Gold fell sharply on Wednesday last week, after the minutes of the latest Federal Reserve Open Markets Committee meeting indicated that the Fed’s policymakers are keen to start cutting back their bond-buying programme “at one of its next few meetings”. Gold for immediate delivery ended the week down by 3.3% at $1,243 per ounce.
Of course, the only practical way for most private investors to invest in gold is through exchange-traded funds. The largest gold ETF, the $38bn SPDR Gold Trust (NYSE: GLD.US), ended last week down by 3.1% at $119.92, while London-listed Gold Bullion Securities (LSE: GBS) ended the week down 3.2% at $119.85. So far this year, shareholders of Gold Bullion Securities have seen the value of their holdings fall by 26.5%, while the value of SPDR Gold Trust shares has fallen by 26.5%.
Gold’s sharp move downwards last week was reflected in many gold miners’ share prices, but as usual, company-specific developments meant that some companies’ performances were wildly different to the wider markets:
Near the top of the table was SolGold (LSE: SOLG), which ended the week up by 7.3% at 11.3p. The small-cap miner recently announced that the second drill hole at its Alpala Prospect in Ecuador had revealed substantial new copper and gold intersections, including a 292m length of copper at 0.37% and a 166m gold intersection at 0.30g/tonne. SolGold’s share price has risen by 229% so far this year, as sold exploration results from the Alpala Prospect, which is part of the company’s Cascabel Project, have excited investors and boosted the company’s valuation.
Last week saw the share price of African Barrick Gold (LSE: ABG) reverse recent gains, and fall 10.4% to 171.8p. The company didn’t release any news but the sell-off in its shares may have been triggered by gold’s move below $1,275 per ounce, which is equal to African Barrick’s all-in-sustaining costs of production.
If gold falls below this level, the firm cannot mine profitably, and its diminishing cash balance — which has fallen from $577m in 2011 to $240m this year — means that a sustained period of lower gold prices could trigger serious problems for the miner. On the other hand, African Barrick currently trades at just 62% of its tangible book price, suggesting that if the balance sheet valuation of its assets is accurate, it could offer a significant value investing opportunity.