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Gold slumps to four month low

Editorial
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Gold took a hit overnight, sliding to a four month low to trade at $US1242.80.

Reaching its lowest price since July when bullion fell to $1,223.80 an ounce, the overnight drop came after the Federal Reserve’s October meeting suggested US central bankers could begin scaling back monetary stimulus.

Gold’s decline this year comes off the back of rapid growth since 2006 as investors flocked to bullion regarding it as a safe monetary asset.

Peaking at $1730 an ounce in September 2011, it dipped slightly before rallying again to reach $1700 an ounce in October last year.

This year’s drop has already played out across the gold sector with a number of gold miners cutting jobs and offloading operations.

High production costs across many of Australia’s gold mines has pushed many miners to take action in order to remain viable.

In October Barrick finalised the sale of its Yilgarn South assets in WA to South African company Gold Fields.

Barrick also announced it will be cutting $2 billion from its capex and costs, explaining it will be implementing budget discipline, focussing on investor returns and is planning further portfolio optimisation.

The company warned “returns will drive production; production will not drive returns”.

But not everyone is downbeat on gold’s future.

Speaking at the recent Gold Symposium forum in Sydney, former Rio Tinto executive Owen Hegarty said gold is moving in only one direction - up.

Hegarty said demand from China is "unstoppable" and Australia will be playing "catch up" to deal with a "supply problem" for years to come.

He explained physical gold supply hasn’t been able to keep up with "sensational demand" which is "led by China and followed by India".

China’s growing middle class and urbanisation will see growth continue for several decades to come, Hegarty said.

"They’re going to maintain growth at between seven and eight per cent for the whole of the life of this leadership," he said.

Hegarty said as big miners continue to shelve and talk down new projects the gap between supply and demand will only be accentuated.

"Supply is going to continue to be the issue, we are going to be playing catch up football on the supply side," Hegarty said.

"We need continue to work hard at reducing regulatory constraints."

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