal provides no yield, gold traders refocused their attention on fundamental factors.
Higher rates also boost the value of the dollar – already trading at multi-year highs – which usually move in the opposite direction of the gold price. Investors have been worrying over further asset writedowns, a declining production profile and problems at board level.
On Friday the greenback surged 1.3%, a major move for the forex market more accustomed to basis point fluctuations. The USD is now also back within shouting distance of 12-year highs against the currencies of major US trading partners hit last week. The dollar index has strengthened by 15.5% over the last year.
The sell-off was led by the world’s most valuable gold stock, Goldcorp (TSE:G, NYSE:GG). The counter fell 6.5% on the NYSE and is now worth $18 billion in New York and more than C$22.3 billion in Toronto. Year to date gain for the Vancouver-based firm is a robust 24%.
Goldcorp is forecasting a whopping 20% production increase this year to 3.45 million ounces despite cutting capex costs nearly in half to $1.3 billion. Goldcorp latest project to come on stream is the Argentina-based Cerro Negro gold and silver mine. The high-grade operation boasts reserves of 5.7m ounces.
Barrick Gold Corp (NYSE:ABX, TSE:ABX) dived 5.4% – the world’s top producer market value is down almost one third over the last six months. Investors have been worrying over further asset writedowns, a declining production profile and problems at board level.
The world’s number one producer of the metal, expected to have produced roughly 6 – 6.5 million ounces in 2014, is worth $13.8 billion in New York. That compares to $64 billion capitalization when gold was at $1,900 in 2011.
World number two in terms of production Newmont Mining Corp (NYSE:NEM) was spared some of the carnage, declining 3.6%. Newmont, the only gold company that forms part of the S&P500 index and which has been publicly traded since 1940, is having a good 2015 so far, with 15% gains this year.
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