Gold plays down as investors move elsewhere

The biggest short of the year has been in the gold space and it’s not hard to understand why.

Gold’s recent mantle as a safe haven asset is collapsing as investors instead flock to the USD and bonds.

Both gold and silver are firmly entrenched in bear markets; having lost 38% and 27% respectively year-to-date. These downward trends look set to continue, with tapering expected inside the next four months which is likely to accelerate the rush to exit of the precious metals.

The moves in gold are having a devastating effect on the likes of Newcrest (NCM), Regis Resources (RRL), Medusa Mining (MML) and Perseus (PRU) et. al.

However it’s firms with structural capex and cost issues that have been severely affected by gold’s loss of value.

NCM has capex cost at several key mines in the order of A$2225 an ounce, Medusa Mining is in a similar boat on the cost front. However, unlike NCM which has been able to diversify its costs, MML does not have this luxury and its lack diversification has cost it dearly.

Technicals

The charts of the gold plays is also not supportive, NCM is currently following the bottom band of its Bollinger pair and this looks firmly entrenched in downward trading. Momentum indicators and the RSI are also not supportive of the stock and would suggest the current short may continue for the several weeks.

I am very aware of a possible bounce as bargain hunters look cash in on ‘cheap’ stocks however until the structural issues in the company are resolved it is like to differ with momentum.

This technical story can be seen across the gold sector. I would suggest the short in the gold space is likely to hold for the time being and that most plays will test the year-to-date lows and may even push through them on macro news that weakens gold further.

NCM

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