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This Week’s Falling Knife: LionGold Corp

stockmarketdownThe knives just keep on falling in the Singapore stock market. But this week’s “falling knife” spotlight is trained on LionGold Corp (SGX: A78) – the S$1b gold miner that digs for the yellow metal in Ghana and Australia. Shares in the company, which also sells office equipment, are down 7% to $1.07.

In the main, gold miners (and that goes for other miners too) have some control over their cost of production. However, they can’t control the selling price of the commodities mined because they are essentially price takers. They are forced to accept the prevailing price of the stuff that they have dug out of the ground.

In the case of the price gold, that has been falling steadily as investors lose interest in the shiny metal. Over the last seven months the price of gold has fallen from a high of almost $1,800 an ounce to around $1,400 an ounce – a drop of over 20%. Where it might go from here is anyone’s guess, but that is one of the risks of investing in commodity producers.

Interestingly, if the US dollar continues to rise, gold prices could continue to fall. That doesn’t bode well for gold miners, especially those with high production costs. It is reckoned that it can cost around $1,200 to produce an ounce of gold. So, with the current price of gold at around $200 above this, less productive miners might be sailing a little close to the wind.

Additionally, it is reckoned that most of the increase in the price of gold that we have seen over the last decade has been driven by investment demand rather than by demand by manufacturers such as, say, jewellery makers. So, if demand from speculators continues to wane, the outlook for gold producers does not look too rosy.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.