Gold is continuing its downwards slide, dropping to a new four year low of US$ 1160 per ounce.
This new drop is the latest blow for the metal, which has seen a consistent slide from its high point of almost US$1800 per troy ounce to its new low point.
Overall gold prices fell close to five per cent last week.
Gold was driven to historic highs following the Global Financial Crisis, after investors flocked to the metal as a safe bet in the wake of the extreme volatility in the financial markets and ongoing uncertainty over economic growth prospects.
From its average rate of US$ 1200 in 2009/10, the point at which it sits just below now, gold soared over the US and European debt crisis, but as these markets’ economic conditions have improved the price of the metal has swiftly decreased.
According to IBISWorld research the price of gold will rise again, however, stabilising above current rates and “are expected to increase in 2014/15 to an average of US$ 1411 per troy ounce as the global economy improves and inflationary pressures ease with higher interest rates in the United States and Europe”.
However this is having a flow on effect for the aforementioned gold producers, who will see their profit slashed in the wake of this price righting combined with the increased cost of actual production.
“Overall industry profit is estimated to have decreased from 12.6 per cent of industry revenue in 2009/10 to 8.7 per cent in 2014/15,” IBISWorld stated.
It went on to forecast these rate to decline even further over the next five years “with higher costs contributing to profit declining to a forecast 7.6 per cent of revenue in 2019/20”.
Unfortunately for many miners these current prices sit below their production costs.
CEO of brokerage firm Maison Placements Canada , John Ing, told Bloomberg that this situation is creating a new two tier market, with top tier companies operating good assets with lower costs, while others are saddled with low grade, high costs assets that began during the boom times for gold.
This is creating a new crisis point for the industry, as according to Fidelity Select Gold, up to a third of worldwide output will be pushed into a cash-flow negative position once gold falls below the US$1250 an ounce mark.
Lower price have already hit some miners, such as Barrick Gold which earlier this year recorded a net profit drop of 90 per cent, after its Q1 2014 net earnings fell to only US$ 88 million from the previous corresponding period’s earnings of US$ 847 million.
However the need for miners to re-examine their costs and push them below $1000 has long been on the table.
Earlier this year gold producers gathered at the 2014 Paydirt Australian Gold Conference to discuss the future of the industry in a worsening market.
Northern Star Resources managing director Bill Beament said at the event that although the company has a good record for maximising productivity and efficiency, the overall sector needs to address the expectation for improved cost performance in the upcoming market climate.
“We are aiming to achieve an all-in sustainable cost of $1050 per ounce on average across our four mines and this now includes reviewing all supply contracts and leveraging off the company’s buying power so that we reduce the total site cost per ounce,” Beament said.