GOLD stocks declined significantly in Johannesburg trade yesterday amid a fall in the gold price to below $1 300 (R13 337) an ounce, its lowest level in two-and-a-half years.
The gold price was fixed at $1 292.50 an ounce in the afternoon in London, down $80.25 from Wednesday’s second fix, following comments by Federal Reserve chairman Ben Bernanke on Wednesday that stimulus might be reduced later this year as the US economy recovered.
The plunge exceeded the previous decline recorded in April, when gold tumbled 9 percent to $1 361 an ounce, its largest drop since 1983.
Leading the decline among stocks was high-cost producer Sibanye Gold, which dropped 11 percent to R8 in Johannesburg, the most since February.
Gold companies have indicated a willingness to continue production as long as the price did not go below R400 000 a kilogram, or $1 212 an ounce at yesterday’s exchange rate.
AngloGold Ashanti dropped 2.96 percent to R149.24, Harmony Gold fell 3.27 percent to R35.80 and Gold Fields lost 4.19 percent to R55.35.
Bullion’s decline meant that producers would be under pressure to urgently cut costs and reduce their capital expenditure, gold analysts said.
However, the weakening of the rand was expected to mitigate the effects of the decline in the short term for South African-based companies.
The gold price has declined 22 percent this year, heading for the biggest annual drop since 1981.
“I think the drop of the gold price… makes it important for companies to put plans in place to reduce overheads and operating costs,” an analyst said.
Meanwhile, Bernanke’s comments prompted UBS Investment Research to make downward revisions to its gold price expectations yesterday.
Joni Teves, an analyst at UBS in London, said yesterday that the Swiss bank had revised its annual average price forecast and estimated an average price of $1 400 an ounce from $1 660 for the year.
“Key risks to our forecasts include a deterioration in US economic data, perhaps stemming from fiscal drag and/or higher yields, as well as concerns surrounding the US fiscal position, particularly debates on the debt ceiling, which could weigh on the dollar,” UBS said.
According to UBS’s revised forecast, the average price for next year is now put at $1 325 an ounce from $1 625 and for 2015 the price has been revised to $1 200 an ounce from $1 500.
The gold mining sector had a terrible start to this year, with shares dropping across the board, wiping off about $58 billion in market value for the mining houses covered in PwC’s Top40 survey.
“This is another setback for the potential of the gold price to recover since the lows we saw in April,” the analyst said.
Gold mining companies, including Harmony, AngloGold and Sibanye, announced comprehensive cost cutting measures earlier this year. – Dineo Faku, with additional reporting by Bloomberg