There’s been some cautious optimism in the gold sector of late. With the S&P/TSX Global Gold Index of stocks up 20% in the last month.
But there’s still a lot of nervousness hanging over the market. Will bullion go higher? Or will it head lower first?
Those misgivings however, fly in the face of events unfolding in the market today. With another data point this week sounding a bullish signal for precious metals.
That was reports out of Africa that more gold mining operations are in desperate trouble. Specifically, those in mineral-rich Zimbabwe.
Local press reports that the Chamber of Mines of Zimbabwe has submitted an emergency call to the federal government. Asking for an abatement in royalties and power costs for local gold miners.
Here’s the key stat. The Chamber notes that at current gold prices, nearly the entirety of the domestic mining industry is losing money. The group estimates that a full 75% of gold miners will be forced to shut operations unless input mining costs are reduced.
This is a bellwether for the global industry. Africa is one of the highest-cost gold production centres on Earth–and therefore one of the first to see mine shutdowns during periods of low prices. We’ve seen similar news coming out of other African nations like Ghana lately.
But many other parts of the world aren’t fairing much better. Costs have been running high throughout most of the global mining industry. Meaning margins are now squeezed to unsustainable levels.
This is a story we’ve seen countless times through the decades. Not just in gold, but in all commodities markets. Yes, things seem bleak when prices fall. But those prices are now reaching a level where producers are being forced to close their doors. Meaning the base is building for a rebound of the type that is inevitable in these always-cyclic businesses.
Signs like these should give gold investors increasing confidence.