Is gold’s recovery over?

A likely US interest rate hike has smashed the gold price, pushing it close to the US$1100 psychological barrier.

Gold fell for the second day running, with gold futures delivery on the Comex market in New York tumbling US$15.60 to settle at the US$1105.30 per troy ounce mark at its lowest.

This is devastating news for many producers, as it edges them dangerous close to loss making territory.

It is understood that as many as one in ten gold mines are already uneconomical at current market prices.

The retreat from the metal as a safe haven comes on the back of the rising likelihood of first interest rate in the US since 2006 coupled with an absence of inflation.

Grant Thornton’s Brock Mackenzie explained to Australian Mining that "there are indications in t that the US will increase interest rates, and the appeal of the US dollar increases: the gold price typically moves in opposition to the US dollar,"

"That is why we'll expect some shifting, so with quantitative easing ceasing the US is likely to increase its interest rates, so the US dollar will have more appeal."

Added to this are ABN Amro reports that suggest gold is still overpriced, compared to other commodities and cyclical assets.

“Investor sentiment has deteriorated this year because of a number of factors,” ABN Amro’s co-ordinator FX and precious metal strategy Georgette Boele explained.

“In general, cyclical assets underperform when uncertainty and nervousness increase. The environment has been suitable for gold to outperform. However, gold’s safe haven status has been sharply reduced because of investors positioning in gold. As a result, gold has been able to profit less than in previous periods of risk aversion when investor positioning was lower.”

The metal appears to have turned in the market, defying predictions late last month of an upcoming bullish market for gold due to a weak Dow.

Instead it is following a similar pattern from 2011 when analysts were almost universally bullish on gold, yet it started a four-year downswing shortly thereafter. 

Reports from the Bank of America are showing a continued weaker gold price, after it readjusted its forecasts.

“Given the macroeconomic backdrop and acknowledging the persistent headwinds to gold prices of late, Bank of America Merrill Lynch is reducing average 2015 forecasts by 6.8% to $1122 per ounce; gold should fall below $1000 per ounce in 2016,” it stated.

Boele supported this position.

“We expect investors to further reduce net long positions in the wake of Fed rate hikes this year and next year and a higher US dollar,” she said.

“Moreover, we see more downside if we take into account the gold price corrected for US consumer price index. If we take all the above-mentioned measures into account, gold weakness is not over yet and further price falls are likely.”

Despite these falls, Australia is still leading in production.

Gold output rise in the June quarter according to a survey Surbiton Associates.

Gold production for the period totalled some 72 tonnes (2.31 million ounces), an increase of almost three tonnes or four per cent over the March 2015 quarter.

With most Australian miners having June year-ends, Surbiton puts the fiscal year total (to end-June) at 285 tonnes.

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