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« "It's Not Some Barbarous Relic" - Trump Adviser Urges Return To Gold Standard | Main | Paulson Maintains SPDR Gold ETP Stake as Metals Prices Rally »

Does the Current Gold Price Justify the Big Gains in Gold Stocks?


What a difference 7 months can make for the gold and silver industry. In early January, precious metals were unloved and showing no signs of snapping their multi-year bear market. Very few believed they still provided valuable diversification within a portfolio. At the time, gold was hovering around $1,050 an ounce and some companies were mining gold at a loss.

Back in June 2013, the World Gold Council introduced a measure called “all-in sustaining cost” (AISC for short) to provide a standardized metric to calculate the overall costs of producing gold. AISC captures cash costs, corporate costs, reclamation and sustaining capital expenditure. This new metric was intended to provide investors with greater transparency and more common measurement for all companies.

In the second quarter of 2013, AISC peaked for the industry at $1,151 per ounce – at this time gold was trading for about $1,400 per ounce, so the net margin amounted to approximately $250 per ounce for the industry. Keep in mind that within the industry there are low and high cost producers – so the individual companies vary.

In January 2016, with a gold price of $1,050, the average producer margin slumped to $220 per ounce. Despite the 25% decline in the gold price since 2013, profit margins only fell by 12% as the industry responded by cutting costs and restructuring their operations. They were also assisted by lower fuel costs and some companies were helped with weaker local currencies versus the U.S. dollar.

read more....

If gold keep going then any correction in the stocks should be shallow....

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