Given the dramatic decline in share prices, some may perceive gold equities as inexpensive. We strongly disagree. In our opinion, gold equities have rarely been more expensive when we incorporate current gold prices. Despite a quintupling of the commodity price from 2003 to 2011, the gold mining majors generated little to no free cash flow. On our estimates, the majors are likely to generate negative free cash flow over the next several years. That said, the gold price will need to decline even further before existing mines cut production. And, we doubt that modest production cuts will do much to support the gold price in the medium term. Gold has a far larger and more liquid above ground stockpile than most other mined commodities. Therefore, the cost of production is not as relevant in determining the commodity price as it might be in say copper.
Jefferies now forecast gold at $1,250, down from $1,500. As a result they’ve they cut their ratings on gold stocks one notch each. Goldcorp (GG), Kinross Gold (KGC) and Newmont Mining (NEM) all drop to Underperfrom, while Barrick Gold (ABX) is cut to Hold.
I agree with you on this point gold price is big concern. But the worst is when i look at the chart i can't see no support line for ABX, This is very frightening, and remembers me more and more like Lehman, and Bears Stearns. Majors can't fail .??? Like dejavu
"Gold has reached equilibrium; potential rally (to USD 1,500/oz?) should lift gold equities in the near term. Based on cUSD 20bn estimated net disinvestment in gold (when netting physical demand with ETF selling), we calculate a 2013 equilibrium gold price of cUSD 1,230/oz. Although equilibrium levels act only as a guide (and demand categories are fluctuating at elevated levels), the gold price reaching this level provides some support, in our view. Our analysis suggests that the market could be susceptible to a rebound as futures short positions have reached cyclical records. In addition, our analysis suggests that there has been a link between Chinese gold premiums and western ETF divestment, indicating that the market may have been misinterpreting the full reasons for the speed and extent of the gold liquidation. Should this link hold, we expect that an eventual easing of tight financial conditions in China could see ETF liquidation slow, perhaps allowing western investors to reassess from the long side, augmenting any short-term gold price strength.
We remain bearish on gold prices from 4Q through to 2014, estimating equilibrium for next year at cUSD 1,070/oz. The 43% h-o-h increase in physical gold demand after the price drop in April protected gold prices in 2Q; however, the recent price drop has yet to trigger a similar response. India’s new gold laws place a substantial barrier to a once-key source of physical demand. New mine supply of c200 tonnes (low cost) is still expected to be delivered for 2014. Active mine management of grades and potentially lower cost profiles as emerging market currencies weaken should help to keep supply online at the margin. We expect real interest rates to firm, and our analysis suggests gold could test USD 1,000/oz if a 2% real yield in the US is achieved. Eventually, gold supply should fall and investment demand normalise, perhaps creating a
glimpse of an eventual longer-term recovery."