![\"gold_price_in_and_gbp_over_the_past_five_years.jpg\"](\"http:\/\/www.next-finance.net\/http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/gold_price_in_and_gbp_over_the_past_five_years.jpg\")
<\/a><\/p>\nHowever, gold has diverged widely from trends
\nin its other key markets, such as the US dollar,
\ninflation expectations, and, to a lesser extent,
\nreal US interest rates. Market turmoil in recent
\ndays is obviously the cause of this, and a lull
\nwould probably lead to a consolidation of the gold market.<\/p>\n
Meanwhile, investors remain keen on ETPs backed by physical gold. Another 100 tonne-plus equivalent was stockpiled in The same trend was seen on the futures market, with non-commercial long positions setting a new record at 371k lots AuM (contracts) on future markets (CFTC) and gold ETPs and gold price ($\/oz. since 2009)<\/strong> As for mining shares, they have never fared so Goldmines: All-In Sustaining Costs (AISC), All-In Margin and Gold Price since 2004<\/strong> It is worth pointing out that a significant portion of After this run-up, mining shares Goldmines have outperformed gold by In the meantime, goldmines are playing their portfolio diversification role to the hilt.<\/a><\/p>\n
\nJune, raising the increase in stocks to almost 500 tonnes on the year to date, a level not seen since September 2013.<\/p>\n<\/a><\/p>\n
\n(i.e., 37.1m oz. or 1154 tonnes), vs. net positions of 317K lots (31.7m oz. or 986 tonnes). So the market is clearly long
\ngold \u2013 a contrarian indicator to be watched closely, especially as central banks are slowing their purchases, the People\u2019s
\nBank of China included. Things are different for the large \u201cconsumers\u201d \u2013 the Chinese and Indians. While Chinese imports,
\nvia Hong Kong, surged by 68% (MoM) in May to 115 tonnes, for a total of 342 tonnes on the year to date (+3% YoY),
\nIndian purchases were sluggish, hit by higher prices and falling 53% (YTD to end-May) vs. the same period of 2015. So
\ncaution is in order, even though the environment remains very favourable to gold.<\/p>\n
\n<\/a><\/p>\n
\nwell over a half-year period! Rising more than
\n100% ($), they offered leverage of about 4x vs.
\ngold, significantly higher than the long-term
\naverage (about 2x). The most heavily leveraged
\nmines, which were distressed late last year,
\nrallied the most, with some of them up almost
\n+300% on the year to date! Higher gold prices,
\nalong with lower costs, have provided a big
\nboost to margins, which may improve by more
\nthan 75% in 2016, assuming an average gold
\nprice of about $1300\/oz.<\/p>\n
\n<\/a><\/p>\n
\nlower costs (AISC) is due to lower capital expenditure.
\nThis has helped considerably lower the industry\u2019s debt
\nlevels, a lurking threat if the gold price had continued
\nto fall. However, lower capex will have a clear impact
\non future output, which may decline even more
\nrapidly. Mining companies will be unable to maintain
\nthis pace for very long in these conditions. Barring new
\nprojects, whose complexity has risen constantly in
\nrecent years, the major mining groups will have to
\nmake acquisitions to keep up their output.<\/p>\n<\/a><\/p>\n
\ndiscount vs. gold has clearly receded.
\nAt a P\/NAV of about 1.4x\/1.5x, they
\nhave already priced in a further
\nimprovement in the gold price. The
\nrelease of quarterly results and, even
\nmore so, company guidance will be
\nkey to what happens next. <\/p>\n<\/a><\/p>\n
\nfar since bottoming out last year. They
\nhave returned to their relative level of
\nAugust 2013 when gold prices were
\naround $1400\/oz. The trend is in the
\nright direction but much has already
\nbeen priced in. Note that in the first
\nhalf of this year gold averaged just
\n$1219\/oz., vs. $1205\/oz. in the first half of 2015. The consensus remains highly conservative, averaging just $1225\/oz.
\nfor the full year. Mining stocks are already pricing in a gold price of at least $1300\/oz.<\/p>\n<\/a><\/p>\n
\nThe sector (as measured by the NYSE Arca Gold Miners Index) is now vastly outperforming global equities (the MSCI
\nWorld) over the past two years, at +7.95% ($) vs. -2.2% ($) and is performing as strongly over the past three years, at
\n+22.5% ($) vs +21.3% ($).<\/p>\n<\/a><\/a>\n\t\t\t<\/div><\/figure><\/a>\n\t\t\t<\/div><\/figure>