The gold price has started 2015 with a bang.
The metal is on a bold run in the first 22 days in the year, up almost 10% since the start of January. With gold miners like Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) quickly gaining favour with investors, here are three things only savvy investors know about gold today:
1. The price of oil is bad news for gold
Although the rise in gold prices mirrors a similar run at the start of 2014, it may not last. Many commodity analysts remain bearish on gold prices in 2015, because of continuing stability in the U.S. economy and low inflation.
The lower oil price will strengthen that view by driving down inflation. Falling oil prices reduce production and transportation costs for many essential products we buy every day. This means less cost to pass on to consumers and less inflationary pressure going forward.
This will reduce demand for the metal which is often viewed as a hedge against inflation.
2. Which gold miners are making the most money at US$1,285 per ounce?
At the current gold price of US$1,285 per ounce ($1,587), most ASX listed gold miners will be making returns well above their cost of production, but which companies are making the most?
Gold miners can be compared by their All-In Sustaining Costs (AISC) per ounce – a measure developed by the World Gold Council which includes operating costs and overheads.
For the most recent September quarter, two of the lowest cost gold producers were also the biggest: Newcrest Mining and Northern Star Resources. Newcrest had AISCs of just $864 per ounce, while Northern Star reported $1,043 per ounce, suggesting both companies could be making good margins if they are able to maintain (or even lower) these costs.
3. Where the demand for gold is
The World Gold Council tracks various measures of supply and demand for gold around the world which can give a good feel for the current market conditions.
The council's latest quarterly report provides an update on gold's demand trends over 2014, which as expected paint a gloomy picture. Demand for gold in jewellery and technology was down 4% and 5% respectively for the quarter. Together, the two made up around 68% of gold demand in the quarter. The falls were cushioned slightly by a lift in investment demand, which grew by 6%, but made up only 26% of total demand.
