Get ready for turbulent gold earnings season

The second quarter of 2013 is one that gold miners and their investors would love to forget. Unfortunately, they will have to relive the horrors when the companies start reporting earnings later this month.

The results will be ugly. Analysts at Stifel Nicolaus estimated that the gold miners under their coverage (which includes the senior producers and a smattering of others) will report an average 20% drop in EBITDA from the first quarter. Lower metal prices are obviously a key factor, but so is an anticipated decline in production (down 1%) and an increase in cash costs (up 8%).

With squeezing margins and potential mine closures on investors’ minds, the Stifel analysts ran their models at a gold price of US$1,000 an ounce to see how many operations would have to shut down if the price stayed at that level for an extended period. They found that Kinross Gold Corp., Barrick Gold Corp. and Newmont Mining Corp. would lose well over 30% of their production from closures. But Goldcorp Inc. would only lose 7% because of its low-cost asset base.

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“With a management response on costs, probably half of the production loss could be saved for a year or two. However, the simple study shows that there would be strong supply side support at US$1,000 [an ounce],” they said in a note.

The only gold miner under Stifel Nicolaus coverage to be downgraded is Barrick Gold Corp., which was cut to hold from buy by analyst George Topping. He noted the company needs higher gold prices to pay off its debt, and the stock is likely to drift lower if prices remain flat. He also anticipates a dividend cut in the second quarter, along with US$7-billion to US$8-billion of writedowns. Neither of those moves would come as a surprise to investors.

Source: http://business.financialpost.com/2013/07/09/get-ready-for-turbulent-gold-earnings-season/

Sell Equities And Buy Physical Gold Now While Prices Are Low

Faber said it’s a good idea to take money out of the stock market.

“I don’t think there is a lot of upside potential, but I think there is considerable downside,” he said.

Marc Faber, managing director of Marc Faber Limited and the author of the widely read monthly investment newsletter “Gloom, Boom & Doom” report, said weakness in China’s economy could spell big trouble global markets.

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Faber said that if the Chinese economy grows at 3 or 4 percent—or even not at all, which he sees as a possibility—it will have a huge, negative affect on industrial commodities and the incomes of countries that produce them. In turn, he said, if countries such as Russia, Brazil or nations in Africa, Central Asia or the Middle East have less income, they’ll buy less from China, Western Europe and America, leading to very little earnings growth or an earnings contraction for those more prosperous economies.

China preferably would show trend line growth of 10 percent, as it has done for the past 20 years, Faber said.

Faber said it’s a good idea to take money out of the stock market.

“I don’t think there is a lot of upside potential, but I think there is considerable downside,” he said.

However, he said that markets are now seeing emerging markets and their currencies go lower, and “It could be that all the money in the world flows in to U.S. stocks and avoids emerging markets.”

Gold can eventually be a source of profit, according to Faber. He said it’s possible the price of gold can go somewhat lower, even though he thinks it’s now at a reasonable level. “I keep on buying gold and I have faith that gold prices will eventually be higher,” Faber said.

Faber said that, in general, corporate earnings will disappoint.

“They may not collapse, but I don’t think they will be as a good as expected,” Faber said. He said cyclical stocks, such as semiconductors and materials companies, will have tough time matching earnings expectations.

U.S. aluminum giant Alcoa kicks off the unofficial start to quarterly earnings season after the closing bell on Monday.

Source: http://finance.yahoo.com/blogs/big-data-download/mark-faber-china-puts-global-markets-risk-164954983.html

Paulson Gold Fund Down 65% In 2013

With spot gold prices down 28% year-to-date, it appears John Paulson‘s Gold Fund has managed to create some epic high-beta losses.

In a letter to investors, Paulson explains his fund fell 23% in June, is down 65% in 2013; but do not fear – as he concludes time and time again, the gold fund will “produce outsized returns in the long-run”.

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From Bloomberg:

John Paulson, the billionaire hedge-fund manager seeking to rebound from losses tied to bullion, posted a 23 percent decline in his PFR Gold Fund last month, according to a letter to investors.

The drop brings losses in the strategy, formerly known as the Paulson Gold Fund, to 65 percent since the start of the year, the firm said in the July 3 letter, a copy of which was obtained by Bloomberg News. The fund, which consists mostly of Paulson’s own money, is the smallest strategy of the $19 billion money manager and the only one to post losses this year.

The firm reiterated its commitment to investing in bullion and stocks of gold producers for protection against currency debasement as central banks pump money into the global economy. Gold dropped 12 percent in June, the most since October 2008, after Federal Reserve Chairman Ben S. Bernanke said he may start reducing bond purchases that have fueled gains in financial markets globally.

“Although the timing is uncertain, if you have a long-term view we believe the funds offer the potential for outsized returns,” the firm wrote in the letter.

Armel Leslie, a spokesman for Paulson & Co. at Walek & Associates, declined to comment on the letter.

What is there to say.

Source: http://www.zerohedge.com/news/2013-07-08/and-scene-paulson-gold-fund-down-65-2013