The roller-coaster fall in commodity prices has resulted in a rapidly changing landscape for investors. The price of gold has been hit especially hard and it's not surprising many investors are struggling to work out which way is 'up'.
To help you makes sense of the chaos, here are three things every gold investor must know today:
1. Bad year for the precious metal
It has been a bad year for gold. The precious metal has fallen 14.7% since its high point in February. The gold price rose briefly at the start of the year on tensions between Russia and the Ukraine, but it's been all downhill since then as the U.S. economy strengthens and share markets continue to rise.
Gold's poor fortunes have been shared by other commodities including silver, iron ore and oil, but are generally in line with analysts' forecasts from late last year of a price range between US$1,100 and US$1,200 per ounce.
Gold's 14.7% fall compares to a positive 4.5% rise in the S&P/ ASX 200 (Index: ^AXJO) (ASX: XJO).
2. Forward outlook
The million dollar question for investors then is where is gold headed next? According to one recent Bloomberg article the answer is a defiant "not up". Bloomberg cites a range of short-term analysts' forecasts which include:
- Citigroup (US$1,100 – $1,200)
- Bank of America ("as low as US$1,100")
- Overseas-Chinese Banking Corp ("$1,150 by year end"); and
- Goldman Sachs ("$1,050 by the end of December")
The calls were unanimous: none of the analysts expressed positive sentiment towards gold in the near future nor into 2015.
3. The lowest cost producers…
With sustained bearish forecasts the implication for gold investors is to consider only the lowest cost gold producers. These companies stand the best chance of producing positive cash flows and earning a return for investors.
For the most recent September quarter three of the lowest cost producers were Newcrest Mining Limited (ASX: NCM), Northern Star Resources Ltd (ASX: NST) and EVOLUTION FPO (ASX: EVN).
Although the miners have been sheltered from the falling price of gold by the fall in the Aussie dollar, all three companies had All-In Sustaining Costs (AISC) below the price of gold in Australian dollars.
