Money: Mining firms left black and blue by gold

TAKE a look at the price of gold compared with 12 months ago and it is difficult to understand what all the fuss is about.

An ounce of gold goes into the new millennium costing about $285 (pounds 178), pretty much what it was worth at the end of 1998. However, like the beguiling serenity of a water-bound duck, the underbelly of this year's apparently static gold market has been the scene of frantic trading. Next year promises more of the same.

The year began as bearishly as the past 20 have done, continuing the negative trend that had already wiped out more than half the precious metal's value since 1980. This culminated in a summer low of $253.

Gold's status as a traditional hedge against inflation has been tarnished by the rock-solid price stability enjoyed around the globe, prompting central banks to reconsider their attitude to their bulging vaults.

Why sit on a depreciating asset that pays no interest when US Treasury Bonds are just as safe and at least provide the luxury of interest payments?

Even most of the world's gold miners were resigned to further price falls. So much so that they took out billions of pounds' worth of complex derivative transactions with a number of London-based investment banks.

Thanks to these feats of financial engineering, the companies that extract gold from the ground perversely stood to prosper if the devaluation persisted.

But it didn't. One Sunday in September, officials from 15 European central banks agreed to a moratorium on central bank selling. To say the market was caught unawares would be an understatement, and in the next three days the price jumped 18 per cent. An ounce was soon trading at $330.

Many of the gold-mining companies that should have been celebrating the recovery were left to lick their bearish wounds. Ashanti, the Ghanaian producer, suffered losses on its derivative contracts of $450m and was forced to contemplate a life-saving merger with Lonmin, the UK miner, although the deal remains unresolved.

For every $1 lost by hapless companies such as Ashanti, however, there was $1 of profit for the investment banks which sold them the derivatives products. The miners' pain would have been worth while had the moratorium sparked a sustained appreciation of gold. Three months on, however, the price has slipped back below $300.

"Gold is entering a new error, not a new era" is the tart verdict of Andy Smith, an analyst at Mitsui Commodities. He points out that the moratorium has not stopped further central bank gold coming on to the market - competition that beleaguered producers could do without. "Some miners will go out of business," Mr Smith predicts. "How low will the price go? Think of a number."

Suggested Topics
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker