Production Squeeze Trumps Price Drop Following U.S Election

by | Nov 25, 2016 | Financial Featured

The dramatic drop in gold prices since the election of Donald Trump on November 8th could reverse itself just as quickly given challenges with which producers are having in discovering more of the yellow metal.

“We are having a heck of a time finding gold,” said Ian Telfer, chairman of Vancouver-based Goldcorp Inc. in an interview with Bloomberg.

Ian Telfer is just one of a number of mining executives predicting more corporate consolidation in the industry with large companies “taking over smaller ones, a number of smaller ones getting together, or even two or three large companies being merged,” Telfer continued.

Goldcorp is among those looking into opportunities for acquisitions or partnerships.  Assuming it’s successful, the company could be looking at exploiting new and existing assets in the Americas and elsewhere.

Others in the industry are still trying to gauge the fallout from Trump’s victory given the wild swings in gold price beginning with the realization on election night that the Republican nominee would defeat favoured Democratic Party nominee Hillary Clinton.

The initial $65.00 upswing in price reversed course with a dramatic drop in the days following the election to under $1200.00 U.S an ounce.

Analysts blamed the drop on expectations of an interest rate hike in December.

Gold prices are highly sensitive to interest rates and many expect Federal Reserve Chair Janet Yellen to hike rates next month, especially given some surprisingly strong economic data.

Up until the recent price decline, there was talk that more miners were jockeying to secure stakes in potentially lucrative exploration finds by smaller competitors.

CEO of Australia’s Newcrest Mining Ltd., Sandeep Biswas, inked a deal last month to pay about $22.8 million for a stake in a developer with assets in Ecuador.

The bid beat out a competing proposal from BHP Billiton Ltd and served notice that competition for such assets could heat up in the months ahead.

Has the post election price drop changed that?

It remains uncertain as to whether the recent price drop will put a damper on such activity, but companies looking to expand their resource base only have a three to four year window to deal with production declines before buying becomes a necessity.

That assessment comes from analysts like BMO’s Andrew Kaip.

Forecasts from BMO Capital Markets and Rangold Resources suggest that mine supply could fall by a third over the next decade.

Conventional wisdom suggests that with number of newly discovered primary gold deposits falling to three in 2014, from a peak of 37 in 1987, gold prices could be headed upwards given tightening production capacity.

Rising inflation, assuming stronger economic data persists, may also play a role given gold’s traditional role as a hedge on rising consumer prices.

These are all factors coming into play as mining executives consider their next move in a highly volatile and dynamic environment.


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