Plunging precious metals

The mining companies had just sighed relief after the July rout hitting them hard. Many mining equities had entered a positive territory and could see better returns on a trailing-30-day basis just before the FOMC (Federal Open Market Committee) policy setting meeting. However, the returns for companies like Newmont Mining (NEM), Barrick Gold (ABX), Randgold Resources (GOLD), and AngloGold Ashanti (AU) have suffered due to the sudden downturn in the prices of the precious metals.

Miners fighting hard

The mining companies have been fighting hard against the downfall in precious metals, as lower prices could mean lower profitability for the miners. A good option to sustain the precious rout for these miners is to either reduce their debt burdens or to merge with their fellow miners. The chart above gives a comparative study of the prices of gold with that of the mining giant Barrick Gold (ABX).

Gold falls

Gold is currently ranked seventh among the commodities listed on the S&P GSCI (Goldman Sachs Commodity Index), with its constituent 24 commodities. The rout has caused the ranking of gold to fall. Gold has witnessed a fall of about 42% in the past four years. The jumping price of gold has cut down the margins of the miners immensely. Barrick Gold and Newmont have fallen to their lowest levels seen since the year 2000. Both these companies were looking for mergers with each other to improve their operational efficiency. However, the merger didn’t occur.

Barrick Gold, Newmont, Randgold, and AngloGold Ashanti together determine 17.3% of the price changes in the VanEck Vectors Gold Miners ETF (GDX). Other ETFs that have seen their prices fall in the past year include the iShares Gold Trust (IAU) and the leveraged ETF Direxion Daily Junior Gold Miners Bull 3X (JNUG). These two ETFs fell by 6.9% and a whopping 70%, respectively.