The famous inversion of the curve is a feast for gold mining companies.

Will Gold repeat or exceed the prices of the last recession of 2008? How will this increase the cash flow of the Gold mining companies, strengthen their financial position, their reinvestment options, their long-term strategies, and their benefits for their stakeholders and the joy of their shareholders? Gold has benefited from global uncertainty and risk aversion mainly due to the Washington-Beijing trade war and fears of the end of one of the longest bullish business cycles. The price of gold has risen by more than 16% this year. The big beneficiaries? Gold miners could see their income for this second semester (H2) of 2019 increase by 25 US $ million for every 100 KAuoz of production, considering a budget of the Gold price for 2019 at 1,200 US $ / Auoz and price of the final sale of US $ 1,450 / Auoz. In other words, for every 1 Million Auoz produced for this H2, income would rise by 250 MM the US $, only due to the effects of Gold prices. “Nice dilemma” for Gold miners, thinking of alternatives to distribute to their shareholders via dividends, buybacks, or reinvesting in the business internally or externally. Also, more efficiently managing your debt or provisions for your mining liabilities. The following graph shows the increase in gold prices in July 2019.

Graph # 1: The price of gold has increased by more than 16% so far in 2019. Source: Tradingview. Below, the chart of the main ETF of the gold mining companies GDX, which rose more than 30% in the last 8 months.

Chart # 2: Vaneck Vectors ETFs (quote: GDX) rose from $ 21 to $ 28 at the beginning of the year to date.
Source: TD Ameritrade

It is a good time for the next five years for the results of mergers such as Barrick-Randgold, Newmont-Goldcorp to consolidate, in a bullish context of Gold prices and fears and sighs contained by a probable next world recession, with key indicators that would show this as the inversion of the curve for 20-year US Treasury bonds and 2-year Treasury bonds produced the week of August 12, 2019.

Graph # 3: The inversion of the T10-T2 curve of US Treasury bonds, as a predictor of recessions (in lead colour) of the last 40 years. So far it is a good predictor of recessions after the next 20 to 25 months.
Source: Fed St Louis.

However, the strength of the dollar and the macro results that the USA is presenting calls into question the recession and clings the current US administration to a second period. Despite this, the US debt is at 22,022,369 million US $ (dates July 2019), this is equivalent to almost 45 years of the sum of the total gross domestic product of Peru and Chile. Incredible!

The US debt, the increase in the fiscal deficit, and the policies of the FED could be the sparks of the great trigger of the next world recession and with it they would send the prices of Gold (and perhaps its competitor Bitcoin) to a new super rally up.

While Europe is already experiencing times of negative interest rates and Asia is torn between trade agreements with the West and a slowdown in its economy (or following the consolidation of an upcoming world hegemony?). In South America -Peru- some innovative proposals are born to handle the “thorny” issues between communities and mining, securitizing and bringing superficial land rights to the stock market, with the market precisely valuing and releasing “the bottle cap "So that adults and children can access more than 150,000 billion US dollars in their mining potential on the planet, according to renowned economist Hernando de Soto and author of the award-winning book" The Mystery of Capital ".

Thus, excellent momentum and profits are in sight for the gold mining companies that after a past decade of reduction in their costs and good management of their expenses, now they will have to enjoy their surpluses in a world context of uncertainty and honks of the global recession.

The big challenge for mining companies will always be trying to make their budget independent of Gold prices. The digital age is here to stay and the demands of governments and communities are increasing. Energy is more expensive, which is why searching and finding alliances for the use of renewable energies is almost the Holy Grail, and, of course, water is becoming a more precious commodity. Likewise, the laws of its resources and reserves are decreasing and the costs of closing its mines are increasing.

Challenging targets for mining companies as history tells us that bullish cycles for Gold last less than five years… .. Hands (and neurons) to work !!!



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