It's not just the miners and their investors who have been savaged on the back of falling gold prices. The Perth Mint, Western Australia's government-operated gold refiner, which operates a listed exchange traded fund on the ASX (ASX: ASX) called PMGold, has also been suffering lately as demand for the precious metal goes cold.
Bloomberg has reported that demand for gold bars and coins from the Perth Mint plummeted 46% in June, dropping from 92,781 ounces in May, to 49,460. The Perth Mint saw a spike in demand in April as speculators piled in to take advantage of the early drop in price, resulting in sales of 116,755 ounces of gold. However the demand has since retreated again as the price continued to fall.
The same trend is reflected in numbers from the US Mint for its American Eagle bullion, which saw a huge spike in demand in April to 209,500 ounces before it too slumped back to just 21,000 ounces in June.
Lower sales should be of particular concern to mining companies because it could act as a double blow to revenues, combining decreasing sales volumes with the recent price drops for gold.
Such a situation will add salt to already wounded miners like Newcrest Mining (ASX: NCM), which has seen its share price savaged almost 75% in the last two years and was not far from reaching its lowest level in 10 years. For smaller miners like Silver Lake Resources (ASX: SLR) and Regis Resources Limited (ASX: RRL), lower gold demand could add a renewed focus on cost reduction.
The price of gold has been hovering around US$1,244 per ounce today, 26% down for the year and causing many gold mining companies to announce massive write downs on their gold reserves.
There have been many forecasts from a range of analysts and investment banks for where the price of gold will be sitting in one, two, even three years' time. However the flurry of 'revised' forecasts reiterates just how erratic and unpredictable the price of gold can be.
Foolish takeaway
Given the unpredictability of gold prices, when it comes to investing for the long term, undiversified gold producers are often best confined to smaller 'speculative' portion of your portfolio.
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More reading
- Should you buy Newcrest Mining shares?
- Miners drive market forward
- Newcrest Mining head bets on company future
Motley Fool contributor Regan Pearson does not own shares in any companies mentioned in this article.
