African Barrick has today become the latest gold mining company to write down their value by a sizeable amount due to the low level of the spot gold price. The company has written down £727 million, and it is difficult to believe this will be the end of it.
Barrick currently have a sustaining cost of $1507 per ounce, and with the current spot level trading just above $1300 there is a sizeable short fall. They have now joined a list of gold miners to have recently reassessed their book value, along with Newmont Mining, Goldcorp and Newcrest amongst the others.
These companies account for a sizeable percentage of the global annual production, and with numerous mines now obviously falling on the wrong side of the profit/loss ratio, it can’t be long before this tightening of supply has an instrumental effect on the spot price of the precious metal.
The question that most gold traders will be asking themselves is how long and down to what level can the paper supply or ETF’s handle the demand as the physical supply continues to reduce.