The price of gold is back near record highs, as spreading turmoil in Libya and the Middle East sends investors looking for safe havens.
But fallout from political strife also poses a risk for gold companies: Surging oil prices are eating into the bottom line.
Gold has risen by almost 10 per cent since late January, when protests began to build in Egypt against former president Hosni Mubarak. Political unrest in northern Africa then moved to Libya, Africa’s third-largest oil producer.
The growing political unrest helped send the spot price of gold to around $1,418 (U.S.) an ounce on Thursday, not far from a record of around $1,430 an ounce reached in December. Rising inflation in emerging markets is also underpinning gold’s rise.
Buoyed by strong prices, gold companies are reporting a steady stream of record quarterly and annual financial results. But the corporations are warning of higher costs in the months ahead as a result of surging oil prices and other expenditures, and there’s growing concern that those pressures will erode future profits.
Gold producers are sensitive to higher oil prices, said Deutsche Bank Securities Inc. analyst Jorge Beristain.
“Their number one input cost is energy,” he said. “We are seeing shades of 2008, when the inflation drum was beating globally.”
Rising costs have put pressure on mining stocks despite near-record gold prices. For instance, Newmont Mining Corp. shares fell more than 7 per cent on the New York Stock Exchange Thursday while Yamana Gold Inc.’s stock was down 2.5 per cent in Toronto, despite the strong results. Barrick Gold Corp. shares fell 3 per cent, while Kinross Gold Corp. shed more than 2 per cent.
The Globe
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