Gold prices dropped as fruitful discussions in the debt talks between Greece and its creditors weighed on precious metals.
On Tuesday, June 23rd, Greece proposed a new reform package to avoid a default on its debts, raising hopes that a deal with international creditors is still possible. Ministers from both sides agreed to meet again before the week is over.
While the development was bullish for world stock indices, the hope of a positive resolution to the Greek debt crisis pushed down gold prices. Spot rates were trading down 0.7% to $1,177.20 per troy ounce as of 1:30 p.m. E.T.—erasing more than a week’s worth of gains. Other metals, including silver, platinum, and palladium, were also trading lower.
Positive headlines are bad news for a safe-haven asset like gold, which tends to fall in times of prosperity. The greater the goodwill within the eurozone, the greater the likelihood of extended declines for the metal.
For miners, the consequences of low gold prices are straightforward to wrap your head around. When metal prices fall, the value of their production goes down. That’s why your savings at the jewellery shop have been a disaster for the resource industry.
In response, larger producers are toning down their growth ambitions. Over the past few quarters, mining giant Barrick Gold Corporation has posted billions of dollars in losses, forcing the company to cut its dividend and scale back operations. A number of major miners, including Goldcorp Inc., BHP Billiton Limited, and Newmont Mining Corporation have announced plans to sell off non-core operations in order to shore up their balance sheets.
As bad as things are amid large miners, small producers are faring even worse. Earlier this week, Midway Gold Corp. filed for bankruptcy protection, only three days after laying off miners at its Pan gold property in Nevada. (Source: Midway Gold Press Release, June 22, 2015.) The announcement is just one of many mining bankruptcies that have occurred in recent months.
Looking forward, gold investors will be keeping a close eye on debt negations in Europe. If talks between Greece and its creditors turn sour, traders could rush into safe haven assets like precious metals. For an anxious mining industry, such a large bid underneath gold prices can’t come soon enough.