Gold closed at US$1,183.60/oz. in London on LBMA (London Bullion Market Association) last Friday, as the US Dollar reached its lowest point since early February. Prices began to fall shortly after the Trump victory November 8th, and continued on positive US economic data. This created an environment where the Fed can consider implementing its long-awaited rate hike and shaved more than 60% of the gain this year from peak gold prices. As the US seems to have gathered enough momentum to grow meaningfully and achieve its objective of reflating the economy, we can expect more headwinds for gold. As a result, gold equities have fallen just as hard. This recent downward trend follows a great Q3 2016, in which gold companies performed spectacularly as long as gold stayed well above US$1,300/oz., just as two years of efforts to cut costs, reduce debt and sell non-core assets were paying off. Looking at the world’s top ten gold public companies (representing approximately 1,000 tonnes of gold production annually, about one third of world production), we see a mean weighted average all-in-sustaining cost (AISC) of gold production of US$868/oz., earning a fantastic 34.8% profit on a weighted average realized gold price of US$1,332/oz. (Figure 1) Taken individually, the performance of the top ten is quite mixed. At a profit margin of 58%, Polyus Gold did best with the AISC of US$560/oz. assisted by the decline of the Russian ruble against an already strong US dollar. Though AngloGold Ashanti, Sibanye Gold, and Gold Fields have the highest AISC of over US$1,000/oz., they still managed to produce at about 20% profit margins on the strength of the gold price. Barrick, Goldcorp and Agnico Eagle continued to be the some of the best operators, with better than previous- quarter AISC performance.

Though there will be some head winds ahead on a downward trend, a weighted average AISC of US$868/oz. leaves the top ten huge headroom of almost US$300 at today’s price. Even if gold fell to US$1,100, about the lowest level at the beginning, all of the top ten should still be profitable and most would still do well. Indeed, half of them would still achieve profit margin above 20% (Figure 1). Further, for producers in non-US dollar operating regions, falling US-dollar denominated gold prices do not necessarily translate into lower gold prices in their home currencies. On the contrary, as in the case of Russia’s Polyus Good, they should do even better. （Written by Chief Executive Officer, Chairman of Century Global Commodities, Sandy Chim）