How to plan when gold prices are weak
Currently, commodity prices are falling, and the outlook for gold is weak in anticipation of the Fed’s rate hike. Given this scenario, investors want to know how gold miners are planning to ride out these difficult times. Barrick Gold (ABX) has laid out a specific plan of action in case gold prices fall below $1,100 and $1,000 per ounce.
If gold prices fall below $1,100 per ounce, Barrick plans to reduce its capital, exploration, and contractor costs and improve its supply chain. If gold prices fall below $1,000 per ounce, Barrick will further cut its exploration spending, headcount, and working capital. It could also defer stripping, which would save on operating costs. If gold goes below $900 per ounce, the company could resort to the partial or full suspension of non-core mines. Non-core mines are usually higher-cost operations than the company’s core mines. The company will also increase the cut-off grades and process only higher-grade stockpiles. This would reduce expenses related to stripping and cut per unit costs.
Steps taken by peers
Other gold miners are also bracing for challenging times. Goldcorp (GG) announced that if gold prices fall below $1,000 per ounce, it might reconfigure and shut down mines or operations that are running on a net cash deficit basis. For its part, Newmont Mining (NEM) is concentrating on selling non-core assets and reducing costs to position itself for lower commodity prices going forward.
Investors who don’t want to pick up individual companies can invest in gold miners through the VanEck Vectors Gold Miners ETF (GDX). This ETF invests in senior and intermediate gold miners. Newmont forms 6.4% of its holdings. The SPDR Gold Shares (GLD), meanwhile, provides exposure to spot gold prices.