High Oil prices strain Gold mining companies, keeps stocks undervalued against Gold

High oil prices are squeezing the profits of oil companies who are already battling the headaches of high labour cost and higher taxes. And with gold prices stabilizing at the same time, some producers may just fell the heat until the yellow metal resumes its bull trend.

The high volatility in oil prices have forced gold companies to hedge their oil needs. Even the world's biggest gold producer- Barrick Gold- had to hedge oil prices considering the uncertainty in the markets. “As the oil spike relates to our cost structure, we've got things under control. But as far as what an oil price rise means to the broader economy, obviously we have some concerns there”, Reuters quotes Barrick CEO Aaron Regent.

Some analysts argue that high oil prices can dent the profits of gold miners even if gold climbs. And as the producer is forced to mine for lower grades, the company yields lower gold for every processed rock with energy costs remaining the same- and this situation of lower yields and higher input cost will inevitably lead to lower profits for the gold mining companies.

The market seems to have picked up on the reasoning as well as gold stocks have constantly underperformed gold prices for most of the gold's bull market- a period when input costs like energy, labour and other prices have been rising as well.

Chart showing performance of Gold (GLD etf) and Gold mining companies (GDX etf)

Run to gold, Iran-Israel war is coming: Marc Faber

NEW YORK (Commodity news world): Marc Faber aka Dr Doom has given out a new warning to investors- a war between Israel and Iran is coming. Faber, a perennial bear, is the publisher of the famous Gloom, Boom and Doom report"Political risk was high six months ago and is higher now. I think sooner or later, the US or Israel will strike Iran - it's almost inevitable”, Faber said in an interview with Reuters while also adding that in the event of a war, “Bernanke will just print even more money -- they have no option...they haven't got the money to finance a war. You have to be in precious metals and equities... most wars and most social unrest haven't destroyed corporations - they usually survive”In an earlier interview with Bloomberg, Faber had stated that QE3 would depend on the S&P. “If the S&P drops 100-200 points, then yes, for sure we will have QE3”

A latest Barclays report had suggested that investors continue to accumulate gold on dips while also watching out for the $1800/oz level, as a breakout from this level could indicate bullish bias.

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Barclays: Physical buying picks up following Wednesday sell off in gold

LONDON (Commodity news world): Physical demand for gold has picked up following the sharp mid-week drop in prices, says Barclays Capital in a research note.

“Strong buying from Asia emerged and volume traded on the Shanghai Gold Exchange jumped to its highest since end January,” Barclays added.

“February had been a weak month for physical demand across key regions and Turkey's import data for February confirmed the weak start to the year with gold imports down to 2.06 (metric) tons from 2.96 tons in January,” Barclays continued.

Meanwhile, holdings in the SPDR gold exchange-traded fund were unchanged at 1,293.68 metric tons Thursday. Analysts note that holdings reflect trades settled on the third business day, thus any redemptions from Wednesday would be reported early next week.