Gold production may plunge after price fall supporting gold

Today’s AM fix was USD 1,396.50, EUR 1,068.89 and GBP 909.42 per ounce. Yesterday’s AM fix was USD 1,405.25, EUR 1,074.68 and GBP 918.64 per ounce.

Gold fell $13.80 or 0.98% yesterday to $1,398.20/oz and silver slid to $22.28 and lost 0.92%.

Gold rebounded to trade above $1,400/oz this morning as the dollar and equities retreated, increasing demand for the yellow metal as a safe haven and store of value.

The Shanghai Futures Exchange has cut its gold and silver margin requirements. The bourse will cut margin requirements for gold and silver futures to 4% from 7%, according to amended trading rules posted on its website. Trading limits for silver and steel rebar futures will be lowered to 3% from 5%, the exchange says. The amendment will go effect on June 25. 

The recent 22% decline in gold prices may lead to a substantial drop in gold production. During the 26% plunge in gold prices in 2007-08, gold production fell by 9.4%. Balance sheets in much of the gold mining sector are much worse than they were in 2007 and this may also force production cutbacks from the major producers, while growth from junior miners may struggle given the dire financing backdrop.

This will support gold in the long term.

Gold’s latest correction has put gold mining companies on the defensive globally and many are under severe pressure. Gold mining companies have been forced to cut costs, investment and most importantly for the price of gold - production. 

All of which will likely worsen already strained relations with workforces, particularly in poor countries in Africa and South America.

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