After plunging on prospects of an end to easy money, gold miner exchange traded funds have lost their luster and may continue to languish, with many mining companies just barely making ends meet.
According to a Citigroup research note, global gold on mine unit costs rose 12% year-over-year in the June 2013 quarter. Due to the combination of rising costs and falling gold prices, gold miners have witnessed a quick contraction in margins. [It’s All About Price for Gold Mining ETFs]
Citigroup calculates that 98% of gold companies on are “cash-burning” at spot gold of $1,320 per ounce.
“Gold companies have continued to cut capex, exploration, and corporate costs in order to make ends meet in a lower gold price environment,” wrote the Citi analysts. “Despite these cuts, we estimate that most of the global gold cost curve is burning cash at spot levels.”
Capex costs refer to capital costs. Reducing capex will lower production, and the cost of producing one once of gold will increase.
Citi anticipates some more pains over the short-term.