Is physical gold becoming an endangered species?

Another one of the gold-mining majors has announced a writedown.

African Barrick Gold has become the latest in a long line of gold mining companies to write down its assets, this time to the tune of $8.7 billion. So far, this is the biggest and most aggressive writedown that we have seen, and it brings the total figure written down by all miners to $21 billion. Considering the price action that we have seen in the underlying commodity, some sort of revaluation was probably in order. The company’s statement explains that the lower spot price dramatically affects the profitability of the company, as it hits its bottom line directly. However, it has not dented the ongoing viability of vast majority of the company’s operations.

This is a pattern that we are seeing frequently repeated, and it has all taken place in the last two months. It is difficult to give a timescale, but a reduction in global production will at some point unwind into the spot price of gold.

One of the reasons that we might not have seen much of a reaction is due to the continuing cooling of China’s economy and the slowing down of demand.

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