KUALA LUMPUR: Fitch Ratings sees gold prices falling over the next two to three years as sentiment towards the metal changes.
“While prices could recover quickly if worries over the eurozone rise further, our base case is for prices to fall over the next two or three years,” it said on Friday.
The international ratings agency said reports that Cyprus could sell a significant volume of gold may have triggered the sharp drop in prices, “but we believe the fall represents a changing sentiment towards the metal”.
Fitch said changes of this type tend to have a snowball effect as investors head for the exit, and “we therefore expect prices to continue falling over the next two or three years”.
However, it said this trend could be temporarily reversed, if investors become more concerned about the outlook for the eurozone.
At midday on Friday, spot gold was up US$7.69 or 0.55% to US$1,398.18, the lowest since Feb 24, 2011. On Monday, it hit a low of US$1,345.78.
Fitch said South African miners were the most exposed to the risk of falling gold prices because of production costs that were already high and rising fast.
It pointed out the annual percentage losses in the low to mid-teens over the next three years could be enough to put pressure on some ratings unless miners can find cost savings.
It added South African miners’ production cost had risen much faster than for other producers, due to labour-intensive mining practices combined with sharply rising wages.
South Africa’s Harmony Gold was among those most exposed because it has the highest percentage of labour costs among its peers.
However, miners that use less labour-intensive practices, such as open-pit mining, were better positioned to cope with falling prices.
Russia’s Polyus also benefited from higher-quality gold deposits than many rivals, which helped contain growth in average cash production costs to 8% in 2012. The industry had a compound average growth rate of 16% between 2009 and 2012.