Gold is among commodities that are least vulnerable to production cuts because prices are trading above miners' marginal costs, according to Macquarie Group Ltd. Gold plunged 23 percent to $1,283.64 an ounce in London this year, reaching a 34-month low of $1,180.50 on June 28. Prices are trading about 40 percent above the marginal cost of production, based on the 90th percentile, Maaquarie said in a report today.
“Despite its rapid decline, gold is another commodity where prices are not putting any pressure on costs,” London-based analysts Colin Hamilton and Duncan Hobbs wrote in the report. While steel and iron-ore production might be cut, “supply adjustment may take longer to materialize” for gold, copper and zinc, they said.
Eoin Treacy's view Gold
hit a low near $1180 at the end of June and has since rallied by approximately
$120. This rebound is relatively similar to that posted in April, in what has
been a consistent decline from the September peak near $1800.
If the low near $1180 represents a medium-term nadir, gold will find support above that level on the next pullback. If demand is to be reasserted beyond current scope for a further unwind of the short-term oversold condition, prices will need to hold above $1400 which would break the 10-month progression of lower rally highs. A sustained move back above the 200-day MA would confirm a trend change.
Total Known ETF Holdings of Gold has been a bellwether for the market over the last decade. The Index continues to trend lower but has lost momentum somewhat over the last week. The first clear upward dynamic will likely signal a change in the bearish dynamic that has been such a powerful factor for the market this year.