17 February 2019

Gold miners hit as the metal’s safe-haven allure fades

A congressional standoff over budget issues has led to a partial shutdown of the US government for the first time in 17 years, but the news failed to boost gold prices as investors are betting that the closure will be short-lived, damping the demand safe-haven assets. Spot gold prices tumbled nearly 3 percent to US$1,286 per ounce overnight, hitting the lowest level since August 7. Consequently, gold miners suffered significant decline in their share prices Wednesday morning.

Zijin Mining (02899.HK) and Zhaojin Mining (01818.HK) slumped over 3 percent, while Lingbao Gold (03330.HK) fell nearly 2 percent. Zijin Mining was the worst performer, once tumbling as much as 4.3 percent and bringing its year-to-date loss to 41 percent.

Gold price has fallen 23 percent this year, and the metal could mark the end of its 11-year long rally if the trend continues.

While the precious metal has been weak, gold miners have performed even worse on the stock market.

Investing in gold stocks not only involves risks from the volatile gold prices, one has to also contend with the operating risks of mining companies, which are often substantial.

As gold mining involves huge fixed costs, weaker price of the metal will narrow the industry’s profit margins and put more pressure on cash flows.

– Contact the writer at [email protected]


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